As we close the first half of 2020, large-cap US stocks have gained back nearly all losses suffered in the violent March sell-off spurred by the coronavirus pandemic.
Gaming has seen a spike in demand from teenagers as well as workers with more free time due to a lack of commute to the office. Here we like Nvidia, which develops the graphic processing units that enable enhanced gaming experiences.
Companies that improve the connectivity of websites like Akamai Technologies and provide the last mile of high-speed broadband connections into homes such as Comcast are also well positioned in the current environment.
The healthcare sector could emerge from this crisis in a strong position as biotechnology and pharmaceutical companies race to develop treatments and a vaccine for the coronavirus while medical equipment makers help expand virus testing.
We continue to look to add exposure through stocks such as Amgen, a biotech focused on developing therapies for use in the treatment of cancer, infectious diseases, arthritis and inflammation.
The growth of these companies is specific to the conditions they target, undiminished by the coronavirus and independent of the economy.
We believe a number of biopharmaceutical names have significant opportunities for revenue growth driven by products in clinical trials. Managed care companies could also outperform as savings from deferred noncritical procedures could offset costs to treat the virus.
In addition, we believe that worst-case political scenarios for managed care are significantly less likely under either Joe Biden or Donald Trump, which could allow group multiples to expand.
Most other sectors of the US economy face headwinds that could take time to dissipate, making stock selection more important.
While cyclical sectors such as consumer discretionary and industrials are slowly emerging from a near total shutdown of economic activity, areas like energy and financials face a longer road to recovery.
Oil stocks face the twin risks of anemic global demand and a significant supply glut that has nearly tapped out the world's storage capacity.
Financials, meanwhile, will likely face a near zero interest rate environment until 2022, which hurts the interest margins of banks and lowers the attractiveness of money market accounts offered by brokerages and investment managers.
We have taken advantage of, what we consider, are depressed valuations to establish positions in companies in the aerospace, auto components and cosmetics industries that we believe have a better chance to accelerate sales when the economy rebounds and are less dependent on pricing to drive future growth.
Looking forward, visibility is very low in terms of the range of possibilities and there could be a wide range of outcomes on the health and economic fronts.
It is easier to understand the markets being higher two years from now versus the next three months. What investors should do from here really depends on their time frame.
The economy is likely to recover in fits and starts but we believe long-term investors can hold on.
Peter Bourbeau is co-portfolio manager of the Legg Mason ClearBridge US Large Cap Growth fund