How Monash Investors see it
Compelling stocks are defined as those that meet our very high return hurdles and are mispriced and misunderstood by the market. Because we set the bar high, we focus our research attention on a small number of stocks that meet our strict criteria, versus trying to cover the whole market.
A compelling stock must exhibit a combination of the following four attributes
The stock is misunderstood or underestimated and we know how and when the situation will be rectified
It must have a high level of earnings per share growth and/or cash flow per share growth
It must have a large payoff to our assessed valuation
It preferably has a near term catalyst
And whilst these attributes are straightforward to articulate, finding them is where the hard work begins and where our experience plays a major role.
Finding compelling stocks, starts with a philosophy
We believe that most stocks are fairly priced most of the time, but significant stock mispricing can occur because of recurring patterns in market participant behaviour.
Because of our deep market experience gained over 45+ years of combined investment experience, we understand what factors influence this recurring behaviour and we know how to profit from them before they are fully appreciated by the market.
Examples of how mispriced and misunderstood opportunities can be found include the following,
- Underestimation of significant change
- Analyst reputation management
- Drive by boards to exploit high ROE opportunities in their core business
- Limitations of company guidance
- Overlooked signals
- Business disruption
- Misjudging risk (short termism)
- Corporate motives by brokers
- Lack of analyst coverage
See some evidence
View our latest case studies