Hearts, Minds & Stocks

FYI | Nov 20 2018

By Peter Switzer, Switzer Super Report

The stocks in the hearts & minds of top fund managers

Last Friday, the Sohn Hearts and Minds 2018 conference was held and some top fund managers shared their best ideas for investing. Coming out of the pre-conference planning, Hearts and Minds Investments was listed with the ticker code HM1.

Hearts and Minds has a combined objective of providing a concentrated securities portfolio of the highest conviction ideas from leading Fund Managers, while also supporting Australian medical research institutes. The portfolio of HM1 is aimed at investors seeking exposure to a high-conviction portfolio of global equities. The portfolio was based on the selections of fund managers, who presented at this Conference in Melbourne last Friday and the recommendations of five leading fund managers.

The core fund managers are Magellan, Caledonia, Paradice, Cooper Investors and Regal Funds Management. As I wasn’t able to attend, I was happy that the AFR reported on the companies that were seen as great market ideas right now.

I’ll start with the locals and then see what FNArena’s [database of leading] analysts are saying about the stocks.

Emma Goodsell from Airlie Funds Management likes [plumbing supplier] Reece (REH) and sees $4 upside from its $10.77. This is a company I never think of investing in but when I’m renovating, it’s a top of mind business.

(The consensus of analysts has a target price of $14.28 so that’s a 33.7% upside story, if they’re right!)

Another top of mind stock that a top fund manager likes is my old favourite JB Hi-Fi (JBH). I don’t understand why this is now the most shorted stock on the Oz market. Tim Carleton of Auscap Asset Management is a JB fan and it’s great to know I’m not alone in liking the company. (The analysts tip it to be a $25.61 share in the future, so that’s an 8.5% upside.)

A company that has always been hard to love is Nufarm (NUF), despite the fact that it looks like being in the right space, namely food! But as Blake Henricks of Firetrail Investments points out — the drought hasn’t helped this agri-company. The contrarians have to believe that the drought will break and the share price will spike.

Those who want to feel for farmers will go long Nufarm but it’s a risky play, though history does show droughts do end. (The analysts see NUF as a $7.68 stock and if they’re on the money, that would be a 30% gain!)

One from the “never heard of it” class is Austin Engineering (ANG), which was put forward by Alex Waislitz of Thorney Investments. Last Friday the share started at 23 cents but he thinks it’s got reasons to see 30 cents. Maybe Alex’s recommendation helped it spike 4.35% to 24 cents on Friday and he thinks a dividend is set to be reinstated. Alex Waislitz has been long regarded as the smartest guy in the room and along the way he became a son-in-law to the legend of Visy, Richard Pratt. (ANG is not one for the analysts, so we’re in the hands of the smartest guy in the room!)

For those looking for overseas ideas, Nick Munro of Munro Partners, was the first to ever talk to me about FANG stocks. A year or so he went off his old favourites but told the conference he’s back ‘in love’ with Amazon. He says it was the second company to be a trillion dollar company but says it will be the first to be valued at $2 trillion! The first was PetroChina in 2007 but by 2008 its value had slumped to $260 billion! The GFC and a collapsing oil price weren’t a big help. (Zack Investments Research has Amazon as a darling, with 29 out of 33 analysts giving the stock the “strong buy” thumbs up. There were 2 “buys”, one “hold” and one “sell”!)

Another overseas company that Peter Cooper of Cooper Investments says has 68% upside over the next three years is Liberty Media Corp Series A Sirius XM (LSXMA), which is a US cable company that a number of my ‘smart guy’ buddies, such as Nathan Bell, has liked for a couple of years.

One last point

A number of the expert fund managers did like Asian stocks and I suspect, like me, they believe stocks from that neck of the woods have been beaten up by President Trump’s trade play and the rising dollar. However this looks like an interesting contrarian play on a region that will dominate global growth over the next 10 years. And on top of that, their stock markets have been clobbered of late.

If you need proof, have a look at the Hang Seng index out of Hong Kong. Since January 26, this market is down about 21%, which suggests that maybe 2019 might be good for those willing to punt on China and its Asian neighbours.

I tell you what, this Hearts and Mind conference has certainly grabbed my heart and mind, with some great stock ideas. And in its own right HM1 certainly looks like an interesting fund for those who want a little bit of high conviction!

Peter Switzer is the founder and publisher of the Switzer Super Report, a newsletter and website that offers advice, information and education to help you grow your DIY super.

Content included in this article is not by association the view of FNArena (see our disclaimer).

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 acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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