Expert Opinion
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Monday 17 September 2018 Expert opinion Last week we held our Switzer Listed Investment Conference (SLIC) and gathered together the best investment minds in the country that manage LICs. Today, I share with you a number of the investment tips that I picked up at the three conferences. Paul Rickard also answers a very important question raised at one of the conferences in his article – The best managed investment. James Dunn takes a look at 5 stocks to ride the next infrastructure boom, and in Buy, Hold, Sell – what the brokers say, Myer gets two upgrades. Sincerely, Peter Switzer Inside this Issue 02 The stocks and strategies from our SLIC conferences that will make me money The professional’s secrets by Peter Switzer 04 5 stocks to ride the infrastructure boom Catch the next wave by James Dunn 07 The best managed investment Which one? 5 stocks to ride the by Paul Rickard 11 3 companies to be affected by electric vehicles infrastructure boom Two centuries old by James Dunn by Roger Montgomery 04 13 Buy, Hold, Sell – what the brokers say Myer gets double upgrade by Rudi Filapek-Vandyck Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before Switzer Super Report is published by Switzer Financial Group Pty Ltd AFSL No. 286 531 acting, consider the appropriateness of the information, having regard to the Level 4, 10 Spring Street, Sydney, NSW, 2000 individual's objectives, financial situation and needs and, if necessary, seek T: 1300 794 893 F: (02) 9222 1456 appropriate professional advice. The stocks and strategies from our SLIC conferences that will make me money by Peter Switzer The whole point of the Switzer Report is to give you a Look for moats crucial competitive edge in building your wealth, so when we put on something like our full day Switzer Paul Black was beamed in from Laguna Beach, Listed Investment Conference (SLIC) in Sydney, California, USA and explained the investment drivers Melbourne and Brisbane, we expect to unearth behind his global growth fund — WCM Investment learnings and investment ideas that could really make Management — outperforming the global benchmark a difference to how you should invest. For those of by 5.2% every year for the last 10 years! That’s a you who couldn’t come along, let me recap and huge effort and two standout reasons resonated with underline what I learnt from my three-days of hosting me. some of the smartest investment minds in, and outside, the country. First, they look for companies that, as Warren Buffett put it, have wide moats. The idea here is that a Platinum’s Kerr Neilson, Investors Mutual’s Anton company with a wide moat is like a castle and the Tagliaferro, Perpetual’s Vince Pezzullo and moat offers the company protection for its market, its WCMQ’s Paul Black have long been legends of profits and its share price. However, the guys who stock-picking and every time I get to talk to them, I drive the local WCM Quality Growth fund, with the know I learn something that makes me a better ticker code WCMQ, say they look for companies with investor. growing moats. Look for the unloved These companies have a growing competitive advantage. By having a filtering system like this, Kerr Neilson admits he looks for the companies that WCM usually winds up with a bagful of very good have been mistreated by the market, which he operations, such that Paul is less concerned with the believes have lots of potential upside. He said he’s macroeconomic headwinds that can send stock not afraid to look through companies in the dinghy market indices plummeting. part of the market and when you think about it, a few years back, that’s where Bluescope was. He advised Look at the culture that you have to work out whether a market beating up on a company is linked to a structural problem or The WCM crew also believe the culture of a company where it is a temporary issue. can explain why it has a growing moat. Companies such as Costco, Amazon and Google have always When I recommended BHP some 18 months ago, it been singled out for their cultural quality. It’s not a was because I argued that its unloved status would ‘be all and end all’ matter but Black says there is a be temporary. And if you gave it three years to go high correlation between culture and company from $14 to $20, you’d still make $6 on $14, which performance. would have been a 42% return or 14% per annum. The actual return was $19 on $14 and that made it a The most recent addition to Paul’s portfolio is a 135% pay off and it was with arguably the best mining Canadian company called Shopify (SHOP) and company in the world. listening to him I had a new thought, and it surprised me that I’d never thought of this before — why would I Monday 17 September 2018 02 get a local fund manager to invest for me overseas? I should look out for our video replays of his wouldn’t want a New York based fund manager to presentation — it was very insightful. invest for me here, so why wouldn’t I use an overseas fund manager to invest overseas? Look for surprises Look for reality Another interesting presentation came from Simon Shields of Monash Absolute Investment Company, Back to local stocks, and two guys who impressed who explained how an absolute investing LIC plays the audiences were Anton Tagliaferro from Investors both a long and a short game. Mutual and Vince Pezzullo from Perpetual Equity Investment Company. How he played Afterpay Touch was very instructive. He explained how he didn’t go long the stock until it Anton gave us his four rules of investing: announced its plan to expand overseas. He said this news was not in the share price and as they had 1. Know the difference between speculating and proved the model locally, he foresaw there was investing. potential upside at $7.25. He then sold out 2. Understand momentum versus searching for progressively at $14.70 in July this year, $17.60 in value. August and then $20 again in August. 3. Avoid info-overload but search for knowledge, which he said this Report specializes in! He also said that some analysts are intimidated by (Thank you Anton.) big companies with plenty of influence. When that 4. Don’t get fooled by perception and always happens, it creates shorting opportunities because look for reality. the reality will eventually show up in the company’s accounts. He summed up his investment philosophy as: “We seek to buy and own companies with a competitive His LIC is trading at a discount to its net tangible advantage, with recurring earnings, run by capable assets and this led to a lot of questioning around the management that can grow…at a reasonable price.” potential gain when you buy into a LIC when the market is mispricing the actual value of the shares Investors Mutual looks for value beyond the top 20 and the performance of the fund manager. (And you stocks because Anton says most investors are can read Paul Rickard’s article today for a closer heavily exposed to these top stocks and he likes examination of that issue). “boring” companies, such as Pact and Amcor, rather than the likes of WiseTech. That said, those fund managers do need to communicate more effectively as some managers, Look for long-term growth who are good stock pickers in their own right, have shown themselves to be even better marketers of Perpetual’s Vince Pezzullo chases regular income their funds! and long-term capital growth and he likes the banks for a number of reasons, despite their Royal The lesson is to be mindful that LICs priced with a Commission challenges, with Westpac his favourite. significant premium could one day come back to bite He likes oil and thinks the outlook for commodities is you. positive, despite some short-term threats from Donald Trump’s trade war threats. Important: This content has been prepared without taking account of the objectives, financial situation or His top local holdings are: Westpac, Woolworths, needs of any particular individual. It does not Suncorp, NAB, BHP, Incitec Pivot, The Star, constitute formal advice. Consider the Oilsearch and Medibank. appropriateness of the information in regard to your circumstances. He’s worried about small regional banks and you Monday 17 September 2018 03 5 stocks to ride the infrastructure boom by James Dunn Australia has swung into an infrastructure boom, with high recently on the back of the FY18 result released spending accelerating on big-ticket public last month, which saw a 47% lift in net profit after tax infrastructure – roads, railways, runways, tunnels, (before amortization and significant items) and a very dams and electricity generation and distribution rosy outlook for the company’s Australian business, facilities. The infrastructure boom is taking over from with the company predicting an “extraordinary next mining construction, and as broker CommSec points decade” in infrastructure, with what chief executive out, the centre of construction activity is no longer Mike Kane describe as an “amazing” amount of work Western Australia, Northern Territory and northern on roads, highways, bridges, tunnels and airports. Queensland, but rather the growing population The stock market appears to believe that work in centres of south-east Australia.