One of my colleagues in our editorial meeting suggested that I look at what our subscribers should do with their Toll winnings. I returned fire with: “Just because Paul Rickard had Toll in his recommended portfolio, didn’t mean we all were long Toll!”
But it got me thinking about how all of us should invest.
The five-year chart below shows why a lot of investors were sick of Toll — it was a disappointing performer.
[1]Of course, the only good news story on this chart was the spike from $6 to just under $9 when Japan Post came into town!
The upside
I have been asking guest after guest on my TV show when would a company such as Toll play catch up? Toll is an industrial outfit linked to the comeback of the economy or business cycle and most virtually said “one day but not soon!”
For anyone trying to put together a portfolio of stocks that was diversified and had exposure to all sectors, it was highly likely that you would’ve had Toll in there. That’s why Paul had opted for the stock in his portfolio — his brilliant knowledge of companies and when they might come good, aside.
It was only going to start edging up when the local economy picked up and, for that matter, when Asia as an economic region started to show stronger growth signs. Toll is leveraged to the economic cycles in many countries just north of us.
As our dollar falls, other companies will look cheaper for overseas buyers.
Tom Elliott, of Beulah Capital, says Transurban is still a potential takeover possibility after a Canadian pension fund chased it a while ago. Phillip Capital’s Michael Heffernan is another Transurban fan.
The SSR portfolio
We have our own takeover expert. Tony Featherstone has put together a potential takeover portfolio for us, which he regularly updates, and his portfolio includes the following.
- NIB Holdings (NHF);
- iiNet (IIN);
- Reckon (RKN);
- Automotive Holdings Group (AHE);
- Monash IVF Group (MVF);
- Vision Eye Institute (VEI);
- Australian Agricultural Company (AAC);
- Reva Medical (RVA);
- Ten Network Holdings (TEN);
- AWE Limited (AWE);
- Santos (STO);
- Nearmap (NEA);
- iSelect (ISU);
- OnTheHouse Holdings (OTH);
- OxForex Group (OFX);
- and Ensogo, formally iBuy Group (E88).
You can read more about our portfolio here. [2]
Flight Centre
I asked Heffernan about some companies that could soon benefit from a catch up phase, after we all chased yield stocks. This is what he came up with: Treasury Group, Wesfarmers, ASX and Qantas. He especially singled out Flight Centre.
[3]
The company put a profit warning in December but again the story of this company brings me back to the lesson from Toll. You see some companies you just have to stick to when the history has been OK, the management has done well over time and when they’re run by a leader like Graham “Screw” Turner, who can never be underestimated.
I don’t hold the stock but I am toying with it. The bounce on the chart would be a positive sign for chartists and I think a company such as Flight Centre will do better as the economy here and overseas improves.
What the CEOs say
The CEOs of Seek, Dick Smith, Webjet, Coca Cola and Wesfarmers all gave me the same message on my Thursday night TV program — if the economy improves so will their bottom lines.
As an economist, I’m backing a better Oz economy and an improving global economy.
All of this will help cyclical companies, which have missed out on the stock market comeback so far.
I am long an ETF for the S&P/ASX 200, which gives me diversity and exposure to smaller companies. I think the dividend chasers will keep bank stocks rising, albeit more slowly. BHP and Rio I think will keep creeping up, Telstra will bust $7 and the catch up companies will, with the above stock moves, push our index up.
We have probably two years where the catch up companies will get some market attention and by then, rising interest rates and other issues could see me turn bearish.
But for 2015, I am chasing catch up companies, though it will be with a small proportion of my overall super money. The core remains in diversified index payers, which I have been buying since March 2009.
That’s my strategy and I’m sticking to it.
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