Rising rates and the possibility of a recession on the horizon have created a “mixed picture” for equity markets, according to one strategist — but several companies can look forward to markedly stronger earnings growth in the next year. “When you look at what companies are saying about next year, they’re not really being overly cautious or overly bullish … So, you get a sense that into next year, earnings will be robust in terms of steady year-on-year [growth],” Rahul Ghosh, portfolio specialist, equity division at T. Rowe Price, told “Street Signs Asia” on Thursday. “But, if you’re looking for significant earnings expansion, I suspect, at a market level, that’s probably less likely. You really have to dig into individual companies and sectors.” Ghosh’s comments follow better-than-expected earnings for the third quarter. FactSet data from Nov. 3 showed that 82% of S & P 500 companies had beaten earnings-per-share forecasts. The earnings growth rate for the S & P 500 was 3.7% year-on-year – the first quarter with year-on-year growth since the third quarter of 2022, the data showed. To identify the big winners looking ahead, Ghosh said he is now looking favorably at sectors — and stocks — that allow investors to benefit from the higher-for-longer interest rate environment. Financials Financials is one such sector, according to Ghosh. He identified the digitization of trading as a key theme, naming integrated platforms Tradeweb Markets and MarketAxess as companies to watch He has also “always liked” insurance companies, which he said are also benefitting from higher interest rates being paid on the float — or money held that has yet to be paid out to claimants. Healthcare Healthcare is another sector that Ghosh likes as it offers a combination of “steady growers” and companies with “stellar performance.” A favorite for Ghosh is U.S. healthcare and insurance company UnitedHealth Group . Last month, the company announced that it was looking to make GLP-1 (glucagon-like peptide-1) drugs — which are used to treat weight loss and diabetes — more affordable. Fellow U.S. pharmaceutical company Eli Lilly is another name on Ghosh’s radar. The drug manufacturer just received approval from the Food and Drug Administration for its tirzepatide weight-loss drug . The FDA approval means adults who are obese or are overweight with at least one weight-related condition can now use the drug — marketed as Zepbound — for chronic weight management. Ghosh also notes the company’s “earnings opportunities” driven by its research and development, and pipeline of drugs. “What Eli Lilly is going to do with their weight loss drug is not dependent on whether the rates are 5.2% or 4.8%. And that’s really the type of thing that we think investors have to focus on much more going forward,” Ghosh said. “Build out this balance of good earnings, solid companies [with] something that is not dependent on what did Powell say today, what’s he going to say next week.” Software Ghosh also has his eye on the technology sector — and specifically the software theme. Calling these companies “fallen darlings,” the strategist notes that they “fell out of favor” following the pandemic. One such name is Adobe . “People didn’t really talk about [Adobe] — everyone assumed that they were going to be a loser from AI,” he said. “And then .., they come up with a product to talk about how they can actually help companies work with internal products,” Ghosh said, referring to Firefly, the company’s generative AI tool that can be integrated across Adobe Creative Cloud, Adobe Express and Adobe Experience Cloud. — CNBC’s Annika Kim Constantino contributed to this report.
