- Sarah Ketterer, the CEO of the $36 billion investment firm Causeway Capital Management, sees opportunities budding in areas of the market that have been decimated by a coronavirus-driven sell-off.
- She said that in two years’ time, companies that operate within these areas would “look nothing like they look today” in terms of share price.
- Ketterer said investors should meticulously vet financial statements and cash burn before putting capital to work.
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With the US GDP contracting 4.8% in the first quarter, jobless claims hovering near 30 million, and the majority of the country slated to remain on lockdown, the idea of putting cash to work is enough to make any investor’s stomach turn.
But Sarah Ketterer, the CEO of the $36 billion investment firm Causeway Capital Management sees ample opportunities — and she has her eyes peeled for areas of the market that have been annihilated.
“I’m talking about stocks that dropped 30, 40, 50, 60% year to date,” she said on the “Money Life with Chuck Jaffe” podcast. “Look beneath the surface of the market, and isolate the more economically sensitive or cyclical areas — and that’s where, as a firm, we’re convinced there’s so much latent upside potential.”
She added: “And those hard-hit areas are in the most cyclical or the epicenter of pain for the coronavirus.”
Ketterer’s focus is centered on opportunities in seven areas: travel, tourism, hospitality, airlines, cruise operators, concertgoers, and caterers.
Though she doesn’t offer specific names, companies such as Delta Air Lines (DAL), Marriott (MAR), Royal Caribbean (RCL), Live Nation Entertainment (LYV), and Wynn Resorts (WYNN) are notable firms that have fallen sharply and reside in the areas of the market that Ketterer finds especially interesting.
In her mind, demand for companies within these areas is going to come roaring back, but the timeline for that renewal is nebulous at this stage.
“Different geographies will open at different paces,” she said. “But we do know we’re getting closer and closer to a therapy.”
What’s more, since shares of companies within these spaces have been jettisoned by the majority of investors, Ketterer thinks risk is reduced.
“Given how far these share prices have fallen, my colleagues and I would argue that these stocks are demonstrably less risky than they were only three months ago,” she said. “That’s where the really big upside is.”
Under that umbrella of thought, Ketterer suggested investors meticulously vet the financial strength and cash burn of a prospective investment before scooping up shares.
“If the business you know is going to make it for another 18 months without a penny of revenue, that’s really interesting,” she said. “People, they want to get out. They want to see the world, and there’s a whole emerging market population of middle-income people who definitely want to spend their newfound income.”
With all of that under consideration, Ketterer said investors looking to venture into these areas would require some intestinal fortitude. Generally speaking, she said a share-price appreciation should happen in advance of a material uptick in the underlying earnings data.
“All these businesses in two years from now will look nothing like they look today in terms of their share prices,” she said. “Markets are tremendous discounting mechanisms, and the cyclical stocks will move, and these epicenter-of-pain virus-related stocks will move even more. And all this will happen before the underlying companies show the full earnings recovery.”