Kames Capital manager tips cheap cyclicals for final bull run

So-called deep cyclical stocks – companies whose revenues rely on underlying economic or macro factors to propel them – are now one of the “standout bargains” for investors, a Kames Capital fund manager says.

Stocks such as China’s LonKing construction business and Canada’s Canfor lumber firm are cheap, Neil Goddin said, and are in an area of the stock market that looks the most attractive at this stage in the market cycle.

This is because most of the gains for stocks which fall into both the defensive or good quality cyclicals sectors have already been seen.

Cheap cyclical stocks, meanwhile, typically excel versus the wider stock universe in the final stages of a bull market, Goddin said.

Goddin, who is manager of the Kames Global Equity fund, said: “There are three possible scenarios from here. We carry on bubbling along with average but uninspiring GDP growth rates, we get a further sell-off, or markets move back towards highs we saw prior to the correction.

“We think the third scenario is the most likely now, especially given the recent adjustment to markets, and in that environment investors need to look for returns from companies which are more cyclical in nature.”

Goddin says he has recently been taking profits from higher quality cyclicals and moving it into cheaper cyclicals which have moved to “bargain prices” in the recent market volatility.

©2018 funds europe

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