The Q3 earnings season has kicked off, presenting us with some surprises and large moves in the markets. On the bright side, valuations in small and mid-caps healthcare stocks and semiconductors have fallen to levels that could spur interest. Our thematic investment team highlights a few key developments investors should keep an eye on:
- Healthcare: The Q3 earnings season has so far been mixed in the healthcare sector. While large-cap pharma, biotech and managed care companies have reported mostly stellar results, medtech and life science tools & services companies have struggled with inflation, labour shortages and lower-than-expected demand growth. On a more positive note, valuations have come down to a level that could spur more M&A activities.
- Energy crisis: In Europe, a warm start to the winter and high gas storage levels have eased the energy crunch in the short-term. Spot gas prices in Europe are down 90% from the highs seen in August, while the one-year forward price is down only 50% (however still up 500% vs the start of 2019) as it prices a higher risk of shortages going into the winter of 2023/24.
- Clean energy: With rising real rates compressing price/earnings ratios, the clean tech sector remains volatile. Having said that, we believe that US solar remains a bright spot, while onshore and offshore wind, as well as early-stage hydrogen, face a number of headwinds, particularly on the cost side but long-term prospects are still favourable.
- Semiconductors: Efficiencies in semiconductor design and manufacturing are crucial for achieving climate targets and lowering the energy consumption in multiple areas, from data centres to future mobility solutions. Given the ongoing inventory correction and rebased expectations, the sector has started to show first signs of attractiveness for long-term investors.
- Consumer spending: The Q3 earnings season revealed increased caution across consumer sub-sectors: advertising budgets have been reduced, and consumers have been restricting their purchases of durable items. On a more positive note, we observed robust performance from stocks exposed to the music industry, following Apple Music's announcement last month to increase the cost of streaming services by 10%.
Learn more about?J. Safra Sarasin Sustainable Asset Management's thematic strategies:
