Even as Emma Goodsell warns the market could be near a peak, the $6 billion Airlie Funds Management’s portfolio manager is seeing some buying opportunities, after a week of turbulent trading. After last week's fierce sell-down, she views a company as being priced at interesting levels is building products firm James Hardie. She considers it as a good opportunity after the sell off and believes it is a high-quality business which usually trades at premium. It has a superior business model, however, in the short term it's moved down with the US homebuilders.
The US market is a receiver of James Hardie’s building products and Goodsell points to the stability over the past decade of the firm's gross margin. At the height of the global financial crisis, they made over $200 million of EBIT. Through the cycle it's their pricing power. With the Dow Jones Industrial Average shedding more than 1000 points in two sessions, US stocks also went on a rollercoaster ride during the week, before recovering a portion of that loss as the week drew to a close.
Goodsell quotes Sir John Templeton, who was regarded as one of the world's greatest stock pickers during his time, when thinking about how to invest through volatile markets, who famously said that bull markets are born on pessimism and die on euphoria. Goodsell says ‘it has been noticed that euphoria has come back into the market in the first six-month period, which for a long time was lacking elevated valuations it seemed’.
Some of the most expensive stocks saw their price-earnings ratios extended, in the August reporting season, enthusiasm for some parts of the market was noticeable, where even after reporting in-line results. On the basis of the quality of the results, moves that we saw in stock prices didn't always make sense to me. Including companies such as Afterpay, Appen and WiseTech, the technology sector consists of a select basket of stocks.
Where demand for their core product has grown at a 10 percent rate for 30 years, there are not that many businesses around the globe. She also finds Origin the energy company is cheap as they are in a position to pay 60c dividends in two years which at current share price is too cheap. Australia struggle to put their cash to work to earn a decent return, which has a lot of high-returning legacy business referring to Qantas.
There is always opportunity in a market where prices change rapidly, as it rages about the value of active versus passive investing styles. John Sevior and David Cooper, two stock picker John Sevior and David Cooper, in 2012 founded Airlie.
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