In the latest newsletter from the Fundamental Growth & Core Equity team, Chief Investment Officer Mike Solecki notes the shifting market environment in the aftermath of the banking sector turbulence seen in the opening quarter of 2023. The subsequent stress on the regional banking and private credit systems rippled across markets as capital availability declined, driving underperformance in small and midcap stocks, and in the financials sector — specifically those most exposed to aggressive tech spend and leverage.
The two main articles in the newsletter provide insights on where the team is seeking opportunities in the current environment:
Inflation Reduction Act: Assessing the Impact on the Auto Industry The Inflation Reduction Act 2022 will have far-reaching global implications for the growth in electric vehicle production, where that manufacturing will take place, and how it will disrupt existing supply chains. The effects of the IRA are already beginning to be felt. The IRA has served as a catalyst to shift the cost dynamics of the NMC and LFP batteries, which has led to changes in the strategies of major OEMs. Because China has such a large market share of critical LFP components, a shift in the LFP supply chain will likely not come about until at least the end of the decade, if at all. OEMs are now shifting from using the more cost effective LFP batteries to building out local supply chains for NMC batteries in order to qualify for the IRA credits. The pace at which the companies are attempting to acquire critical materials will continue to increase as they shape their EV strategy, and we expect to see more announcements from OEMs and battery suppliers about building and acquiring EV-relevant resources in the future.
Cintas: A Circular Economy Enabler Cintas is a leading player in a growing market that caters to companies outsourcing the provision and laundry of their uniform clothing needs. As a company, it stacks up well in the Confidence Quotient framework that the Fundamental Growth and Core Equity team employs to assess potential stocks for their portfolios. Cintas is a company that has thrived by doing the right things for its customers, employees and shareholders. Although difficult to capture in a research framework, the company culture is very strong and is key to their competitive advantage. The FGC team believes that using a robust research process that can quantify something as qualitative as culture, combined with the deep industry knowledge and experience of our research analysts, is a significant advantage in identifying what we believe to be great companies such as Cintas.