7 fund managers give us 19 investment ideas across Australian and global equities

Not only did the speakers at the recent Pinnacle Summit give investors the big themes as Hans Lee writes in this wire, they also identified plenty of investment opportunities across global and Australian equities, large and small. 

In this wire, I share their key stock opportunities for the next 12 months. 

Note: the opportunities identified below are all currently held with one or more of the funds. 

Global equities opportunities

Jacob Mitchell, CIO and Lead Portfolio Manager at Antipodes, believes in paying the right multiple for tomorrow’s winners. Looking at structural transition stories in the tangible onshore and decarbonisation, he likes TotalEnergies (NYSE: TTE) 

“An oil company. But it’s an oil company that has been revising its investments towards natural gas as a transition fuel, hydrogen, as well as renewables. More than half of its investments are going into those areas. 

And if you’re worried about the cyclical downside in oil, just keep in mind that we’ve been underinvesting on the supply side. So even in the tough hard landing scenario, we haven’t had the supply response to higher prices that we’ve had in the past. You’re on about 15% free cash flow here. So there’s a lot of power in Total.”

Another area of structural change for Mitchell is AI adoption, which he sees as "a very long term trend’" where:

“the companies in the best position will tend to be the ones who can monetise it with their business customers.”

He singled out Microsoft (NASDAQ: MSFT) and its Copilot product which it will simply upsell in their current Microsoft 365 product. Mitchell doesn’t think that this has been factored into its pricing yet.

ETF

Antipodes Global Shares (Quoted Managed Fund) (AGX1)

Global Shares

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Hyperion Asset Management  Investment Specialist Jolon Knight wants to invest in companies that are highly innovative in their field, have pricing power and grow by taking market share. In AI and machine learning, he looks for companies that:

• Generate productivity benefits for their corporate clients;
• Chase incremental revenue opportunities - monetising AI/ML capabilities with additional pricing tiers, and have low/no customer acquisition costs;
• Strengthen their sustainable competitive advantages with stronger product/service offerings with embedded optionality.

Three global stocks he likes on this theme are:

• Microsoft (NASDAQ: MSFT) - “Its Copilot product will generate revenue increases”

• Workday (NASDAQ: WDAY) - “It’s thrown a lot of machine learning within that HR product”

• Service Now (NYSE: NOW) - “Its customer service bot that is being used very well is difficult to distinguish from a real person.”

Managed Fund

Hyperion Global Growth Companies Fund (Managed Fund)

Global Shares

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Julian Campbell-Wood, Portfolio Manager at Resolution Capital looks for high quality exposures to relevant real estate (think necessity retail, residential, healthcare, data centres/call towers, and logistics. Two opportunities he likes are:

• Unite Group UK (LON:UTG) builds and operates student accommodation in the UK, targeting the 24 research-intensive universities in the Russell Group 

• Equinix (NASDAQ: EQIX) provides critical infrastructure via hard-to-replicate data centres. With a US$85 billion portfolio, it is spending around US$2.5 billion/ year on new data centres.

Managed Fund

Resolution Capital Global Property Securities Fund (Managed Fund)

Global Property

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Spheria Asset Management is regarded as one of the leading Australian small and microcap fund managers. But at the event, portfolio manager, Marcus Burns, highlighted the firm’s global small cap strategy and the vast opportunities in the global small cap universe.

The following two holdings in the Spheria Global Opportunities Fund were discussed:

• Acceleron Industries (SW:ACLN). A spinoff from ABB, Acceleron is the global leader in the manufacture of “off-highway” turbochargers for sale to engine OEMs in the merchant marine and energy end markets. Burns notes

“The thing about turbochargers is that they have a really tough life. They’re installed in engines; they last for about 20 years. They operate for about 5,000 hours a year, so they’re really on the whole time. The tips on the blades turn at almost the speed of sound. So you get this incredible wear on these engines. 

Which is a great business for Acceleron because they sell the turbocharger and then they have to maintain it. 75% of its revenue comes from maintenance; take them out, service them and reinstall them. They are absolutely critical to the operation of the ship.”

• Zuken (TWO:6847) - A Japanese company providing electrical and electronic design solutions to support development of high-tech products and solutions, ‘Trading at 25 times PE’, Burns comments 

“It’s growing at not a dissimilar rate to Altium (ASX:ALT) but trading on less than half the multiple.”

Managed Fund

Spheria Global Opportunities Fund

Global Shares

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Australian equities

Blake Henricks, Deputy MD and Portfolio Manager at Firetrail Investments wants to invest in uncomfortable cyclical opportunities.

As Hendricks notes, “Old world assets are becoming more attractive due to barriers for building new things becoming harder.”

He likes Incitec Pivot (ASX: IPL), notwithstanding the fact it’s currently out of favour for a number of reasons. Incitec is radically simplifying its business towards becoming a pure play explosives business.

“One of the things miners need to do is move material. And to move material they need a lot of ammonium nitrate, or what we’d call explosives. In 2016, this huge ammonium nitrate plan was built in WA. Market has been oversupplied for close to a decade. But how many explosives plants have been built since 2016? Zero. 

And what we see is a very large shortfall in the supply of ammonium nitrate. You might say we could import it. But it’s not a great solution. But not only do explosives not travel well, the major producer of explosives globally is Russia.”

Hendricks also sees potential in brands with customer bases, calling out Domino's Pizza (ASX: DMP), ‘a huge COVID winner, to a big inflation loser’ as the price of food and labour has increased. Notwithstanding its ‘7 downgrades in 2 years’, for Hendricks it fits the mould of a brand with a customer base.

Managed Fund

Spheria Global Opportunities Fund

Global Shares

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David Wanis Founding Partner and CIO and Portfolio Manager at Longwave Capital wants to return to investing in companies with strong ROEs and cashflows. He likes these two companies:

• Nanosonics (ASX: NAN) An Australian medical device company specialising in the disinfection of hospital devices. Its flagship product is Trophon which disinfects ultrasound machines in a hospital setting. "It's the classic razor and razor blade business model", he says. "It sells the machine into the hospital. But every year they are selling consumables into that installed device." 

• CSR (ASX: CSR) which Wanis describes as "A business that everyone knows, but often the history of knowledge can weigh us down in what the company used to do." It has divested from sugar and glass, retained a small position in aluminium and has focussed its business where it is number 1 or 2 in building products in consolidated markets with little competition.

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Solaris Investment Management’s CIO/Analyst Michael Bell wants to invest in companies with quality earnings: earnings backed by real cash flows. He particularly likes Cochlear (ASX: COH) and Altium (ASX: ALU):

Both companies are strong leaders in their industry, with strong pricing power. Both have good balance sheets and good management. And they both have a history of strong earnings and revenue growth. What do we see when we look at cashflow growth? It's close to earnings growth.

Dividend payers 

For investors seeking income, the two doctors from Plato Investment Management, MD Dr Don Hamson and Senior Portfolio Manager Peter Gardner drew attention to companies who had good payout ratios for the FY23 earnings

• Commonwealth Bank (ASX: CBA) 74%
• JB Hi Fi (ASX:ASX: JBH) 65%
• Woolworths (ASX: WOW)  “a well managed business” with a payout ratio just shy of 79%
• BHP (ASX: BHP) 59%. Don and Peter called out the the increase for iron ore demand in India
• Woodside Energy (ASX: WDS) 80% payout ratio 

LIC

Plato Income Maximiser (PL8)

Australian Shares

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The bottom line 

The fund managers' picks reflect their views of how to think about the markets now. With different thinking comes different recommendations. And with some of the more common names in the wire above, there were some different views. To see those views, take a look again at this wire. 

Learn more

The annual Pinnacle Investment Summit took place across Australia over the past two weeks.

The Summit included investment insights from Pinnacle Investment Management Group’s affiliated asset managers including, Antipodes, Firetrail Investments, Hyperion Asset Management, Longwave Capital, Metrics Credit Partners, Plato Investment Management, Resolution Capital, Solaris Investment Management, and Spheria Asset Management.

Financial advisers and wholesale investors can access video replays from the Pinnacle Summit Series here: