SAIC - Science Applications International: Still Attractively Rated High Return Business

2024-06-11 20:15:52 ET

Summary

• There are many potential economic slowdown signals, but equity markets holding up near all-time highs.
• The US industrial sector performing well, attractive industries and corporations within the sector.
• SAIC has potential competitive advantages, along with strong fundamentals and steady growth projections.

Investment Summary

There are currently several broad macro signals telling us there could be a potential US economic slowdown. Despite this, broad equity markets have held up well, trading flat in the last two months near their previous all-time highs. With the European Central Bank, the first economic powerhouse to cut rates this week, delivering a 25 basis points relief to its policy rate, the question is what this means for companies with high revenue exposure to the US (and other major nations that are well away from their cutting cycle).

The US industrial sector has performed well this year to date, underpinned by strong correlations with commodity prices and inflation inputs. As evidence of this, the iShares U.S. Industrials ETF ( IYJ ) has climbed 6% since January, delivering dividends of $1.17 per share in the last 12 months to shareholders. Whilst it has lagged the S&P 500 Index, within the sector, there are many attractive industries and corporations with attractive idiosyncratic risk premia....

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