Compelling Stocks

 

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

v

Insight

The stock is misunderstood or underestimated and we know how and when the situation will be rectified

Growth

It must have a high level of earnings per share growth and/or cash flow per share growth

Value

It must have a large payoff to our assessed valuation

Event

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

Challenger Limited

View Case Study

Impedimed

View Case Study

Catapult Group

View Case Study

Lovisa – long runway of store roll out opportunities

At Monash Investors we look for recurring situations and patterns of behaviour to help inform our investment decisions.  One situation is the drive by Boards and Management to exploit high returning opportunities in their core business.  In the world of retailing new... read more

Impedimed – A massive market opportunity

Impedimed is a medical device company that produces equipment capable of measuring changes in fluid levels in the human body in a highly accurate, non-invasive way. It has been given a Category 1 reimbursement code in the USA – the only other Australian listed... read more

Emerchants UK expansion unaffected by Brexit

Emerchants’ has stable banking relationships with it’s UK & European banks that should be unaffected by the political uncertainty in the UK. Instead, we sees their expansion into the UK markets as an underappreciated opportunity. Based purely on the Australian... read more

Sky TV – Outlook Short

We knew there was something wrong at Sky Network TV (which is listed on both the ASX and NZX) when they posted their first fall in subscriber numbers in 20 years. Upon investigation, we found that NZ brokers were hesitant to say anything negative about Sky as many of... read more

Coca-Cola Amatil – Outlook Short

Given the structural headwinds faced by CCL, we think that analyst forecasts are too high, as is the multiple that the market is placing on those earnings.  It is not the low risk growth company that it once was. In shorting CCL, we draw confidence from identifying... read more

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