As we begin a new financial year, there are many enticing opportunities in Australia’s sharemarket, where bargain-hunting investors can uncover hidden gems with remarkable potential for growth and profitability.
Undoubtedly, the market has witnessed its fair share of volatility and uncertainty over the past six months. However, within this ebb and flow lies the chance to make promising investments at attractive valuations.
While some may succumb to pessimism, we, as steadfast advocates of the Australian market, maintain our positive stance and firmly believe that the best opportunities often emerge during times of market distress and dislocation.
Over next six months, the retail sector will present some of the best buying opportunities as earnings are downgraded to more realistic levels. Louise Kennerley
It is essential to recognise that the fluctuations and near-term weaknesses in the market are not indicative of a bleak future. Instead, they present a window of opportunity to identify undervalued assets with immense growth potential.
Sharemarkets are forward-looking and investors are trying to assess a company’s earnings potential 12 to 18 months ahead. As the momentum in downgrades to company earnings picks up in the coming months, savvy investors can capitalise on the dip in share prices that can potentially result in fruitful returns.
Moreover, it is crucial to contextualise the local market within the global landscape. While other developed markets are experiencing deep downgrades and macroeconomic uncertainties, we firmly believe that Australia can weather the storm and avoid a similar fate.
A pickup in immigration, international students, and international travellers along with strong commodity prices will help offset much of the weaknesses in consumer spending in the next 18 months caused by higher interest rates.
As bottom-up fundamental investors, we are keen to focus on individual company stories – compelling opportunities await those who remain vigilant amidst a weakening near-term outlook.
‘Intriguing’ stock picks
One such example is Johns Lyng Group, a US designer, manufacturer and marketer of access equipment that has long-term contracts with insurance companies to provide repair services when there is a claim.
It is a high-growth company that has had extremely strong earnings visibility for years. Recently, it upgraded its earnings again by 10 per cent, taking full-year growth to 40 per cent, and analysts are expecting this company to grow 10 per cent a year for the next three years.
The share price fell on the same day as the upgrade, just meeting the hefty expectations, but we see this as a buying opportunity.
Xero, a high-growth tech company that is going through its transition towards profitability, is another intriguing prospect despite its strong recent rallies. Its latest announcements confirm that it has incredible pricing power as well as a strong focus on costs as it grows rapidly.
Additionally, we believe the next six months will present some of the best buying opportunities in the consumer sectors as earnings are downgraded to more realistic levels and business models are stress tested.
High-quality retailers will manage inventory and costs well and in 12 months’ time we will be looking at the prospect of interest rate cuts, which generally bodes well for share prices.
So as we look to allocate capital in the next 12 months, volatility and sharemarket weakness could present a compelling opportunity for investors if they know where to look.
Jun Bei Liu is lead portfolio manager for the Tribeca Alpha Plus Fund.
This article was originally posted by The Australian Financial Review here.
Disclaimer: This material has been prepared by The Australian Financial Review, published on 2 July 2023. HM1 is not responsible for the content of linked websites or content prepared by third party. The inclusion of these links and third-party content does not in any way imply any form of endorsement by HM1 of the products or services provided by persons or organisations who are responsible for the linked websites and third-party content. This information is for general information only and does not consider the objectives, financial situation or needs of any person. Before making an investment decision, you should read the relevant disclosure document (if appropriate) and seek professional advice to determine whether the investment and information is suitable for you.
