Underlying Business Fundamentals are more useful than Macro Forecasts

At Contact Asset Management, we aim to invest in quality businesses for the long-term. Macroeconomics are important but not the overarching consideration of our investment process. We are operating in a world where there is a seemingly unprecedented focus on the short-term direction of interest rates. We are not in the business of crystal balling macro calls. In fact, we think this is a strategy fraught with danger. In this note, we consider recent consensus estimates for interest rates and how wildly they have differed from reality. Forecasting is hard and macroeconomic forecasting is even harder. We prefer to view interest rates from a cost of capital perspective. We believe that risk assets need a hurdle rate for the efficiency of capital markets to function appropriately.

With this in mind, we discuss three stocks that we believe are well placed regardless of whether we get a short-term interest rate cut or not. These are solid, dare we say “old school”, industrial companies generating free cash flow that display attractive growth prospects.

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