Every year, the country’s top equities investors make their way to the Sohn Hearts & Minds Investment Leaders Conference to pitch their best ideas for the year ahead.
As always, it can be hit-and-miss. Last year’s top stock picker Rikki Bannon chose Telix Pharmaceuticals, which makes prostate cancer imaging drug Illuccix. It has risen 150 per cent since.
Last year’s worst? Tribeca Investment Partners’ Jun Bei Liu chose Chinese variety store chain Miniso Group. Its shares have slumped a third. Ricky Sandler, of Eminence Capital, suggested a short on printer and cameras group Canon. Shares are up more than 30 per cent.
This year, Sohn was on tour for the third time in its nine-year history. The South Australian government made its own value investment by pumping a rumoured $500,000 into the event, in return for donations for local medical research and the chance to burnish its credentials as an investment hub.
The event has raised $70 million for medical research since its launch.
“There’s no finer place for the finance festival than in the festival city,” said Matthew Grounds. He, along with fellow Barrenjoey co-executive chairman Guy Fowler and investor Gary Weiss, is one of Sohn’s driving forces.
Chris Kourtis, Ellerston Capital
Donning a white lab coat, Mr Kourtis named wealth giant Perpetual as his pick of the year, adding that the “patient” was suffering from a “severe case of shareholder wealth destruction”.
“The problem has been very poor leadership at the very top, poor capital allocation and woeful execution,” he said. The funds management hall of famer, who has a reputation for picking up out-of-favour ASX stocks for cheap, said Perpetual shareholders were “feeling a little bit like the mayor of Hiroshima from ’45.” Shares have halved in the past four years.
Despite that, Kourtis said the stock was currently his largest position in the fund. Perpetual is in the midst of a demerger, having agreed to sell its valued corporate trust and wealth units to buyout fund KKR.
“If this [KKR] deal goes ahead, shareholders are going to receive about a billion dollars,” he said. “It’s trading at a massive discount to its peer group … [Perpetual is] the cheapest listed asset manager of scale in the universe.”
When Kourtis stepped onto the stage at last year’s Sohn Hearts & Minds event in Sydney, he named ASX health-tech ResMed, saying concerns that weight-loss drugs such as Ozempic would reduce the need for the company’s sleep apnoea products were overblown. ResMed would subsequently rebound 60 per cent.
Rikki Bannan, IFM Investors
Corporate Travel Management shares have slid more than 30 per cent since the start of the year, making the battered company travel specialist an attractive proposition, says Bannan, who invests on behalf of the country’s largest industry superannuation funds.
It is the second time Corporate Travel has been pitched at Sohn, although the first time, in 2016, it was a short idea from Perpetual’s Anthony Aboud, who was pessimistic about the company’s prospects.
One good reason to listen to Bannan is her pick last year: Telix Pharmaceuticals. Shares have surged 150 per cent since then, making it the best stock idea. She says the market has “simply become too negative on the earnings outlook” at Corporate Travel.
Sumit Gautam, Scalar Gauge Fund
The Dallas-based hedge fund manager has put a number on the upside of the Nasdaq-listed software stock’s $US3.8 billion ($5.9 billion) market capitalisation: 85 per cent. BlackLine’s software makes back-office administration easy, and Guatum says earnings are about to explode.
“The company is addressing the back-office needs for the controller. They’re helping companies do monthly reconciliation and a lot of other back-office functions,” he says. “In a few years’ time, you’re going to be able to get to somewhere about $US370 million of EBITDA … This is a very, very high-quality company. And we think that because of the margin improvement and valuation today.”
Vihari Ross, Antipodes
Boeing’s woes are helping its big European rival, says Ross, the former head of research at Magellan Financial. The French aircraft manufacturer is her pick for the year, having come through a “turbulent period” itself.
“They operate in a duopoly, and they are a leader in short-haul travel,” she says. “As ubiquitous as travel is for us as Australians, this is still to be unlocked in other parts of the world.
“As incomes grow, people’s desire to travel increases.
There’s going to be 4 billion additional passenger journeys over the next 20 years, and that’s going to be driven particularly by emerging markets.”
Airbus, she notes, is the leader in narrow-body planes.
Fleur Wright, Northcape Capital
“Beauty is big business,” says former UBS banker turned global equities portfolio manager Fleur Wright. “[Estée Lauder] is a great example of the type of high-quality business I like to invest in.”
Wright says she is taking advantage of an 80 per cent slump in Estée Lauder’s share price to buy. Shares fell as Chinese buyers stayed away from the brand.
“I’m here to tell you that the worst is over. Estée Lauder remains a quality business, and I’m buying it again,” says Wright. “Even though cosmetics are usually considered a consumer discretionary item, they have actually historically behaved more like a staple. We have a whole new senior management team ready to take Estée Lauder to the next level.”
Alex Pollak, Loftus Peak
A fund manager who specialises in disruption, Pollak names weight-loss drug manufacturer Eli Lilly as his pick of the year. And that’s after the share price more than doubled on the success of drugs that help reduce weight.
“Our view is that Lilly is cheap … because no one’s really done the investment arithmetic on what the size of the target addressable market for Lilly is. Let me tell you, it is absolutely huge,” says Pollak, a former Macquarie banker who invested in hot semiconductor stock Nvidia in 2016.
Developed as a diabetes cure, Eli Lilly’s Zepbound drug is being considered a cure-all for a range of diseases – something Pollak thinks is still being ignored by the wider market.
Beeneet Kothari, Tekne Capital Management
In his fifth pitch, the New York technology specialist says he is picking a stock so edgy that he had to “obtain an exemption, as it still trades on a non-major stock exchange”. The pitch is DiDi, the out-of-favour Chinese rideshare app. “We asked for this exemption because we think the stock is 100 per cent worth it,” says Kothari, who founded Tekne in 2012.
“We believe that both the magnitude and durability of its earnings power are misunderstood and mispriced.” DiDi, he says, has industry-leading profit growth, at three times its global peers’ average. The company was forced to delist in New York, but Kothari says he expects it to relist in Hong Kong.
Jeremy Bond, Terra Capital
The co-founder of the Sydney global resources fund has chosen this New York-listed silver miner as the best way of getting into a bull market for the commodity, which he describes as gold’s poorer cousin.
“Buying Coeur Mining over the next year will not only get our exposure to a commodity we think will continue to go up, but you’re getting exposure to a company that is massively deleveraging and starting to really perform,” he says. Shares in the stock have already rallied more than 150 per cent in the last 12 months, but Bond says it has further to run.
“There could be some really explosive growth in silver … Silver is the one to own in a precious metal bull market.”
Jordan Katz, Advent Global Opportunities
New York-listed plane parts manufacturer TransDigm is the top pick for this former JPMorgan banker turned aerospace and fintech specialist, who turned up on stage holding one of the company’s seatbelts.
They are in high demand from Airbus and Boeing, he says.
“When an airline buys a plane from Boeing or Airbus, they are simultaneously entering into an uncancellable 40-year subscription with TransDigm. Next time you’re sitting on a plane anywhere in the world, flip over the buckle, you’ll see the brand Amsafe – that’s a TransDigm subsidiary.” The company has a strong record of delivering returns, he adds.
Samir Mehta, J O Hambro
Tencent Music is the “Sixto Rodriguez of streaming’ – a reference to the late hidden genius of folk rock. That’s the view of the Singapore-based senior portfolio manager, who says the Chinese group, 52 per cent owned by Tencent, is returning money to shareholders and growing at the same time.
So far this year, Tencent Music shares are up 24 per cent.
Mehta says that the company has bought back $US1 billion of stock and is buying back another $US500 million.
“Generating cash and buying back stock is not something that you associate with Chinese companies,” he says. “But there’s been a big change in attitude in many of them.”
Ricky Sandler, Eminence Capital
The Wall Street hedge fund manager is backing this Spanish telecommunications infrastructure operator and likening the company’s 100,000-odd cell tower assets to perpetual bonds.
“These are critical infrastructures, supporting a growth industry, between the growth of wireless users, and the growth of data which is about 15 or 20 per cent,” says Sandler, who founded Eminence in 1999.
“There’s a persistent need for both more capacity and more coverage.”
Cellnex has traded largely flat over the past few years, but Sandler forecasts a dramatic turnaround by 2026.
“The stock price would be $U66 or double over two years,” he says.
This article was originally posted by The Australian Financial Review here.
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