DeSpirito said he’d look for beat-up names to put money into.
“One of the themes I look for is what I call ‘trough on trough.’ That means a company where earnings are at trough levels — so there’s good earnings growth ahead — and the multiple is also low relative to history,” he said. “You get two ways to win: through earnings growth and multiple expansion. Those have been some of my best investments.”
He highlighted a few cheap parts of the market he sees right now, the first being health maintenance organization (HMO) stocks — essentially firms offering insurance plans. We’re at a low-point in the underwriting cycle, he said, meaning underwriting is going to get stricter, leading to larger profit margins.
He said Elevance Health is an example of an attractive HMO, trading at 11.5 times earnings.
Second, he likes firms tied to housing turnover, or increasing numbers of people moving, as interest rates come down. For example, plumbing firms benefit from higher turnover, as fixtures are frequently replaced. Fortune Brands is a cheap stock well-positioned to capitalize on this, he said.
Finally, he likes stocks that trade at a so-called “headquarter discount,” meaning they’re cheap simply because they’re based outside of the US.
“For example, BP and Shell trade at significant P/E discounts to Exxon, despite being similar businesses,” he said. “British American Tobacco trades at the same price as Altria, but it’s got more next-gen products (vapes, nicotine pouches) growing at 15% a year, plus an Indian subsidiary that trades at a higher multiple.”
