An occupational hazard of writing a weekly investment column is jumping from one stock to the next, not reviewing ideas and themes, and glossing over bad ideas. Or not letting core thematic ideas, which sometimes take years to play out, run their course.
Two core themes in this column in 2014 were stocks with exposure to the Australian housing cycle, and international exposure, principally to US equities in unhedged currency. Other themes included stocks with exposure to Asian middle-class consumers, aged care, capital-city urbanisation, choosing AREITs for yield, and mid-cap floats.
Housing and US exposure still look strong. Another interest rate cut or two next year should maintain solid growth in housing demand, and further falls in the Australian dollar will strengthen the case for US equities.
My last column for the year is an opportune time to review a selection of ideas presented in 2014.
The preferred vehicle for US equities exposure was the iShares Core S&P 500 ETF. It is up almost 20 per cent over the year to December 19. The case for increasing allocation to international equities continues to strengthen, amid expectations of further Australian-dollar weakness.
I wrote for The Bull in July: “It’s hard not to like the short and long-term outlook for leading global healthcare companies as the population ages”, and nominated the iShares Global Healthcare ETF. Its one-year return is 26 per cent.
Genworth Mortgage Insurance Australia
The mortgage insurer listed on ASX in May 2014 after raising $583 million at $2.65 a share. It now trades at $3.36. Record low interest rates and steady loan arrears and defaults suggest Genworth has further to run in 2015, albeit at a slower pace.
In July I noted for The Bull that the medical-stgice maker was on the cusp of much stronger sales growth as it expanded in the United States and its dental stgices gained traction as an alternative to CPAP machines. SomnoMed has rallied from $1.50 in July to $2.60.
The sleep apnoea giant also featured in the thematic on an increasingly obese population needing more help breathing at night. ResMed has rallied from $5.20 in July to $6.60.
Mighty River Power
I rated the New Zealand electricity provider during its IPO and have been impressed by its gains since listing. In March I commented: “Mighty River is the pick of the NZ stocks for long-term, conservative investors. It has ideal characteristics for income seekers who buy defensive utilities for yield.” The stock has shot up from $2.04 then to $2.80. The one-year total shareholder return is 54 per cent.
Slater & Gordon/Shine Corporate
Another column theme was investing in listed law stocks, notably Slater & Gordon, Shine Corporate and the recently listed intellectual property firm IPH. Slater & Gordon has a one-year total shareholder return of 26 per cent. Shine is up 61 per cent (this column identified Shine in late 2013 as a stock to watch in 2014).
In September I wrote: “Hansen is interesting on several fronts. Unlike most software stocks that rely on corporate and government clients for projects, the company focuses mostly on utilities. It offers an unusual combination: traits of a high-growth software company and exposure to defensive sectors.” Hansen has rallied from $1.45 in September to $1.65 and has plenty of momentum. It has a 40 per cent total shareholder return over one year.
The Asia-based property was identified as key ways to play the unfolding boom in Asian middle-class consumers. iProperty has a 22 per cent one-year total shareholder turn.
The financial services company was identified as a key way to play Australia’s ageing population and rising demand for annuity investment products. The one-year total shareholder return is flat for the year after much stronger gains early in 2014. The core investment thesis remains the same and Challenger looks undervalued after heavy falls in the fourth quarter.
Bank of Queensland/Bendigo and Adelaide Bank
The regional banks were identified as key ways to play stronger demand for housing finance. Bank of Queensland has a 12-month total shareholder return of 3 per cent; Bendigo has done better, up 9 per cent.
The insurance broker has a total shareholder return of minus 11 per cent over one year. It remains one of the market’s higher-quality small-cap companies but faces several headwinds, with margin pressure and weakening conditions for small enterprises.
Flight Centre Travel Group
The travel group finished 2014 with a one-year total shareholder return of 24 per cent, and recently reduced guidance. The lower Australian dollar means less overseas travel and the slowing economy is a headwind.
iBuy Group (Ensogo)
The third of the Catcha Group floats, iBuy has badly disappointment since listing. Now called Ensogo, it trades at 7.7 cents, down from a 32-cent issue price, and a 77-cent peak price. The e-commerce group still has an interesting position in South-East Asia and new momentum after management and name changes. But it’s for speculators only.
The vocational education provider was this column’s worst idea in 2014. Although I rate the growth prospects of vocational education in Australia, this IPO had unforseen internal management and governance problems. It remains best avoided, even after falling from a 52-week peak of $3.40 to 22 cents.
Many thanks to all those who read this column in 2014. Have a happy and safe holiday break. The column returns in mid-January.
Tony Featherstone is a former managing editor of BRW and Shares magazines. The column does not imply any stock recommendations. Readers should do further research of their own or talk to their adviser before acting on themes in this article. All prices and analysis at December 18,2014