Weekly Market Update- Week Ending 29/04/2022

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Reporting season continued at pace this week. The mega-cap technology names announced a mixed bag, with Alphabet missing analysts’ estimates, Microsoft beating theirs, and Meta (formerly Facebook) rocketing 17% on Thursday as user numbers returned to growth.

Closer to home, GlaxoSmithKline reported a year-on-year 71% growth in profits in the quarter to the end of March and announced it is on track to demerge and list its consumer healthcare division, Haleon in July. Unilever announced sales growth as it increased prices by an average of 8% in the first quarter of the year. The increase in prices resulted in a decline in volumes as consumers perhaps switched to supermarkets’ own-brand names. It does, however, illustrate their ability to pass on increased costs and the power of their portfolio of strong household brand names.

Growth stocks (particularly loss-making ones) have continued to come under pressure as investors question some of the ambitious estimates built into some of their investment cases. The strong current of higher interest rates is also difficult for the sector to swim against and means that these future possible profits are discounted at a higher rate and worth less at present value.

Quality dividend-paying stocks on the other hand are enjoying something of a renaissance of late. In these uncertain times, investors are attracted to quality businesses with a long history (some going back 30-40 years) of distributing a proportion of their profits in the form of a dividend. With markets very strong over recent years, this form of return was less appreciated as investors focused on capital growth. With the current cloudy economic forecast, however, perceptions are changing about the ‘bird in the hand’ a dividend offers. The key is to find companies capable of growing dividends over time, whilst also allocating capital efficiently by reinvesting enough of their profits to plant the seeds of future growth.

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John Naylor, Chartered FCSI – Head of Investment Committee
John Naylor