Behavioral shifts bring potential 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 which companies we believe will benefit as we come out on the other side of the pandemic.
  • We expect companies that develop leading-edge diagnostic tools 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 which we believe 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 investment approach is notable for our thematic approach. 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 ongoing discussions about themes that drive our fundamental research. We looked at COVID-19-related trends and discussed potential changes in behavior. We considered what may be different as we come out on the other side of the pandemic, what the new normal may look like, and which companies may potentially benefit in a radical and durable way.

The “viral effects” idea developed through our ongoing discussions about themes that drive our fundamental research.

Potential example: 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. Policymakers 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, have the potential to deliver 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 is anticipated to ship six million units per quarter. We believe that increased testing and the buildout of a more robust pandemic infrastructure may potentially support normalized mid-to-high single-digit revenue growth for Danaher for several years.

Active management: A potential benefit in times of changing markets

As active managers, we seek to take advantage of shifting market and economic conditions. Our intense focus on portfolio positioning is especially helpful 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.

As of March 31, 2020, Danaher accounted for 2.39% of the Putnam U.S. Large Cap Growth Equity strategy. The company presented as an investment example represents the positions deemed most relevant to the applicable “viral effects” investment theme being discussed. Investment themes selected are determined by the portfolio management team based on certain growth factors. Current investment themes and investment examples were selected without regard to whether such themes, or relevant securities, were profitable and are intended to help illustrate the investment process. The inclusion of holdings information should not be interpreted as a recommendation to buy or sell or hold any security. It should not be assumed that investment in the securities mentioned was or will be profitable. Holdings are for a representative account and are shown for illustrative purposes only. Each account is managed individually. Accordingly, account characteristics may vary.

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