Small-cap growth stocks returned -26% in 2022, making valuations for profitable companies in this arena considerably more appealing, according to Fidelity’s Patrick Venanzi. In fact, he’s found some compelling investment ideas within the industrials sector.
“My investment strategy relies on individual security selection, rather than broader top-down sector calls, but industrials stocks have provided some unique opportunities among well-positioned firms, driven by several compelling investment themes,” says Venanzi, portfolio manager of Fidelity® Small Cap Growth Fund (FCPGX). The industrials sector represented about 21% of the fund and was its largest overweight at the end of January.
Specifically, he mentions that defense-oriented stocks are particularly appealing in the wake of Russia's invasion of Ukraine, which he believes could result in notable increases in Western defense budgets over the coming years.
The potential upturn in spending, Venanzi adds, could benefit holdings such as Curtiss-Wright (CW), a supplier of mission-critical technologies for aerospace and defense customers.
He also points to other possible beneficiaries in the portfolio, including BWX Technologies (BWXT), which has a near-monopoly in nuclear propulsion systems for Naval submarines, and CACI International (CACI), a key provider of government technology services.
Venanzi maintains a bullish view on several other pivotal trends, such as environmentalism, onshoring, and infrastructure spending—all of which, as he sees it, could bolster select small-cap industrials stocks.
For instance, he favors companies that stand to capitalize on ‘green’ movements around the world, including KBR (KBR), a government services contractor and provider of sustainable technology solutions such as carbon capture, renewable biofuels, and plastics recycling, to name a few.
Venanzi also cites Array Technologies (ARRY), a market-share leader in efficiency-enhancing solar-tracking systems used by utility companies; as well as nVent Electric (NVT), a maker of electrical products used to safely connect buildings and sensitive equipment to the grid.
Lastly, Venanzi highlights WillScot Mobile Mini Holdings (WSC) as a fund holding that could benefit from higher infrastructure spending, onshoring, and extended completion times for non-residential construction projects. “The firm has considerable market share in portable offices and storage units used on job sites and has steadily increased pricing by finding ways to impart ever-more value to its customers,” he contends.
Securities mentioned were fund holdings as of January 31. For specific fund information, including full holdings, please click on the fund trading symbol above.
Patrick Venanzi is a portfolio manager in the Equity division at Fidelity Investments. In this role, he manages Fidelity and Fidelity Advisor Small Cap Growth Funds, and co-manages Fidelity Series Small Cap Opportunities Fund, Fidelity Flex Small Cap Fund, as well as Fidelity and Fidelity Advisor Stock Selector Small Cap Funds.
Prior to assuming his current responsibilities, Mr. Venanzi held various positions in Fidelity's Equity research department, including that of research analyst from 2003 to 2009, research associate from 2001 to 2003, and intern on the Small Cap team from 2000 to 2001. He has been in the financial industry since joining Fidelity as an intern in 2000. Mr. Venanzi earned his bachelor of science degree in finance and economics from Boston College.