When the president of the Federal Reserve mentions the “pain” that will be needed to bring down inflation, as he did in Jackson Hole in August, it may be a good time to check your portfolio. So you’ll find stocks in sectors like technology, consumer discretionary, materials and housing feel the worst. This is perhaps not surprising. But it may be more difficult to determine which investments will perform relatively well in the next few months. Below are three investment ideas for today’s market.
While many businesses face challenges in the current environment, some companies have great opportunities when the stakes are high.
Intercontinental exchange (ICE) is a broad-based business that is well positioned for a rising interest rate and high inflation environment. Through the operation of its exchanges, ICE has exposure to commodity markets and benefits from increased volatility in financial markets, as clients often tend to hedge. Verisk (VRSK) is a predictive data analytics provider that provides risk management solutions to financial services, insurance and energy companies that can engage more customers when uncertainty is high. The company benefits from its near-monopoly status and has very high subscription renewal rates that support its pricing power.
A company’s earnings may be revised downward, but businesses with very wide moats, clean balance sheets and plenty of cash to raise prices without losing customers will avoid the most severe corrections.
Mastercard (MA) and Canadian Pacific (CP) are two examples of large-cap businesses that may weather stormy markets better than companies with weak fundamentals. Mastercard is an established payments network with a sticky customer base. The company has a strong moat because its network is very expensive to replicate. Canadian Pacific offers a relatively inexpensive, efficient choice for long-haul shipping, with a fully established road infrastructure that creates high barriers to entry. Canadian Pacific is also developing a hydrogen-powered locomotive with North American zero-emissions technology.
When oil and gas prices rise, investors may look for opportunities to participate that do not require ownership of fossil fuels.
In Linde (LIN) is the world’s largest industrial gas supplier, with few competitors worldwide. The company produces and sells atmospheric gases and sustainable transportation fuels. Linde uses a unique business model to support sustainable revenue growth. John Deere (DE) is a large-scale company that affects commodities. The company uses precision agriculture technology to make farming processes significantly more efficient, helping to feed more people with less land and cost. Deere is also investing in ethanol fuel.
We believe it is important for long-term investors to have a strategy to navigate volatile markets, but it is equally important for investors to keep the long view in mind when the market is down. While the current volatility may affect industries as diverse as semiconductors and housing, with each dip in stock prices, high-quality companies in these industries become attractive opportunities for active investors as the market recovers.
For current holdings of Parnassus Core Equity Fund, Parnassus Endeavor Fund, Parnassus Mid Cap Fund, Parnassus Mid Cap Growth Fund and Parnassus Fixed Income Fund, visit the individual fund holdings webpage. Current and future portfolio holdings are subject to change. Fund holdings are subject to change and risk and do not constitute a recommendation to buy or sell any security.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) GUIDELINES: Funds evaluate financially significant ESG factors as part of their investment decision-making process, considering the range of potential impacts on future revenues, expenses, assets, liabilities and overall risk. Funds also use active ownership to promote sustainable business policies and practices and ESG transparency. Active ownership strategies include proxy voting, dialogue with company management and sponsoring shareholder resolutions, and public policy advocacy. There is no guarantee that an ESG strategy will be successful.
The views expressed may change at any time in response to changing conditions in the markets and are not intended to predict or guarantee the future performance of any individual security, market sector or overall markets or the Parnassus Funds.
Mutual fund investing involves risk and you may lose principal. There is no guarantee that any investment strategy, including a socially responsible (ESG) investment strategy, will be successful under any market conditions.
Parnassus Funds are underwritten and distributed by Parnassus Funds Distributor, LLC.
© 2022 Parnassus Investments, LLC. All rights reserved. PARNASSUS, PARNASSUS INVESTMENTS and PARNASSUS FUNDS are federally registered trademarks of Parnassus Investments, LLC.
Before investing, an investor should carefully consider the investment objectives, risks, fees and expenses of the Funds and carefully read the prospectus or summary prospectus containing this information. A prospectus or summary prospectus is available at www.parnassus.com or by calling (800) 999-3505.