By John Fox, CFA®
CEO
After two years of limited travel, Fenimore’s investment research analysts are back in full swing meeting with management teams in person at their headquarters, conferences, and industry events. During the last month, we met with a couple dozen companies. While there are certainly challenges, executives are not pessimistic.
Insights from Our Travels
- Banks: Banks seem encouraged by the financial strength of their customers and the expected increases in short-term rates by the Federal Reserve. Banks expect they’ll be able to increase net interest margins — the difference between interest paid and received — as a result.
- Insurers: Insurance premium rates continue to increase which is good for the profits of our insurance holdings. With increasing inflation and a war in Europe, it is widely appreciated that it is a risky world which increases demand for insurance.
- HVAC Companies: The industry is undergoing regulatory changes over the next three years that will lead to significant redesigns of product lines. This will be an enormous engineering challenge, but historically this has led to higher prices on AC units as well as higher profits. We believe this should be a tailwind while customers should receive increased energy savings due to technological advancements.
- Software Firms: We met with a handful of software companies that sell to financial institutions. The outlook for the year continues to be mid to high single-digit growth in revenue and we are confident in the ability of our holdings’ leaders to navigate current challenges.
- Earnings Growth: It is clear that the global supply chain problems and elevated transportation prices will be with us the rest of the year. At this point, we continue to expect companies to grow earnings over 2021 levels, but at a slower rate than we anticipated at the beginning of the year. We also expect our holdings to generate cash profits to invest in growth and return to shareholders through stock buybacks and increased dividends. A skilled management team is often crucial to a good investment experience.
Fenimore’s firsthand, in-depth research helps us know our holdings well and this gives us confidence as we seek to protect and grow your capital over the long term. We hope our research insights from these face-to-face meetings give you assurance too.
Please call us at 800-721-5391 if we can assist you. Thank you for your ongoing trust.