Volatility in the markets, which may be more driven by macroeconomic fears than analysis, offers the opportunity to find new investment ideas by allowing investors to react to business fundamentals and buy attractive franchises at good prices, says Edward O’Connor, CFA, a Partner and Analyst/Portfolio Manager at Cooke & Bieler.
“We’ve seen these risk-on, risk-off trades. Sometimes you find great companies that maybe have some economic cyclicality, but investors are selling them in a flight to safety, and you can buy great companies at very attractive prices if you’re willing to live with a little volatility,” he said.
O’Connor gives State Street Corp. (STT), a large custody bank, as an example of taking advantage of macro trends. He says demographic and market trends for the long term are in their favor, so it’s a business that’s likely to continue to grow for some time.
“There have been some concerns about pricing in some ancillary services, and to some extent they get caught up in concerns over financial regulation and capital requirements and just a general aversion to anything labeled a bank, so it’s given us an opportunity to buy what we think is a great company at an extremely attractive valuation,” O’Connor said.
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