The Nutshell Growth Fund has identified Adobe, Auto Trader and Amphenol as quality stocks whose current valuations offer attractive prospective returns.
The fund invests in businesses with a strong record of revenue and profit growth, resilient margins, attractive returns on capital and substantial cash generation, but only when their valuations are reasonable.
On Adobe, the fund said the market is no longer placing a premium valuation on its strengths, with the earnings multiple having fallen as investors focused on the competitive threat from AI. It believes much of that risk is now reflected in the price, and noted management announced a significant share buyback programme earlier this year.
Auto Trader operates the UK's largest digital automotive marketplace. The fund said the shares have weakened due to concerns about relationships with dealers and the impact of AI on online search, but argued these concerns underestimate the value of its brand, audience, inventory access and proprietary market data.
Amphenol makes connectors, cables and sensors used across data centres, communications networks, industrial equipment and aerospace. The fund acknowledged Amphenol is not conventionally cheap on a headline earnings multiple, but said its exceptional execution and potential for growth justify a higher multiple.