Buying opportunities are out there

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Glenn Freeman: I'm Glenn Freeman at the Morningstar Individual Investor Conference 2018. I'm joined today by Andrew Clifford the CEO of Platinum Asset Management.

Andrew thanks very much for your time today.

Andrew Clifford: It's good to be here.

Freeman: Now in your session today you were covering a lot of areas, we had 45 minutes of really interesting discussion of a number of different issues and one of the things you spent a fair bit of time on was the U.S. macro environment and the U.S.-China trade war and why that’s not good for investors and it's not good for markets. And how does that play into your view on the U.S. and where the market is in terms of the cycle.

Clifford: So, I think its been a common sort of question of investors for some time now, like are we late in the cycle in the U.S. rates are rising. The market's very expensive. And its interesting when everyone's asking the same question, they are probably asking the wrong question. But having said that, the U.S. economy looks like it's in great shape, employment is as strong as it's ever been and yet interest rates are rising and we need to be cautious of that. Because it not just impacts future growth prospects, you'd also particularly have an impact on the more expensive parts of the market. So, the way I look at it, like, yes we might be late cycle getting there in the U.S. and certainly parts of the market are very expensive, but it's really contained to internet stocks, the software stocks, biotech. And what we do by focusing on the U.S. as an investor is we're actually ignoring 80% of the world. It's only 20% of the world economy and if you look at China is certainly having a bit of slowdown this year as a result of its financial reforms, but even it's far from top of it's cycle nor is Europe, nor is Japan. So, there are lots of other interesting prospects out there from an economic growth point of view. But also from within the stock market if we get away from the much loved areas of software and Internet and biotech there are many cheap stocks out there.

Freeman: And you actually were speaking about some specific companies within those markets. So, within China and within I think Korea as well with Samsung was a big one. What are some of those other opportunities that are out there.

Clifford: Well, what's being sold off for any other companies that have any sense that they are vulnerable to that, they are cyclical or they are exposed to the trade war or whatever. And even though there are real concerns and there is a real possibility next year or two in earnings for many of these companies is not as good as you might have previously hoped. We have seen stock prices off the 30% and more. So, a company like Samsung it is a leader in memory chips for phones, computers all other things that are exciting about the technology world, artificial intelligence, you name it, need servers, they need DRAM or flash memory. And so there is a very good long-term growth cycle this is the world leader and the stock today is trading on less than six times this year's earnings.

Now maybe next year earnings aren’t so good, but it's still such an extraordinary starting price, starting valuation of that company or you could look at Glencore which is one of the world's largest mining houses. Very interesting positions in copper and cobalt in terms of their growth profile in their production. These are metals that are in short supply and clearly the electric vehicle revolution that’s on it's way over the next few years is going to add further to demand there. And so, here's a company in simple terms this year is probably on about eight times earnings. Of course, it's a miner for 80% of its earnings and so those profits may not, will be up and down with the commodity prices. But we think the outlook there is good and indeed there is a growing production profile and so that’s the stock that’s down the best part of 30% this year as people are being concerned.

Or we can go right into China where the market's been – is in a real bear market, true bear market down more than 25% and you get companies like Ping An leader in life insurance and general insurance in that country. One of the global leaders in the application of technology to its sector it can use artificial intelligence to assess motor vehicle claims from a photo. Extraordinary company growing at 25% around that level for over 10 years to 15 years now. So, it's growing like Amazon and today you are buying it on 11 to 12 times earnings. So, these are all companies that are being impacted by all the fees and they are great opportunities outside of the much loved internet, software, payments, biotech names.

Freeman: In some ways you are talking about some of the more traditional industries like for instance the automotive sector that in some more less traditional ways of getting exposure to them. Say for instance electric vehicles within the automotive space and even companies like Glencore as far as getting access to the companies that are producing the materials used in the batteries that power those vehicles.

Clifford: So, when we get these revolutions like electric vehicles it changes many, many things and so I think the material space is one area and you have Glencore or you have the lithium producers or other nickel producers, copper producers. But also, even the traditional automotive industry itself, BMW, (Dunlop), they are all coming with electric vehicles. They are all going to have a full range and people are very worried about how this hurts their business, but we actually think for those high-end brands this is actually going to be a reason for people to go out and buy their cars. And yet again because people are so concerned about global growth. These stocks are trading on PEs of 7 and less. So again, extraordinary value, yes they might have some short term loss of earnings. But we think things like electric vehicles autonomous vehicles actually great opportunity for some of the traditional car companies not all of them though.

This report appeared on 2022 Morningstar Australasia Pty Limited

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