Thinking green and biotech (and a little less inflation)
Three things to watch in 2022.
Inflation It continues to be top of mind, but we anticipate that it will begin to moderate this year. This slower second derivative is advantageous for companies with strong secular growth potential and the pricing power to potentially outrun inflation. During the last year, costs and inputs have exploded across the economy, but market-leading companies whose competitive advantages have enabled them to raise prices and maintain market share aren’t likely to lower prices once inflation moderates. This creates a favorable dynamic. For growth investors, the damaging impacts of inflation highlight the value of innovative, expanding, market-leading companies—those in position to push prices upward and, as a result, see dramatic margin expansion as inflation slows.
Continued move to a green economy There is growing realization that, collectively, the planet needs to increase efforts to reduce harmful impacts to the environment, particularly related to carbon-producing oil and diesel fuels. This kind of “woke” mentality, we believe, will permanently affect what consumers value and their subsequent purchasing behaviors. From an investing standpoint, whenever there is a new way of doing things, it creates tremendous opportunities in new companies and future industry leaders. As we continue to move toward a more sustainable and green economy, an ongoing focus for our team remains discovering exceptional companies involved in enabling the technology and processes for generating sustainable power and/or developing products that use it.
A biotechnology renaissance We’ve long considered biotech an area from which some of the world's most exciting innovations emerge, and we believe we are experiencing a golden age of opportunity in this sector. What we love about biotech is that it is not cyclical—the innovation cycle is far more important than the economic cycle when it comes to biotech companies. With this innovation comes volatility, but ultimately, it’s the future of medicine. Continued progress in DNA sequencing is leading to further advancements in precision medicine and the promise of life-changing treatments for previously untreatable diseases. Also, machine learning and artificial intelligence are becoming very big themes when it comes to analyzing all the new data that scientists are now able to extract about the human body. This will continue to launch innovations in biotech and opportunities for investors.