Three US stocks for an uncertain environment

A professional investor tells us where he’d put his money. This week: Jonathan Simon, investment manager, JPMorgan American Investment Trust

Last year was one of the most challenging on record. With the year now behind us, the focus is on the outlook for 2023, which has got off to a promising start despite continuing fears of a recession ahead.

While a new year and fresh start is certainly welcomed by investors, we are still facing many of the same challenges. On a positive note, US equities have already priced in a lot of pain and multiples have compressed to average long-term levels. On the other hand, we are just starting to see earnings revise down, and there is probably more to come. Our analyst earnings forecast for 2023 shows a decline of 4% for the S&P 500. Once we get through the post-pandemic normalisation, we expect earnings growth to resume, and we have robust forecasts for 2024-2025. Getting from here to there could be a rocky path and vigilant stock selection is what will power returns in an uncertain environment.

It is imperative to focus on high-quality businesses with durable competitive advantages that offer stability should economic fundamentals deteriorate, or uncertainties escalate further. Through the JPMorgan American Investment Trust, we focus on value and growth names that we believe should prove resilient and capable of outperforming in different market cycles.

Strong demand for car parts

Our exposure to car-parts retailer AutoZone (NYSE: AZO) has added value to our portfolio over the past year and we are optimistic about its outlook. Given the trend of demand for durable goods, its pricing power and the non-discretionary nature of its products, AutoZone has continued to perform strongly and gain market share.

We believe demand for car parts will remain high, given the ageing US car fleet. Despite macroeconomic pressures, it has managed margins well and we maintain our view that it is an attractive investment.

Healthcare’s defensive qualities

Healthcare remains a key defensive theme, allowing investors to tap into the development of life-saving medical solutions. Pharmaceutical giant BristolMyers Squibb (NYSE: BMY) is a market leader, providing a healthy dividend while continually innovating through the development of new drugs.

The stock retains an undemanding valuation. The company has strong free cash flow and is also delivering on important growth drivers and new drug approvals. Indeed, by 2025 Bristol Myers is on track to produce between $10bn and $13bn in revenue from new products.

A sustainable future from timber

On the value side of our portfolio, Weyerhaeuser (NYSE: WY), one of the largest timberland real estate investment trusts (Reits), has been the biggest beneficiary of increasing demand for timber. As the world’s population continues to grow, trees offer a sustainable material for products from new housing construction to packaging, fabric, and plastics.

As the largest private landowner in North America, with 11 million acres either owned or managed in the US and 14 million acres under long-term licences in Canada, Weyerhaeuser acts as a steward for sustainable forestry and regeneration practices. The company plants between 130 million and 150 million trees each year.

“Focus on high-quality businesses with durable competitive advantages”