With elevated inflation, higher interest rates, and rampant doubt about the direction of the U.S. economy, market participants have tended to avoid companies involved in mergers and acquisitions, says Fidelity’s John Sheehy.
“Some of this skepticism is warranted,” acknowledges Sheehy, portfolio manager of Fidelity® Equity Dividend Income Fund (FEQTX). “However, I think investors are painting with too broad a brush and leaving some attractive opportunities on the table.”
The fund, managed by Sheehy since 2017, is a diversified domestic equity strategy that seeks reasonable income. In pursuing this objective, he also considers the potential for capital appreciation using a value-based investment philosophy.
That has led Sheehy to U.S. Bancorp (USB), which he considers an overlooked M&A opportunity based on its recent acquisition of MUFG Union Bank, a subsidiary of Japanese bank Mitsubishi UFJ Financial Group.
Minneapolis-based U.S. Bancorp, a top fund holding as of March 31, boasts a strong consumer banking franchise, as well as healthy businesses in cards and payment services, wholesale banking, and wealth management. He points out that the MUFG acquisition, which closed in the fourth quarter of 2022, should enable the lender to expand its proven business model to include some lucrative markets on the West Coast, in the process boosting its earnings potential.
In other deals, Sheehy likes Parker Hannifin’s (PH) purchase of U.K. firm Meggitt Aerospace. “It’s the largest in Parker Hannifin’s history and will nearly double the size of its Parker Aerospace division, adding what I believe to be a complementary product portfolio and geographic footprint,” underscores Sheehy.
In the current environment, Sheehy is focusing on companies he feels should generate resilient earnings and cash flow, despite economic headwinds. U.S. Bancorp and Parker Hannifin—both fairly recent additions to the fund—check those boxes, in his opinion.
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John Sheehy is a portfolio manager in the Equity division at Fidelity Investments.
In this role, Mr. Sheehy manages the Fidelity Advisor Equity Income Fund and Fidelity Equity Dividend Income Fund. Additionally, he co-manages the information technology and telecommunication services sleeves of Fidelity Stock Selector Large Cap Value Fund, Fidelity Series Stock Selector Large Cap Value Fund, and Fidelity Advisor Series Stock Selector Large Cap Value Fund.
Prior to assuming his current responsibilities, Mr. Sheehy co-managed Fidelity Select Banking and Select Defense and Aerospace Portfolios. He also covered various sectors as an analyst at Fidelity, including banking, aerospace and defense, and paper and packaging.
Before joining Fidelity in 2007, Mr. Sheehy worked as an audit manager at Deloitte. He has been in the financial industry since 2007.
Mr. Sheehy earned his bachelor of arts degree in economics and accounting from the College of the Holy Cross and his master of business administration degree in finance from New York University’s Stern School of Business. He is also a Certified Public Accountant (CPA).