This time, it’s different because this time less people say it’s different: more and more investors, especially the biggest ones, have expressed cautious optimism in recent months. Indeed, the bull market that began in mid-2009 after the Great Recession that knocked Lehman Brothers and others out to the ground is about to beat the record length of its 1990s counterpart.
Therefore, “even if expansions don’t die of old age, we are nearly 10 years into a growth cycle, which at some point will end,” stressed Lazard Asset Management (LAM) in its U.S. Equity report for 2019. Although “equities (remain currently) more attractive than debt” and given the late stage of the economic expansion, LAM “recommends upgrading the quality of the securities in portfolios with a focus on companies with high, sustainable returns on capital, strong balance sheets, and robust organic cash flow: companies called Compounders.”
Morgan Stanley (MS) holds a similar standpoint and its team noticed that “even the Backstreet Boys are back” that’s why a “portfolio of compounders (is) a reasonable place to hide” as well. Against this backdrop, investors should thus prioritize companies with powerful pricing power, brands and networks and able to stay attractive when markets experience downside risk and offer limited operational or financial leverage.