Behavioral shifts bring investment opportunities

Richard E. Bodzy and Gregory D. McCullough, CFA, 06/03/20


  • As a result of COVID-19, we are already observing significant changes in areas such as consumer purchasing preferences, human communication, and workflows.
  • Our newest growth theme focuses on companies that will be mid- to long-term beneficiaries as we come out on the other side of the pandemic.
  • We expect Danaher to benefit as the free movement of people will need to be balanced with safeguards against infectious diseases.
There is still much uncertainty surrounding COVID-19, but it is becoming clear that there will be notable differences between our pre- and post-pandemic worlds. Across the business landscape, we are already observing significant changes in areas such as consumer purchasing preferences, human communication, and workflows.

Once the dust settles, we believe companies across a multitude of industries will be beneficiaries. We look beyond those businesses that have simply benefited from a closed economy. To meet our investment criteria, they must offer strong and durable growth potential over the long term. We have identified many businesses that have been resilient and strong during the COVID-19 crisis and that, in our view, are likely to become even stronger in the aftermath.

Companies across a multitude of industries could be beneficiaries once the dust settles.

"Viral effects" is our newest durable growth theme

Our thematic approach is a critical part of our investment process. Together with a team of analysts, we examine global trends as well as problems and potential solutions. From this analysis, we identify which themes could drive sustained growth for businesses over a multi-year time horizon.

The "viral effects" idea developed through our discussions about COVID-19-related behavioral trends and potential changes across a multitude of industries. We considered what will be different as we come out on the other side of the pandemic, what the new normal will look like, and which companies will benefit in a radical and durable way.

Policy makers will need to balance the openness of economies and free movement of people with safeguards against infectious diseases.

Potential beneficiary: Danaher (DHR)

One example of this theme in our portfolio is Danaher, a company that develops leading-edge diagnostic tools. We believe diagnostic testing for all types of viruses will become prevalent. Policy makers will need to balance the openness of economies and free movement of people with safeguards against infectious diseases.

Several of Danaher's portfolio companies, such as Cepheid, Pall, IDT, and Radiometer, are delivering a significant tailwind to its growth. Cepheid's rapid molecular COVID-19 test was first to market and provides results in under 45 minutes. The company will ship six million units per quarter. We believe that increased testing and the buildout of a more robust pandemic infrastructure will support normalized mid-to-high single-digit revenue growth for Danaher for several years.

Active management: A benefit in times of changing markets

As active managers, we are able to take advantage of shifting market and economic conditions. Our intense focus on portfolio positioning and downside risk may be especially beneficial with swift and unexpected events such as the COVID-19 pandemic. As always, we are taking a patient and methodical approach while using market weakness and dislocations to add to existing holdings or to initiate new positions.

Learn more about the performance and thematic approach of Putnam Growth Opportunities Fund.

As of 3/31/20, Danaher represented 2.39% of Putnam Growth Opportunities Fund assets. (Cepheid, Pall, IDT, and Radiometer are part of Danaher's portfolio.)

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