Why this fundie buys the dip in bank shares

Which stocks does Clime have that offer attractive returns despite high inflation?

We believe that from Australia commodity and energy companies will continue to do well during this period of inflation Essentially, inflationary pressures in the world are driven by higher commodity and input prices. In addition, global energy and mining companies have significantly cut spending over the past decade, setting the stage for the next commodity bull market.

Our key preferences in the space remain the recently expanded Woodside and BHP businesses, driven by high-quality assets and high dividends. And ALS, a service provider to mining companies, will benefit from a recovery in exploration spending.

The market segment that has historically performed well during periods of inflation is the Australian supermarket players, Woolworths and Coles.

Although we may trade some for cheaper items, consumers will continue to buy food and other goods† The size and strength of the two major players will keep margins stable in a more challenging environment for the broader consumer sector.

Which stocks do you think are looking cheap after recent market volatility?

We are seeing a sharp reversal in the pandemic period trend from the consumption of goods to services.

Piled demand for travel makes airlines a good prospect. James Brickwood

Qantas has emerged this year with a lower cost base, a more efficient fleet and an improved industry structure, given Virgin Australia’s more rational approach to private equity.

We are seeing a sharp recovery in domestic and international air travel as accumulated savings are spent on experiences rather than home furnishings.

If my itinerary has anything to offer, any further decline in the stock price will be a very attractive opportunity for long-term investors.

Which sectors and stocks are you avoiding or selling positions in, given the rising share price and high inflation?

We will continue to avoid companies with a high price-to-earnings ratio (PE) coupled with a limited earnings record in the IT sector. We believe that a valuation gap between high PE and low PE parts of the market should continue to disappear.

With evidence that inflation was more structural than cyclical, we quickly moved on to: remove cyclical consumer goods from our portfolios. We believe it is wise to continue to avoid consumer names at this point. However, the list of attractively priced Australian quality companies is growing and we look to the current period of volatility to buy these companies at a discount compared to our view of intrinsic value.

Which stocks do you think are attractive acquisition targets?

We see strong value in a number of Australian companies. With large amounts of cash ready to be deployed by private equity and Australian super-funds, we believe a number of Australian companies will be acquired in the near term.

This year we had bids for the portfolio holdings Ramsay Health Care and Atlas Arteria.

I have long thought that Incitec Pivot, a current holding in the portfolio, is a prime candidate to acquire. Both the company’s core explosives and fertilizer businesses are experiencing strong market conditions, and with strategic assets in Australia and the US, global competitors will easily be able to realize strong synergies in the event of a bid.

Which stock do you think is most undervalued by the market?

James Hardie Industries is starting to look extremely interesting at the current level. While rising US interest rates will dampen real estate demand, James Hardie has shown a strong track record of operating performance in both difficult and good times.

As a backdrop, the US housing market remains chronically undersupplied, supporting longer-term demand for Hardie’s siding. The company is now less cyclical than in previous periods as much of its profits are exposed to the repair and refurbishment market. The company also has a clear track record of consistent growth above market averages, indicating market share gains.

Do you have any hobbies or daily routines?

After going through the GFC and other periods of volatility, the most important thing is to maintain routines that give you balance.

I started swimming a few years ago and find that its repetitive, almost mediating nature allows my brain to process everything that is happening in the world, while releasing stress that you can’t help but deal with.

I also try to read a little every day. The last book I read was Richer, wiser, happier by William Green. He interviews some of the great investors of our time. The human aspect reminds me that these greats don’t always get it right either.

Are there any good podcasts or TV shows you’ve enjoyed recently?

I’m a big fan of podcasts and think this passive way of learning from history and other great investment managers helps me process the complexities of portfolio building.

For updates on current market challenges and think please listen to Macro Voting, hosted by Eric Townsend. I may not agree with all of their views, but it helps me understand the broader market behavior.

In addition to building portfolios, in my role as CIO I build a fund management company. To help me think longer term, my favorite podcast is capital allocators by Ted Sides.

For something completely unrelated to financial markets, as a basketball fan I really enjoyed the new Netflix movie Hustle starring Adam Sandler.

What is your favorite local bar or restaurant? What’s your go-to order?

  • Common Room Co – Caulfield North
  • Bircher Muesli
  • latte
  • Kale Kick Smoothie

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