By Luke Housego
Where are you looking for opportunities?
The market was due to have a pullback though no one could have predicted the catalyst would be a highly contagious global virus possibly emanating from bats in China. The world and markets can be complex and unpredictable.
We have moved to a more defensive portfolio as the negative impact on the global economy from the coronavirus is certain, however the quantum and time frame of the impact is highly uncertain.All areas of the market have been hit, some harder than others, some moves are warranted, others are overdone.
We are looking to take advantage of the current market volatility to find attractive entry points into high quality companies which have been hit hard due to short term earnings uncertainty but have good long term growth trajectories.
Are there any indicators you’re following to understand the impact of the outbreak beyond all the noise?
We have been keeping a close eye on the statistics published on worldometer and have also been focussing on information provided directly by authoritative sources such as the WHO, CDC and the NHC of China.
A number of travel companies have been particularly hit. What are your thoughts on the sector?
Travel companies have been among the hardest hit, not surprising given their direct exposure to levels of travel activity. Most are down 30 per cent or more since news of the coronavirus broke.
These companies will most certainly take a significant profit hit as people cancel travel plans for work, postpone holidays etc. Whilst no one knows exactly how long this epidemic will last and the extent of economic disruption it will cause, history tells us that these disruptions tend to be temporary and when the crisis passes, economic activity picks up and sectors such as corporate and leisure travel rebound strongly.
Companies that are agile, can flex their cost base and have strong balance sheets should be able to ride out the storm caused by this disruption. Selective companies fit this description and for those with a longer term view the recent sell off may represent a very good buying opportunity.
Fisher & Paykel Healthcare has managed to perform well through the outbreak, can it continue?
Fisher and Paykel has been a beneficiary of the outbreak given its products are respiratory related and the majority of its sales comes from ventilation related equipment and masks to hospitals.
As a result, it has seen increased demand for its products since the outbreak and the share price has performed very well in the past month.
Much of its previous share price outperformance has been a function of its quality growth attributes—it is a company that is well managed, has a long track record of revenue and profit growth and innovation, has high returns on capital, a great culture and thinks long term.
This should underpin many more years of global growth and share price appreciation.
What’s your longer-term thesis on Resmed?
Resmed has done a great job in growing profits for many years in its core business of machines and masks for sleep apnoea but it is not a company that rests on its laurels. In recent years, Resmed has shifted to really harnessing technology which has not only furthered the gap between the competition and increased its annuity type revenue streams, but has also opened doors for new areas of growth in adjacent segments such as nursing and healthcare services in the home.
As the population ages in developed countries and healthcare costs escalate, healthcare companies need to demonstrate that not only do their products produce better outcomes for patients but they lower the costs for the healthcare system as well. Resmed is setting itself up nicely to benefit from this theme.
We’re always looking for new shows to stream. What’s caught your eye?
A show that got me hooked recently is Mind Hunter. A twist from the typical crime thriller, it is set in the 70s and is based on the true story of two FBI agents who were ground breaking at the time in their scientific approach to profiling serial killers. Both entertaining and fascinating.
Finally, a recommendation for a good value quick bite in Sydney.
As a big fan of pizza, I would recommend Tipica in Bondi Beach for a casual bite. Fantastic authentic Italian pizza, straight out of the wood fired pizza oven imported directly from Verona. Matched with a glass of the house Chianti, perfecto.
