“The market is inefficient and that is our opportunity”: Magellan’s 3 quality stock picks for these turbulent times

In the immediate aftermath of Trump’s “Liberation Day”, a penny for the thoughts of global equities portfolio managers everywhere.

The aptly-named Magellan has built a reputation on safely navigating the rough seas of global equities markets, with its Global Fund returning 11.71% p.a. since its inception in 2007.

And Magellan’s investing philosophy remains the same in the face of Trump’s latest tariffs and ongoing geopolitical uncertainty - invest in quality global companies with sustainable competitive advantages that can compound growth over the long term.

That was the overarching message of Magellan’s 2025 adviser roadshow, where global equities portfolio managers Arvid Streimann, Alan Pullen and Nikki Thomas discussed the macroeconomic outlook, emerging megatrends to keep an eye on, the T-word (tariffs), and shared their top global stock picks.

Investing for the future

Streimann, portfolio manager of Magellan’s Global Fund (ASX: MGOC), says the fund remains focused on finding high quality companies and minimising downside risk.

“We're not swinging for the fences when we're doing this. We invest in a very deliberate way and a very robust way, and that's not going to change," he says.

When it comes to AI, he believes the incumbent big tech companies are best placed to dominate because of their existing customer bases and budgets for research, development and acquisition.

He’s also steering clear of Chinese companies on the basis of dual geopolitical risks: Trump’s antagonism for China and the ever-present risk of governmental overreach.

“I fundamentally believe that the Chinese government will always interfere with Chinese companies and that's bad for investors,” Streimann says.

Arvid’s pick - L'Oréal SA (EPA: OR)

The world’s largest cosmetics company, L'Oréal, is up more than 100% since 2019 and has a market cap of €191 billion, larger than anything on the ASX. In the same period, its main competitor, Estée Lauder, is down 40%.

L'Oréal boasts three times the market share of any of its competitors, something Streimann puts down to its good management, wide-ranging stable of brands and its ability to successfully navigate the rise of dedicated beauty stores like MECCA and Sephora over the last decade.

"[L'Oréal] has been on the right side of the distribution change and that wasn't luck, that was good management," Streimann says.

Investing in quality

Pullen, portfolio manager of the Magellan Global Opportunities Fund, says it’s important to ignore the short-term noise.

“Quality companies are systematically undervalued by the market because quality works over the long term and the market is focused on the short term. We invest in companies trading below their intrinsic value. If you're not investing based on intrinsic value, you're a speculator. You're looking at numbers on a screen hoping they go higher," he says.

While retail investors, passive investors and even hedge funds are guilty of following narratives, Magellan values companies that demonstrate compounding growth over chasing the best quarterly earnings calls.

“The market is inefficient and that is our opportunity. We are long-term investors,” says Pullen.

While big tech and even Bitcoin have produced outsized returns for investors in recent years, there’s now an oversaturation that means other sectors that are arguably more resistant to Trump’s trade war are undervalued and overlooked.

“When there is an intense focus on one part of the market, you can actually get opportunities in other parts of the market opening up,” says Pullen.

“We've always found that the consumer staples sector and the healthcare sector are rich hunting grounds for high quality companies, companies with enduring brands, operating consolidated industry structures and with huge scale advantages.”

In the US, food and beverage spend has risen at 5% CAGR over the last 60 years, with healthcare at a 9% CAGR over the same period, demonstrating sustainable growth regardless of the prevailing macroeconomic environment.

Robust consumer companies also offer great downside protection, with stocks in these sectors seeing less than half the average drawdown of the wider market, says Pullen.

In terms of AI, semiconductors remain the “buy the shovels” play, according to Pullen.

Chip companies like TSMC (NASDAQ: TSM), Cadence Design Systems (NYSE: CDNS) , Synopsys (NASDAQ: SNPS) and ASML (NYSE: ASML)  will benefit from the ever-increasing demand for computing power, whether that comes from large language models (LLMs), driverless cars or the latest iPhone processors.

Pullen's pick - Universal Music Group NV (AMS: UMG)

As the world’s largest record label, UMG has an exceedingly strong economic moat, according to Pullen, setting it up well for future growth.

Subscription services are likely to rise in future as this is a key way younger generations access music, with emerging markets and so-called super fans presenting great opportunities for further monetisation.

“We think this company can grow revenue at 8-10%, not just for two or three years but for a decade. And that's long-term compounding growth combined with the strong economic moat that we're looking for,” says Pullen.

“The monetisation of music has a long way to go."

Investing for a changing world

For Thomas, Magellan’s High Conviction Fund (ASX: MHHT) portfolio manager, fundamentals remain the most important factor even as the technological and economic landscape evolves.

“It's not a punters club. Every stock in this portfolio is great quality, highly attractive, and it's got a job to do."

With a fund comprised of only 20 stocks, there’s increased focus on companies in attractive industries with operational flexibility and economic moats.

“We are looking for those cash flow compounding machines,” says Thomas. “The term we internally have always called reinvestment potential. When you combine all of these factors that lead you to a quality universe, you get familiar names hiding in plain sight. Companies like Amazon and VISA.”

This remains Magellan’s guiding principle even in the face of tariffs and stock market volatility.

“It's good also to remember markets overshoot in both directions… so when we're thinking about disruption and events that could impact markets, economies and industries, I think you want to be in those high quality companies.”

Thomas's pick - Mercado Libre (NASDAQ: MELI)

The Argentinian e-commerce fintech giant has more than 100 million e-commerce customers and around 60 million digital banking customers, giving it around 20% penetration in the emerging Latin American markets.

Thomas predicts Mercado Libre’s compounded EPS could grow at around 30% p.a. as it leverages its e-commerce platform and makes inroads in onboarding the traditionally-unbanked Mexican population.

“It looks a bit like an Amazon to be honest," Thomas says.

Experts in global investing

Magellan focus on investing in the world’s best companies to grow and protect the wealth of their clients. For further information, please visit their website.