While the broader market continues to chase momentum, our focus remains on businesses with long-term potential that the market has temporarily written off.
In a recent interview with The Australian Financial Review, our Senior Investment Analyst, Daniel Martin, shared some of the names in what we’ve dubbed the “unloved seven” – a group of companies facing short-term challenges but offering, in our view, better risk-adjusted upside than many of the market’s current darlings.
The list includes names like Endeavour Group, Mineral Resources, Ramsay Health Care and Reece. As Dan puts it, “It’s filled with a lot of despair, and it’s priced that way too.” And that’s exactly what makes it interesting.
“These are quality businesses facing temporary headwinds, not structural decline,” Dan said. “Some have strong balance sheets. Others are leaders in defensive sectors trading on low valuations. What they share is a disconnect between sentiment and fundamentals.”
Take Ramsay, for example, which has fallen around 22% this year. “A turnaround might take longer than 12 months,” Dan noted, “but with a new chief executive, there is potential. It’s still the dominant player in a defensive industry trading at a pretty attractive free cash flow yield. Its No. 2 competitor has just recently gone under. So you have to wonder, there must be some merit to the strength of this business.”
Mineral Resources is another case in point.
“It’s beyond unloved – it feels despised,” said Dan. “You could say that’s probably self-inflicted to an extent. It’s a true shorter’s delight. But if you have faith in the Mineral Resources management – which has shown very tactical capital allocation skills in the past – then you’re going to have to back them in to do it again. That is a real backing-the-man one, that one.”
It’s not about catching falling knives – it’s about identifying mispriced resilience. And sometimes, the best opportunities are hiding in plain sight, behind a wall of negative sentiment.