Not even retirement can keep Anton Tagliaferro from finding value

"Central banks used to be completely independent and quite ruthless when things like inflation turned up," Tagliaferro said. 

"Nowadays, they seem to be very willing and able to cut rates to zero when there are times of trouble or turmoil or when financial markets need a boost. But we're seeing now when inflation is very high, at 40-year highs, they're really dragging their feet in terms of putting rates up." 

So what's the outlook on the pathway for central banks from here? Well, Tagliaferro believes that there is some hope that inflation will come down rapidly at some point. 

"Obviously, the oil price isn't going to double again... And the supply chain disruptions may sort themselves out. So there are signs that some parts of what's caused high inflation are coming off," he said. 

"But on the other hand, we potentially have an issue with wages. While unemployment is low and the cost of living has gone up so much in various parts of the world, people are going to rightly want more wages, which in itself is inflationary." 

In addition, it doesn't help that the Australian dollar has fallen rapidly in recent months and that we import most of our goods. Meaning, we are likely going to suffer through higher prices in the next few months. 

"I think there is still a bit of water to go under the bridge," Tagliaferro said. 

"When you look at how equity markets have reacted in the last few weeks, I think they're already assuming that inflation's going to come off and that rates won't have to go too high, and at some point, they're going to start coming down. 

"There is a risk to that scenario. Inflation could prove to be a bit more sticky, and wages growth could come through. And in Australia, we have the additional problem of the lower dollar causing price rises. Inflation may be a lot stickier than what central banks are assuming." 

Where Anton Tagliaferro is seeing value (and spoiler alert: it's still not tech)

Since the beginning of the year, the S&P/ASX All Tech Index has fallen 33%. Energy, on the other hand, is up a whopping 46%. But even that derating in tech is not enough to lure in a seasoned value investor like Tagliaferro. 

"If you look at the Australian tech sector, there aren't many good quality companies, to be honest," he said. 

"Their valuations are still relatively high. We're seeing a few takeovers in Australia of some tech companies, which is probably a good sign, but I'd still be cautious of the tech sector here in Australia." 

In the US, on the other hand, household names like Facebook/Meta Platforms ( ) and Alphabet/Google (NASDAQ: GOOGL) are extremely profitable and have come down 40-70%. 

"These are extremely valuable global brand names generating huge cash flows with cash on balance sheets," Tagliaferro said. 

"Some of those are probably beginning to look interesting from a long-term point of view." 

So there's not a single quality tech company in Australia? I asked (somewhat desperately). Well, Tagliaferro concedes that IML does own "a few". He points to Infomedia (ASX: IFM) as his pick of the bunch but reiterates that Australia continues to come up short compared to the US. 

So if not tech, where is Tagliaferro finding value? Well, with the recent rally (bear market bounce or not), it's become more difficult to uncover the gems, he said. But Aurizon Holdings (ASX: AZJ) continues to impress. 

"It has very stable revenues. Okay, coal is a bit on the nose in Australia. The rest of the world seems very happy to consume our coal ... But Aurizon has long-term contracts," he said. 

"Obviously, the coal sector's doing very well, so its customers are doing very well, which helps when you're negotiating prices. And Aurizon has a very good management team." 

Aurizon has been busy expanding into moving bulk commodities - such as iron ore, cement, bauxite, alumina, base metals, grain, livestock, and fertiliser. 

"Coal is in long-term decline over the next 20-odd years, so their plan is to use the cash flow from their coal haulage to expand the bulk operations," Tagliaferro added. 

He also pointed to GUD Holdings (ASX: GUD) as a recent purchase on share price weakness. 

However, until we know how badly impacted the global economy is going to be in 2023, it's quite difficult to accurately assess company earnings, Tagliaferro said, making it ever the more difficult to value companies and ultimately, be an investor in this day and age. 

The most consistent performers from Tagliaferro's career

"There were times when I owned it when people would say, 'Why do you own it? It's a bit of a dog.' But Amcor, through luck or good management, has made a couple of very good acquisitions in the last 10 to 12 years," he said. 

"They took over the Alcoa assets in 2009, right at the bottom of the cycle for a very cheap price. That really helped their growth. And about three or four years ago they took over Bemis and extracted another $200 million in synergies." 

He also pointed to Sonic Healthcare (ASX: SHL) as another all-time great. 

"Sonic Healthcare started off with a couple of pathology labs in Australia. They expanded those over time. They have had the same management team there for the last 33 years," Tagliaferro said. 

"They've gone from basically a few labs in Australia to becoming the dominant pathology provider in Australia with 50% share... They're now the number one pathology provider in Germany, Belgium, and in the UK. Number three in the US. And that was from two or three labs in Australia." 

And a few anecdotes about the man himself 

While Tagliaferro has had a storied career - having been inducted into the Hall of Fame in 2005 and just this year, earning an Order of Australia for his services to the charitable and investment sectors, he's surprisingly humble. 

The recognition is "nice", but he doesn't dwell on it. He just gets back to doing what he loves most - investing. And while he is stepping away from his role at the helm of the investment manager he founded back in 1998, he's not giving up on investing altogether. 

"One of the things that has been a big surprise in the last 20 years has been how strong the resource sector has been," he said. 

"I remember back in the '80s and early '90s, the iron ore price was $20 a tonne. And the price used to be set every quarter." 

Back then, there were only three Australian iron ore producers - North Limited, Rio Tinto, and BHP, he recalled. 

"I don't think anybody then would've ever dreamt of the iron ore price getting to $100 a tonne or $150, or $80 or $90 or a $100 and staying there for long periods of time," Tagliaferro said. 

"And besides that, I think Australia in those days used to export 100 million tonnes of iron ore. Today we export over a billion tonnes. So it's been a tenfold increase in volumes and a fivefold increase in prices, which has just been incredible. 

"So if I knew then what I know now about the iron ore price, it would've probably been a very good place to invest. 

A specialist in Australian Equities for over 20 years