A double-dip recession in the US is unlikely despite a global slowdown in growth, according to Fidelity head of Australian equities Paul Taylor.
"It appears that there is a lot to worry about. In Europe there is a sovereign debt crisis. China's growth appears to be slowing. In the US, the government is giving back more cash to households than it is taking back in taxes. In other words, the US people are getting their government for free," Taylor said at a Fidelity lunch in Sydney yesterday.
However, for a double-dip recession to happen in the US, the country's corporations would have to continue to cut costs, according to Taylor.
"If you look at the last reporting season, corporate balance sheets in the US were in pretty good shape. On top of that, cashflows were pretty good," he said.
"It is unlikely that these companies will embark on another round of cost cutting."
Taylor said what this means is that there will be lower world growth. However, there will still be opportunities for Australian investors.
"Investors need to focus on structural growth. It is important to get value from this low growth environment," he said.
This means investors can access Australian companies who are achieving structural growth through market penetration, technology, low-cost production and the ability to meet changing consumer preferences.
For example, he said a company like Domino's Australia has a market capitalisation of $420 million. The company also has the opportunity to increase its market penetration through its rights in France, New Zealand and the Netherlands.
In comparison, Domino's in the UK has a market capitalisation of $1.3 billion.
"Even if Dominos Australia gets it half right in France and the Netherlands, the company has the potential to be valued at $1.3 billion," Taylor said.
Taylor said his portfolio is overweight in consumer staples, industrials and healthcare stocks and is underweight in financials, materials and telecommunications.
"The valuation in the Australian market is that companies are trading at similar multiples regardless of quality of stock. This is the time for opportunities if you are able to look beyond the surface," he said.
