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For today’s Soundbites, we discuss prospects for the post-pandemic economy with Aylon Ben-Shlomo, client portfolio manager with Aristotle Capital Management. We talk about the companies he likes, and where he thinks people will spend their money when they move on from pandemic restrictions.

Aylon Ben-Shlomo (AB): I sure hope we’ve gone from pandemic to endemic or better. You never know if there will be a new variant, but it seems that we as a society either have learned or will learn to live with this. Through the miracles of modern medicine, those that want a vaccine have been able to get a vaccine. And through herd immunity, vaccination, what have you, it seems that we’re able to move forward with our lives, although some of this may stay with us forever. Hopefully we’ve proven that we can not only survive through these difficult times, we can thrive coming out the other end.

How he assesses post-pandemic opportunities.

AB: We do our best to take our cues from the companies, rather than from the headlines. Corporate balance sheets are very, very healthy, with the exception of some areas. The consumer balance sheet is extraordinarily healthy. However, government balance sheets are not so healthy. And so, what’s likely to potentially go on from here is less quantitative support, less fiscal and monetary support from governments, less capital being thrown at economies. And also, what we’ve seen is that the labour market is quite full, wages are rising, and population growth in the developed world has been stagnant. So, economies and businesses have to become more productive. And we’re seeing that. Whether it be digitization, 5G and remote working, businesses will have to be more productive than they have been in years past.

Some of the names on his watchlist.

AB: There’s one company called Martin Marietta [Martin Marietta Materials, Inc., based in Raleigh, North Carolina]. They are an aggregates company. And as city centres expand, as housing continues to accelerate, as governments sponsor infrastructure bills like they have, the demand for aggregates, roads and buildings and the like goes up. And so, Martin Marietta is a company that’s uniquely positioned to benefit from increased infrastructure spending.

We’re also looking to the media world. So, in the pandemic, we all stayed home and binged lots of content, and you had companies like Disney [The Walt Disney Company, based in Burbank, Calif.] and now Paramount [Paramount Pictures Corporation, based in Los Angeles, Calif.] come out with their own over-the-top or OTT services [a media service offered directly to viewers via the Internet]. Those are not the businesses we’re as interested in. We have an investment in Sony [Sony Group Corporation, based in Tokyo, Japan], which is a supplier to these over-the-top companies. Sony produces lots of content and rather than having their own service, they’ve chosen to supply to the highest bidder. That’s a unique way of delivering on the insatiable appetite for new content. And they have lots of customers that are ready, willing and able to spend lots of money.

There’s also Constellation Brands [Constellation Brands, Inc. based in Victor, N.Y.]. They’re an upstate New York-based beer company. They have a near monopoly on the Mexican beer market here in the U.S. — roughly 80% market share with brands such as Corona and Modelo. They are a premium brand and what’s interesting about that business is it’s a company that has taken significant market share from near 0 about 20 years ago to, now, in the mid-teens. And being at the premium end of things means that they’re able to bring consumers up, charge a little bit more, combine that with volume growth, and you have a wonderful cycle of top-line growth with margin expansion and free cash flow.

Why he thinks North America is well positioned.

AB: Here in North America, we continue to benefit from our relative geographic position. Having friendly borders south and north of us, having friendly waters east and west of us somewhat insulates us from the tragic things that are going on in Eastern Europe. However, we still do face the knock-on effects of potentially higher wheat prices, potentially further supply chain disruptions. But we’re better positioned than the rest of the world in terms of future economic growth.

And, finally, what’s the key take away on a post-pandemic economy?

AB: It’s easy to be skeptical but it has rarely been beneficial to doubt human innovation. Over the long run those that have embraced innovation and optimism have been rewarded. And those that have expected the unexpected, and stayed true to their plan have typically been rewarded. And we see this time as no different. Yes, there may be bumps in the road. But the consumer is healthy, many corporations are healthy, and there are reasons for optimism.

Well, those are today’s Soundbites, brought to you by Investment Executive and powered by Canada Life. Our thanks again to Aylon Ben-Shlomo of Aristotle Capital Management.

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