It is a useful strategy for investors to have a watchlist, as discussed in our Megatrend framework. We tend to have 40-50 stocks that we will be watching in detail that we feel may be suitable at the right time. So... when is the right time?
It may be that an industry catalyst has occurred, such as a change in regulation, industry dynamics or even management change, that drives a reassessment. Or it can be the opportunity cost of holding one stock versus another stock to gain exposure to the same thematic; Beijing Airport vs Sydney Airport is an example of this. Or it may be still on the watchlist predominantly on valuation grounds, becoming a buy as the risk-reward profile of the investment changes. Below we have listed ten such stocks for the watchlist, including several Asian stocks where you can still access a range of high-growth opportunities at a reasonable price.
PolyNovo is an interesting emerging story that is producing a biodegradable polymer that was first developed by the CSIRO. It has FDA approval to sell its polymers into the US hospital market. It is predominantly used as a replacement for any type of skin therapy or graft. The commercialisation of the product is only just developing but the trials of the PolyNovo NovoSorb (wound scaffolding) have proven extremely successful. Burns victims are one example. Worth watching.
Ramsay Healthcare (ASX:RHC)
Another former long term holding of ours, Ramsay has high quality Australian assets that continue to outperform its peers, although in the recent past we have been more cautious around its French acquisitions where the lack of growth in Healthcare spending has reduced the ability for hospital providers to achieve top line growth. We had high regard for former CEO Chris Rex, and will wait to see how his replacement Craig McNally executes on the strategy he inherited.
James Hardie (ASX:JHX)
Should continue to benefit from the recovering US housing market. It has a strong industry position in siding that is growing its market (away from other products such as vinyl) in a cyclical upswing. While it has had employee retention challenges in the past and some manufacturing hiccups, broadly speaking JHX is another quality industrial that we would prefer somewhat cheaper.
Clean TeQ (ASX:CLQ)
Clean TeQ has a high-quality undeveloped cobalt project in Northern NSW. We are attracted to cobalt as a commodity as we view the demand profile for cobalt needed for lithium-ion batteries (for EVs) to far outstrip the supply response to date. Given most of the world's cobalt is produced in Africa, there is huge demand for large-scale projects in the developed world. We would prefer to get a better understanding of the capital requirements of Clean Teq before investing for a 5-year view.
Goodman Group (ASX:GMG)
Strong thematic tailwind of industrial and commercial property development with distribution centres becoming vital to retailers ability to fulfill online orders, offset by headwind of rising interest rates.
Qube Logistics (ASX:QUB)
Very compelling industry position in Australian logistics and port handling services. We simply find it too expensive based on our expected cash flow profile, although we have high regard for the management team and their depth of experience in the Australian transport industry.
Treasury Wine Estates (ASX:TWE)
A stock that we first owned at $4.00 and was a very strong contributor for us previously. We have not owned TWE at Chester, while we have a high regard for Michael Clarke and the delivery of the premiumisation strategy including the distribution channel into China, we would prefer to reassess TWE 20% cheaper.
Samsonite is another former holding of this strategy, and is a stock we will look to buy on any significant pullback. Made a company transforming acquisition with global competitor Tumi in March 2016 to make a total of 10 acquisions in the past 5 years. Has a successful wholesale and retail distribution network in over 200 countries as the worlds leading travel goods retailer with an estimated 40% market share (ex handbags).
Giant Bikes (9921.TT)
Giant is US company that happens to be listed on the Taiwanese stock exchange. As one of the most visible bicycle retailers in the world it has been under pressure in recent years given a slowdown in direct sales into China, bike sharing and a wave of Chinese competition into the low end segment of the market. The reason we will spend more time on it this year is the rise of the e-bike. e-bike sales have grown 18% CAGR in Europe over the past 3 years and Asia is starting to catch up with this trend. Judging by the amount of ebikes pedalling into the Melbourne CBD, the growth rate in Australia is just as strong.
Anta Sports (2020.HK)
Anta Sports is China's leading domestic sportswear brand, listed on the Hong Kong stock exchange. It has over USD1.1bn cash on the balance sheet and has grown its dividend by 15% CAGR for the past 3 years. This is due in part to market share gains both with its own Anta brand, and as the distributor for Fila in China, which is a successful brand associated with the NBA. Anta is forecast to deliver double digit top line growth for the next 3 years.
Rob founded Chester Asset Management in 2017 after departing SG Hiscock where Rob worked for 7 years. At SG Hiscock Rob was the portfolio manager (PM) of the SGH Australia Plus product, a 25-40 (primarily ASX300 focused) stock portfolio that could...
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