Finding differentiated businesses in a growth-led market

With growth stocks buoying the market's narrow advance, Fidelity's Steve Wymer is navigating the dynamic backdrop to target "advantaged business models."

• The U.S. stock market's strong year-to-date gain reflects a favorable economy and solid corporate earnings but also high dispersion and select pockets of strength, says Fidelity Portfolio Manager Steve Wymer, who has found investment opportunities among differentiated, growth-oriented companies.
• "Not all industries and companies have benefited equally from the rising tide, as investors have rewarded firms with an advantaged business model but punished those that are not meaningfully differentiated," according to Wymer, who has helmed Fidelity^® Growth Company Fund since 1997.
• In managing the domestic equity strategy, Wymer is anchored by his philosophy that the market often underestimates the duration of a company's growth, particularly in cases where the resiliency and extensibility of the business model are underappreciated. Thus, he favors firms operating in well-positioned industries and niches that he believes can deliver persistent sales and earnings growth.
• Wymer says the fund holding that best exemplifies his investment criteria is Nvidia, which dominates the market for advanced graphics chips that are the lifeblood of new generative artificial intelligence systems. Since early 2023, the company has reported financial results far exceeding analysts' consensus expectation, prompting management to raise its financial forecasts.
• Wymer believes Nvidia's growth wave hasn't crested, citing the company's upcoming semiconductor, networking and software products among just some of its key longer-term drivers. Nvidia is by far the fund's top holding, at 17% of assets, and its biggest overweight versus the benchmark as of October 31.
• Elsewhere within the information technology sector, Wymer is similarly optimistic about Pure Storage, a maker of all-flash data storage hardware and software products. "This is a niche business that has achieved attractive, secular growth and has a bright outlook," says Wymer, explaining that its products provide efficiencies in flash operations and environmental heating and power usage, making them optimal for AI.
• Looking ahead, Wymer expects that economic growth is likely to be uneven, rewarding, and challenging industries and companies in varying ways.
• "I believe firms with an advantaged business model and other differentiators, like Nvidia and Pure Storage, have the potential to prosper, even in an uncertain macro environment," he concludes.