Where Auscap is hunting amid market dislocation (and four stocks they like)

While 2025 was a year of extremes in markets, punctuated by concentration, the first three months of 2026 have upped the ante, pushing some dislocations even further.

According to Auscap Asset Management’s Tim Carleton, however, it’s those dislocations that are providing opportunities for investors.

In a recent webinar, titled Maintaining a long-term focus when quality businesses are on sale, Carleton used the slides below to highlight just how expensive the ASX 20 have become, and the dislocation it has created. 

Carleton adds that normally, the ASX 21 to 200 companies trade between a one and three PE point premium. At the moment, they’re trading at a four PE point discount. This disconnect is creating a fertile hunting ground for both the Auscap High Conviction Australian Equities Fund and the Auscap Ex-20 Australian Equities Fund. 

"That’s throwing up a lot of opportunities in companies that we think are very, very high quality and will deliver very strong earnings growth over time".

Dislocations are driving opportunity

Carleton’s central thesis is that markets are currently sending conflicting signals, setting the scene for active investors. The February reporting season was the clearest example, with “more than a quarter of the ASX 200 down by more than 10%” despite the market rising over 4%. Crucially, this divergence had little to do with fundamentals:

“February stands out as being somewhat remarkable… it didn’t have anything to do with earnings.”

Instead, the dislocation is being driven by flows, concentration, and a growing divide between large caps and the rest of the market. While the ASX 20 rallied, mid-cap earnings expectations actually improved even as prices fell. That disconnect, in Carleton’s view, is where opportunity lies.

“We want to be buying these businesses that we really like when the multiple is depressed, and we want to be reducing our exposure to these businesses when the multiple, we think, is a little bit extended.”

AI fears have created indiscriminate selling

The most immediate catalyst for this divergence has been artificial intelligence. Carleton notes that market capitalisations across perceived “AI losers” have been slashed, but warns against blanket conclusions.

“The question is… what is the moat? And to the extent that the moat is solely the technology, then we think that there is a reasonable risk of disruption.”

Where businesses rely on simple automation or publicly available data, risk is real. Where the moat is structural, not technological, the sell-off is creating opportunity.

“We’re more interested in the businesses where we think the moat is a little bit different to just the tech… those businesses we think should have higher levels of resilience.”

This framework underpins Auscap’s conviction in platform businesses like Car Group (ASX: CAR) and REA Group (ASX: REA).

CAR and REA: Audience over technology

For Carleton, the market is misunderstanding the durability of two-sided marketplaces. “It actually has very little to do with the tech", he says, adding that "it has everything to do with embedded human behaviour.”

Both CAR Group and REA Group have seen share price weakness, but Carleton argues this reflects multiple compressions rather than deteriorating fundamentals.

“The recent decline… has everything to do with a de-rate in the multiple.”

The key insight is that competitors already exist and often offer similar technology for free. What they lack is the audience.

“What stops them from monetising that is the fact that all of the audience sits inside CAR’s business.”

The same applies to REA, where even sustained backing from major media for competitors has failed to dislodge its dominance.

“We think that the audience that REA has, it’s very unlikely to be disrupted.”

In both cases, Carleton sees AI not as a threat, but as a margin tailwind, enabling faster product development with fewer resources.

Nick Scali: Earnings intact, valuation reset

In consumer discretionary, Carleton sees a separate dislocation driven by macro fears rather than fundamentals.

“Consumer confidence is actually not what drives sales… the most important two factors… are population growth and inflation.”

With employment strong and structural drivers intact, Auscap has been adding to positions like Nick Scali (ASX: NCK), a long-term holding in the portfolios. 

“The recent share price decline has everything to do with a multiple de-rate and not an earnings story.”

What has shifted conviction higher is the UK expansion. Margins have already improved materially, and early signs of demand are compelling.

“In January, the like-for-like sales were up 32% year on year… it’s demonstrating that actually this style is really resonating with consumers.”

Trading below 15x forward earnings, Carleton sees a long runway for growth:

“We think there is a long runway for growth in earnings over the next decade at very, very high incremental rates of return.”

Macquarie: Structural share gains misunderstood

Among financials, Carleton highlights Macquarie (ASX: MQG) as a standout mispricing relative to the major banks. He particularly likes the mortgage business, noting that “They’ve been growing this business by about 20% a year for the last decade.”

Macquarie's edge, he believes, lies in structural advantages rather than cyclical tailwinds.

“They have the leading technology stack… and they don’t have the legacy branch network… and that gives them a cost advantage.”

The strategy is clear: win deposits with superior rates, then scale mortgages via brokers. With more than 95% of loans coming through the broker channel, Macquarie can scale efficiently while cherry-picking high-quality borrowers. “Despite their aggressive growth, Macquarie’s 90-day arrears have been falling… and are comfortably the lowest of the five banks", notes Carleton. 

Despite this, valuation does not reflect the growth profile:

“Macquarie is currently trading at the second lowest price-to-earnings multiple of the five banks… which we consider to be highly unusual.”

Combined with tailwinds from commodities, asset management, and a $2 billion buyback, Carleton sees a compelling earnings outlook.

Managed Fund

Auscap High Conviction Australian Equities Fund

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Managed Fund

Auscap Ex-20 Australian Equities Fund

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For more insights by the team at Auscap, click here 

You can watch the full webinar replay below.