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 compelling stock blogs
Coca-Cola is one of the best known brands on the planet. Coca-Cola Amatil (ASX: CCL) has an exclusive franchise granted by The Coca-Cola Company (NYSE: KO) to sell their products in Australia, NZ, Fiji and a large part of Indonesia. KO owns 30% of CCL, it sells CCL...read more
Skydive the Beach (ASX: SKB) is an adventure tourism company. SKBs principal activity is the provision of tandem skydiving and it is named after its original skydiving site on a beach in Wollongong. The skydiving industry has historically been dominated by smaller...read more
On our recent trip to the USA, one of the companies we visited was EML Payments (ASX:EML). In this short video, Simon discussed the significant business opportunity management is pursuing in the B2B Virtual Payments market. This is a business opportunity we expect...read more
Earlier this month I spent a week in the US visiting some of the overseas operations of Australian listed businesses held in the portfolios we manage - both long and short. A thorough understanding of a business, and the challenges and opportunities it faces, is vital...read more
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 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
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