The Bank of Canada recently published the results of a survey which showed Canadian business sentiment is now at the lowest levels since 2009. These results are material for investors in so many ways.
In this article, I’m going to discuss why I believe now paradoxically perhaps, is the best time to focus on stocks of companies with acquisition-based growth models rather than organic growth models.
First of all, organic growth is likely to be materially lower than what was predicted at the beginning of the year. The coronavirus pandemic has fundamentally shifted how we individually model out growth for companies over the long term.
Secular shifts such as bricks-and-mortar retail to e-commerce and outdoor/outside entertainment to at home entertainment solutions have been accelerated by this pandemic.
Secondly, reduced business sentiment is likely to hamper investment for many unloved businesses or assets of companies, which require capital to continue as ongoing concerns. This provides a backdrop for companies that have an excellent track record of creating value via acquiring companies and investing/integrating such companies into their business models.
Acquisitions will, in theory, become cheaper and easier to do, adding value to such outfits now. I would encourage investors to take another hard look at companies which may still be on one’s watch list with such business models, as I see these as being potential winners in the years to come.
Invest wisely, my friends
