Ask A Fund Manager
The Motley Fool chats with fund managers so that you can get an insight into how the professionals think. In this edition, Tribeca Investment Partners portfolio manager Simon Brown reveals one miner and one retail REIT that the market hasn't woken up to… yet.
Hottest ASX shares
MF: What are the 2 best stock buys right now?
SB: We've been heavily invested in the new energy theme for a while now. That whole new energy and electrification is something that we've been playing for a while and we've done very well out of.
IGO Ltd (ASX: IGO), the old Independence Group, is a name where we see excellent value. Given how hard the [mining] sector has run, the management team purchased a substantial stake in probably one of the top 2 lithium assets in the world, fully integrated. They paid a fair price at the time, but that was kind of when lithium was below the marginal cost of production.
Now lithium prices are, you'd almost say, at least 4 times higher. But they're not necessarily getting the benefit on their pricing yet — it lagged.
It's also in the jurisdiction of Western Australia, which is incredibly attractive as well, given where some of these lithium tenements are, being pegged by some of these juniors that are worth billions of dollars today with no real production or cash flow. Good, strong, experienced management.
And they look extremely cheap versus the peer group.
We think there's probably a catalyst coming up for this trade in 2 areas.
One is ETFs. You've seen a lot of these lithium companies get added to ETFs, and you've seen significant buying off the back of that as they get up to the appropriate weighting.
The second one is the company's got over half a billion dollars of cash on the balance sheet with no debt. They've intimated that they're looking to capitalise on growth opportunities. So there could be another acquisition there that would be immediately accretive, depending on what size it [is]. If you're paying cash, there's a balance sheet that can be deployed into additional earnings.
And your other choice?
The other [buy] is an emerging property fund manager called Home Consortium Ltd (ASX: HMC). It's got a few little satellites in the market such as HomeCo Daily Needs REIT (ASX: HDN) and Healthco Healthcare and Wellness REIT (ASX: HCW). These guys own, develop, manage real estate property.
I don't know if you recall, Woolworths Group Ltd (ASX: WOW) went and shut down [its hardware retailer] Masters. There was a group of high net worth [individuals] led by former banker David Di Pilla who went and took on the property from the Masters portfolio when they shut it down. Well, they brought that to market and listed it.
I guess the interest there is that the tenancy offerings of the properties they procure tend to be towards the lower end of the rent curve, so it's affordable.
They favour areas such as daily needs, leisure, and services. So we think that's relatively defensive. All those areas have megatrend tailwinds, which also provide you with the tailwind over time.
We've had [a] very good experience. We're guided by experience with people like Goodman Group (ASX: GMG), Charter Hall Group (ASX: CHC), and Centuria Capital Group (ASX: CNI), where we've made a lot of money in the past.
You are obviously looking for an experienced team, which we think Home Co very much are. They're very ambitious and have strong capability, but what really attracts us to the business is it's coming off a very low base.
We think they can drive much stronger rates of growth than their peers. I mean, it might look a bit expensive right now versus some of the peers, but I think having gotten to know the business and gotten to know the management team, I think they are very ambitious. I think the rates of growth there probably surprised the market over time, which means it's probably not as expensive as one might see today.
Simon Brown reveals 2 success stories that are going gangbusters for his fund here.
