Story of the month
In search of earnings growth despite economic worries – which companies are now exploiting their strengths
After the market collapse in August, the capital markets quickly regained their composure. Nevertheless, the uncertainty is still considerable. Growth in Europe, particularly in Germany, remains weak, and it is also slowing in the USA. Fears of recession are increasing. The focus is returning to companies that are able to continue growing even in a harsher economic environment. We have identified three cyclically resistant sectors:
1. The classic defensive sectors
Even in times of crisis, consumers heat and clean their homes, brush their teeth and shop at the supermarket. That is why sectors such as consumer staples, household and personal care, telecommunications and utilities are considered relatively stable. The healthcare sector is also little affected by economic crises. Expenditure on medication and medical technology, as well as pharmaceutical companies’ long- term research spending, typically remain stable in economic downturns. The disadvantage of many very defensive sectors is the rather low long-term growth. However, there are many exceptions: for example, the US company Thermo Fisher, which operates in the laboratory equipment and diagnostics niches, combines economic stability with long-term growth momentum.
2. Long-distance runners from structural sectors
Classic growth sectors such as technology or biotechnology can continue to grow even in economic dry spells due to their structural growth, albeit not as strongly as in boom phases. The software sector is considered comparatively defensive because many customers make subscription payments here and the software is needed for essential business processes. Investments in cloud computing and AI applications are likely to remain at the top of many companies’ agendas even in times of crisis. Investors should pay particular attention to a moderate valuation of fundamentally attractive stocks.
3. Hidden defensive gems in cyclical sectors
Even in supposedly economically sensitive industries, there are companies whose business performance does not suffer as much from market downturns. The industrials sector in particular offers such opportunities. Companies such as Wolters Kluwer or Relx, which serve a stable customer base (doctors, lawyers, tax advisors), are almost comparable in profile to the first-mentioned group of classic defensive sectors. Industrial companies with a high proportion of maintenance and service revenues, such as Sweden’s Atlas Copco, are comparatively less affected by a reluctance to make major investments.
