Investing in 2023: A time for selective, well researched stock-picking

It is a turbulent time on the markets with broad-based selling and increased risk aversion among individual and institutional investors. To find alpha, many investors are exiting mutual funds, or unit trusts, and turning to stock-picking for returns.

Natasha Narsingh, CEO of Sanlam Investments Active Manager, says, “While there are opportunities to be had in individual companies, it is always with the caveat that investing should be done with a long-term strategy firmly in place and any stock-picking decisions should be made based on the individual company’s fundamentals. Research is vital in making the right decisions!”

So, with this caveat in mind, how should investors approach stock-picking? “When conducting research, investors should look for companies that are trading for less than their intrinsic values. These offer the best prospect for returns.”

She says undertaking a rigorous fundamental analysis in determining if a stock or share is undervalued is key, as is considering not just the company but also the key drivers of earnings and cash flow behind it. “Investors can assess the quality of products, services, and future growth prospects. Evaluating the company’s position within the industry and identifying emerging trends provide investors with a degree of confidence in predicting future performance.

The active manager within Sanlam Investments is a pragmatic value manager that believes markets tend to overreact and exaggerate the impact of both good and bad news. This results in share prices dislocating from the actual long-term fundamentals of the company. The business actively invests when there is a healthy gap between share prices and long-term fundamentals.

“Globally we are seeing investors converge towards expensive technology shares, particularly in the US in what has been a very narrow field of winners.  Locally, with currency weakened, the likes of Naspers, Prosus, and Richemont, have been good performers. Conversely, businesses heavily tied to the South African economy, including retailers, food retailers, pharmaceuticals, and clothing retailers, have faced challenges. We have seen very significant disruptions to local companies from the impact from load shedding, both from a cost perspective and from weak demand, and over time the impact here should recede. The market has not been willing to look through these disruptions, creating investment opportunities for the patient. Overall, we expect the environment to remain challenging and remain a stock-pickers market,” says Narsingh.

By focusing on individual companies and assessing their growth potential, investors can potentially capitalise on undervalued stocks and outperform broader market indices. While risks persist, prudent analysis and confidence in the future trajectory of companies can lead to fruitful investment decisions in this volatile environment.

CIS disclosure

Sanlam Investments consists of authorised financial services providers in terms of FAIS and can be viewed on www.sanlaminvestments.com.