Which Clime shares will offer attractive returns despite high inflation?
We think Australia resource and energy companies will continue to perform well during this period of inflation Basically, global inflationary pressures come from rising commodity and input prices. Additionally, global energy and mining companies have cut spending significantly over the past decade, paving the way for the next commodity bull market.
Our main preferences in the space remain the recently expanded operations of Woodside and BHP, due to high quality assets and high dividends. And ALS, a service provider to mining companies, should benefit from a recovery in exploration spending.
The segment of the market that has historically performed well during periods of inflation are the Australian supermarket players, namely Woolworths and Coles.
Although we may see trade-ins to lower priced items, consumers will continue to buy food and other goods. The size and strength of the two large players will allow margins to remain stable in a more difficult environment for the consumer sector at large.
Which stocks do you think look cheap after the recent market volatility?
We are seeing a sharp reversal in the pandemic period trend from consumption of goods to services.
Qantas emerged this year with a lower cost base, a more efficient fleet and an improved industry structure given Virgin Australia’s more rational approach to private equity.
We are seeing a strong recovery in domestic and international air travel as accumulated savings are spent on experiences rather than furnishings.
Going by my travel schedule, any further decline in the stock price will be a very attractive opportunity for long-term investors.
What sectors and stocks are you avoiding or selling positions in, given the rising rates and high inflationary environment?
We will continue to avoid companies with a high price-earnings (PE) ratio combined with a limited IT earnings history. We believe that a valuation disparity between high and low PE parts of the market has yet to narrow.
With evidence that inflation was more structural than cyclical, we quickly moved to remove consumer discretionary inventory of our portfolios. We believe it is prudent to continue to avoid consumer names at this time. However, the list of quality Australian companies at attractive prices is growing, and we look to the current volatile period to buy these companies at a price below our view of intrinsic value.
Which stocks do you think are attractive buyout targets?
We see strong value in a number of Australian companies. With large amounts of cash ready to be deployed by Australian private equity and super funds, we believe a number of Australian companies will be taken over in the near term.
This year, we received offers for the portfolio interests Ramsay Health Care and Atlas Arteria.
I have long thought that Incitec Pivot, a current holding in the portfolio, was a prime candidate for takeover. The company’s core explosives and fertilizers businesses are experiencing strong market conditions, and with strategic assets in Australia and the United States, global competitors will easily be able to extract strong synergies should the offer arise. .
Which stock do you think is most undervalued by the market?
James Hardie Industries is starting to look extremely interesting at current levels. While rising US interest rates will temper demand for goods, James Hardie exemplified a strong record of operating performance through both bad times and good times.
Against the backdrop, the US real estate market remains chronically undersupplied, supporting longer-term demand for Hardie’s siding business. The company is now less cyclical than in the past, as much of its earnings are exposed to the repair and renovation market. The company also has a clear track record of consistently growing above market averages, indicating market share gains.
Do you have hobbies or daily routines?
After going through the GFC and other periods of volatility, the most important thing is to maintain routines that give you balance.
I started swimming a few years ago and I find that the repetitive, almost hyped nature allows my brain to process whatever is going on in the world, while I get rid of the stress that you can’t. prevent from assuming.
I also try to read a little each day. The last book I finished was Richer, wiser, happier by William Green. He interviews some of the great investors of our time. The human aspect reminds me that these great ones don’t succeed all the time either.
Have you enjoyed any good podcasts or TV shows lately?
I’m a big fan of podcasts and I think this passive way of learning from history and other great investment managers helps me overcome the complexities of building portfolios.
For updates on current market challenges and the thought I listen to Macro Voice, hosted by Eric Townsend. I may not agree with all of their views, but it helps me understand general market behavior.
In addition to building portfolios, in my role as CIO, I am building a fund management business. To help me think longer term, my favorite podcast is Capital distributors by Ted Sides.
For something completely unrelated to financial markets, as a basketball fan, I really enjoyed the new Netflix movie Hustle, starring Adam Sandler.
What is your favorite local bar or restaurant? What is your favorite command?
- Common Room Co – Caulfield North
- Birch Muesli
- Kale smoothie
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