Rudi’s View: Ten Highflyers With More Upside Potential

Rudi's View | Oct 02 2024

In this week's Weekly Insights:

-Ten Highflyers With More Upside Potential
-FNArena Talks
-All-Weather Research: Post-August Changes
-FNArena on Saturday

By Rudi Filapek-Vandyck, Editor

Ten Highflyers With More Upside Potential

Almost thirty years of closely following financial markets has guided me to one all-important share market observation: there's no such thing as 'the investor'.

Sure, it remains important to distinguish those with a limited, short-term, higher-risk attitude in markets --the traders-- from those who chop and change less and keep an eye on the longer term potential, or at least are trying to do exactly that.

But when it comes to identifying the latter market participants, the investors, it's equally all-important to realise this is by no means an homogeneous group.

Using a very broad brush and no nuances or room for further details, what is commonly referred to as 'the investor' essentially consists of two opposing strategies and philosophies: there's your typical 'value' investor and then there's the 'growth' investor.

Both invest in the same market and call themselves investors, not traders, but that's mostly where the comparison ends. So, in order to become successful as an investor in the share market, it's important we know where we 'belong' ourselves, lest we get confused by trying to mix and mingle what are two very different ways to read and decipher markets and all their idiosyncratic intricacies.

If you happen to be a typical 'value' investor, you're probably enjoying the revival of mining stocks this month, keeping your fingers crossed authorities in Beijing will continue to stimulate and revive the moribund Chinese economy.

This should support further upside for companies including BHP Group ((BHP)), Rio Tinto ((RIO)) and Fortescue ((FMG)), but equally so for the likes of ALS Ltd ((ALQ)), Austin Engineering ((ANG)), Imdex ((IMD)), Orica ((ORI)) and dozens of smaller-cap names across the mining and related industries.

Up until not that long ago, you were feeling a little bit frustrated because long-held positions in the likes of Aurizon Holdings ((AZJ)) and Dexus ((DXS)) are yet to deliver, and some of the more risky punts in Healius ((HLS)), Insignia Financial ((IFL)) and the lithium sector have been truly gut-wrenching. At least most coal producers pay out an outsized dividend while the banks have truly surprised friends and foes over the year past.

Naturally, also, your other key worry is the potential for economic recession in the US and globally, but hopefully Chinese stimulus and interest rate cuts from central banks around the world (ex-Australia) will keep economic growth in the positive.

If, on the other hand, you're more affiliated with investing in your typical growth companies, your portfolio might have taken a few hits recently, but you're not genuinely worried given returns from holdings in Pro Medicus ((PME)), WiseTech Global ((WTC)), Goodman Group ((GMG)), Hub24 ((HUB)), Xero ((XRO)), Life360 ((360)) and TechnologyOne ((TNE)), among many others, have been truly a finger-licking delight.

Equally noteworthy: many disciples of the 'value' church are worried markets are repeating the bubble mistakes from the past. Who knows what might provide the spark that initiates the next share market correction from current exuberant investor optimism?

Surely, this cannot continue indefinitely?

It's worth noting those with a habit of owning quality sustainable growth businesses seem noticeably more relaxed about the world, the status and outlook for financial markets.

If you happen to play the market with a ferocious appetite for risk, you're probably smiling right now. You just quadrupled your position in a company most market participants didn't know was listed (or even existed). You simply do not care about any of the above, underneath or beyond; there's always something that's moving, and that's where you live and breathe.

For most institutional investors who often operate under a specific, pre-defined mandate, the distinction between the various 'religions' is never in question, but most retail portfolios might own a cross-over combination of stocks on both sides of the divide.

Here the challenge is knowing when to listen to our inner 'value' voice and when to ignore it. This in particular becomes more pertinent when those quality growers in the portfolio have already delivered such wonderful returns.

Our inner 'value' voice tells us nobody has ever regretted pocketing profits made but on the flipside lives the eternal regret of selling out too soon and missing out on much larger gains.

So this week, to assist all of you with at least some 'growth' in the portfolio (or the ongoing desire to add more of it), I decided to zoom in on some of the optimistic views and scenarios out there.

Whereas your typical 'value' approach starts with a view that all exciting business stories must come unstuck at some point, the heart of the optimist beats inside the body of the growth investor who has plenty of personal anecdotes to prove success often equals staying with the winning trend.

It just so happens my personal radar has spotted exactly ten examples worth highlighting (in alphabetical order).