By Cecile Lefort
Inside a packed Sydney hotel last week for the annual Morgan Stanley Summit, the mood was defiantly upbeat. Market pundits crowded into buzzing conference rooms, eager for insights from Treasurer Jim Chalmers to a humanoid robot named KOID.
The annual gathering coincided with an extremely volatile week for equity markets, with investors buffeted by fears of higher US borrowing costs, whiplash uncertainty in the Middle East and SpaceX’s pending $US75 billion IPO.
Against this turbulent backdrop, a few of the panels were reserved for a string of fund managers who had five minutes to pitch a stock with the most upside over the next 12 months or so.
Eleanor Swanson, Firetrail Investments, and Tobias Yao, Wilson Asset Management
Both fund managers are bullish on GemLife, the over-50s land-lease community operator, because of its highly efficient, vertically integrated building model and Australia’s rapidly ageing population.
They liked that the company doesn’t have so-called deferred management and exit fees that have long plagued the retirement sector, which allows departing residents to keep 100 per cent of their capital gains. By retaining ownership of the underlying land, the company secures a compounding rent roll alongside development margins.
“We see a 30 per cent upside in GemLife’s value,” said Swanson.
With consistent 50 per cent operating margins and a massive structural supply shortage, both Swanson and Yao predicted 25 per cent to 30 per cent earnings growth ahead.
Arden Jennings, Ausbil
Jennings said network services company Service Stream was an overlooked value play with a strong balance sheet that was perfectly poised to capture a surge in defence spending in Australia as its next pillar of growth.
The company has recently secured a watershed contract to manage defence bases in both the Northern Territory and South Australia. It also has a $9 billion pipeline of works in telcos and utilities.
“I reckon in five years, this could be a $1 billion revenue line, as opposed to $240 million. That could be quite significant in terms of transforming this business into a diversified utilities and defence business,” he said.
Andrew Mitchell, Ophir Asset Management
For Mitchell, the best opportunities were away from the high-flying tech sector. His top pick was US organ transplant diagnostic firm CareDx, which is listed on the Nasdaq and generates $US50 million in pre-tax earnings. He’s betting that earnings will quadruple within three years as the US government pushes to increase transplants.
“We think we will make three times our money on the stock,” Mitchell said, noting that the market’s obsession with tech left healthcare overlooked.
Qiao Ma, Munro Partners
Ma named Taiwanese engineering firm Acter Group as her top pick to capitalise on the artificial intelligence infrastructure race. The company builds ultra-sterile “clean rooms” that are essential for microchip manufacturing, which gives it huge pricing power, given global factory shortages.
“The revenue and profit growth of Acter is going through the roof,” Ma said. Despite doubling profits, it trades below the market average at 16 times earnings, which she said offered “immense” value over the coming years.
Anthony Hene, GMO Asset Management
Hene said global credit-check giant Experian was an undervalued data powerhouse protected by an impenetrable network of 12,000 data contributors. Rather than a standard software firm, Hene said it was a data titan that was uniquely positioned to monetise AI-driven fraud prevention.
“It’s priced at a depressed multiple, and we think it can generate a juicy return,” Hene said.
Luke Cummings, Harvest Lane Asset Management
As an M&A arbitrage player, Cummings preferred to talk about a deal rather than a stock. He’s backing toll road operator Atlas Arteria amid a hostile takeover bid from IFM Investors.
To defend itself, Atlas is planning to sell its Chicago Skyway asset, which Cummings said eliminated acquisition risks and could beat IFM’s tiered offer.
“There is more value to be unlocked. The deal is structured in such a way that it’s highly appealing to hedge funds like ourselves,” he said.
James Rutledge, Perpetual
Rutledge pitched EVT if you looked past the conglomerate’s volatile cinema arm, which accounts for less than 10 per cent of the business. He said the real story lay in its transitioning hotel business, which was adopting a capital-light, third-party management model.
He also flagged two major property divestments in Sydney.
“You’ll probably see some kind of dividend capital return announced on the back of the 525 George Street sale,” he said.
Nick Condoleon, Ausbil
And finally, Ausbil’s Condoleon pitched dual-listed and former market darling Life360 as his standout growth pick.
“There’s no one stock in the market that’s fallen more than 50 per cent over the last 12 months and has greater than 50 per cent earnings growth over the coming 12 months,” he said.
The fund manager added that the family tracking app offered compelling value, and with 100 million users, its global expansion was just beginning.
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