In Quality We Trust

rudi-views
Always an independent thinker, Rudi has not shied away from making big out-of-consensus predictions that proved accurate later on. When Rio Tinto shares surged above $120 he wrote investors should sell. In mid-2008 he warned investors not to hold on to equities in oil producers. In August 2008 he predicted the largest sell-off in commodities stocks was about to follow. In 2009 he suggested Australian banks were an excellent buy. Between 2011 and 2015 Rudi consistently maintained investors were better off avoiding exposure to commodities and to commodities stocks. Post GFC, he dedicated his research to finding All-Weather Performers. See also "All-Weather Performers" on this website, as well as the Special Reports section.

Rudi's View | May 30 2019

In this week's Weekly Insights (published in two parts):

-Conviction Calls, Part I
-In Quality We Trust
-Conviction Calls, Part II
-Rudi On Tour

[Non-highlighted parts will appear in Part Two on Friday]

By Rudi Filapek-Vandyck, Editor FNArena

In Quality We Trust

About one year ago today there was virtually no one in the Australian share market who was interested in buying shares in TechnologyOne ((TNE)).

There was the occasional analyst who dared to point out the shares looked too cheap in light of the company's admirable track record, and ongoing buoyant growth prospects, but few only were paying attention.

One of the few was I because the FNArena/Vested Equities All-Weather Model Portfolio (see further below) owns shares in the company and I personally regard TechnologyOne the highest quality software company listed on the ASX, and one of the true all-weather performers locally.

But, as said, nobody wanted a bar of it. Upon persistent failure to move away from the $5 mark, the share price spent some time near $4.50 before turning back to around $5, where it still resided when I presented at the national conference of the Australian Investors Association (AIA) in early August.

There I was asked about my stock tip for the year ahead and I nominated TechnologyOne. More than ten years of growth in earnings per share averaging circa 15% per annum, and the decade ahead will most likely see more of the same, I explained at the conference. What exactly is there not to like??
It's not a question many are asking about this same stock today. In between last year's AIA conference and the company's interim earnings report earlier this month the share price had rallied to near $9.50, or more than double the $4.50 it was languishing at a little over a year ago.

Yes, I am hopeful this stock might catapult me to last year's best stock picker at the upcoming AIA conference in late July, even though the share price has rapidly given back a chunk of that massive rally since the interim report was released. Truth is I never thought TechnologyOne shares would double from last year's too cheap sub-$5 price level, but I knew it would only be a matter of time before momentum would revisit this champion software company.

This is what I have learned from observing the Australian share market over nearly two decades: a great and high quality, reliable performer such as is TechnologyOne can fall temporarily out of favour, for all kinds of reasons, but it never lasts long. This is one key difference with shares in companies of a lesser quality and with a far less admirable track record; they can remain out of favour for far longer than you and I can keep our faith in a favourable ending.

Most investors get interested in a stock after it has fallen by what appears a ridiculous percentage, and then risk getting caught into temporary rallies, followed up by ongoing bad news and further share price weakness. EclipX Group ((ECX)) is one such fine example. iSentia ((ISD)) is another one.

Sure, Myer ((MYR)) shares doubled between early March and mid-April, so congratulations to everybody who was on board (conveniently forgetting all the money that was lost trying to pick the bottom in the Myer share price during the eight years prior).


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