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Seeking outliers in a slower growth world

Timely insights on the issues that matter most to investors.

The views expressed in these posts are those of the authors and are current only through the date stated. These views are subject to change at any time based upon market or other conditions, and Eaton Vance disclaims any responsibility to update such views. These views may not be relied upon as investment advice and, because investment decisions for Eaton Vance are based on many factors, may not be relied upon as an indication of trading intent on behalf of any Eaton Vance fund. The discussion herein is general in nature and is provided for informational purposes only. There is no guarantee as to its accuracy or completeness. Past performance is no guarantee of future results.

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      By Yana S. Barton, CFA, Portfolio Manager, Growth Team, Eaton Vance Management and Lewis R. Piantedosi, Director of Growth Equity, Eaton Vance Management

      Boston - Stocks are off to a strong start in 2019 with major equity indices registering positive returns. The recovery in stock prices has not been without doubts, particularly as recession fears and trade wars fuel a slower global growth narrative.

      Slower economic growth will inevitably present challenges for many companies and industries, but we believe it will correspondingly serve to highlight the outliers -- stocks of companies we see with superior absolute and relative growth buoyed by secular growth tailwinds potentially for years to come.

      Macro headwinds

      Just last week, the International Monetary Fund (IMF) revised its global economic growth forecast for 2019 and 2020, reflecting a myriad of geopolitical and macroeconomic headwinds affecting the global landscape.

      These macro headwinds, along with increasing cost pressures, have begun to weigh on investor expectations of companies large and small. Over the past three months, earnings growth estimates for the S&P 500 Index for 2019 have declined by 400 basis points from 10% at the end of Q3 2018 to 6% as of this writing, according to FactSet estimates.

      Blog Image Sector Profit Est Feb 5

      Outliers amid slowing growth

      Despite continued macro challenges, a number of industries are poised to grow at better-than-market rates in 2019 and beyond. Enterprise software, information technology (IT) services, internet retail, biotechnology, life sciences tools and services are just a few industries demonstrating superior earnings growth and positive earnings revisions.

      Seemingly lost in all the macro "noise," companies within these industries are benefiting greatly from continuing innovation, technological disruptions and novel platforms which act as a tailwind to growth which may help offset some of the aforementioned macro headwinds.

      Go with growth

      Worldwide IT spending is projected to reach $3.8 trillion in 2019, rising 3%, according to Gartner. But areas such as enterprise software, data centers and IT services are projected to experience spending growth well in excess of the overall market.

      Blog Image IT Spending Feb 5

      Spending in these areas is essential for businesses, as it lowers overall costs and drives greater efficiency. The health care sector is projected to grow 7% in 2019. The biotech and life sciences industries are expected to post even higher growth rates. Innovation and growing demand are boosting sales and earnings growth expectations for those companies levered to innovation and proving unmet medical needs.

      Bottom line: Every market creates winners and losers, and we believe this time is no different. Although the overall growth rate for the market has declined, a few outliers have emerged and many of them are within industries supported by secular tailwinds. We believe in active selection and emphasis in stocks of companies exhibiting secular growth that are positioned to excel irrespective of the economic backdrop.