Leading investment managers took to the stage on Thursday afternoon to give their best stock picks for the year ahead at the 2016 Sohn London Investment Conference.
Most opted to present long ideas to the 500-person strong audience at London's Marriott Grosvenor hotel in Mayfair — but that's where the similarities ended, with selections ranging from commodity-oriented equities to retail to software and beyond.
Kicking off proceedings was Bob Bishop, founder of Impala Capital, who argued Rio Tinto's stock recovery this year has further room to run as he anticipates demand for steel outpacing supply on the back of strength particularly in emerging markets such as Turkey and India.
Dureka Carrasquillo, senior portfolio manager at the Canadian Pension Plan Investment Board, argued investors are wrong to value Israeli technology firm Mobileye as an autosupplier when it should trade more akin to higher multiple software companies.
Staying with the auto ancillary theme, Erik Karlsson, founding partner at Bodenholm Capital highlighted Autoliv as a company set for significant margin expansion in 2018 and 2019. He also posited the Swedish-American firm could tap its cash balance to potentially buy beleaguered Japanese auto parts supplier Takata or return some funds to shareholders.
Karlsson also cited Philips as a buy saying since its spin-off of the lighting division in May, it is now a more focused and higher quality company that could be on track to be net cash flow positive by the end of 2018.
"Nobody likes retail at the moment," asserted Nicolas Walewski, founder of Alken Asset Management.
"Especially in the U.K. after Brexit," he added.
The mid-cap European value retailer B&M stores is an interesting long bet given its "excellent management," which he says takes a ruthless attitude toward costs within a company that sports a 5 percent free cash flow yield but has a limited capex profile.
Masroor Siddiqui, co-founder of Naya Capital, was the first to propose a short idea in Aryzta, saying it's important to consider the Swiss food business on its net income rather than its EBITDA margins. While acknowledging management is reporting its financials in a fully legal and logical way, he argues the bringing forward of gains means there isn't enough good news left to come in the future to justify its current valuation.
Ex-Goldman Sachs star and current Pictet senior investment manager Elif Aktug teased audiences by dropping clues about her long pick but not divulging its name immediately. The Italian defense company turned out to be former Finmeccanica vehicle Leonardo. In Aktug's view, while the Italian political situation remains rocky, the importance of this is diminished by the fact that it has only 15 percent domestic exposure. Furthermore, she says its industry is expected to rebound by 50 percent in coming years and Leonardo boasts a strong order book.
Ivan Martin Aranguez, co-founder and CIO of Magallanes Value Investors, flagged Sonae as "overlooked and misunderstood" as the unjustified key reason for its stock price having dropped 50 percent from March 2015 peak. He highlighted the fact the Portuguese conglomerate is a market leader in a concentrated market as a reason to buy.
Parus Finance partner Marc Chatin noted it doesn't matter too much which of the big four Australian banks you short given they all suffer from the same issue of predominant loan exposures to an overheated domestic property market.
Meantime, another cash play was suggested by Michel Massoud, founder and CIO at Melqart Asset Management, who said although Norwegian software company Opera is suffering from investor fatigue, it should benefit from strategic consolidation and is set to pay its net debt down to zero before returning cash to shareholders.
Mans Larsson, founder and CIO at Makuria Investment Management, is angling for a 55 to 60 percent total return over two years at Grand City Properties given the attractive fundamentals of the German real estate market and a highly visible and growing free cash flow stream.
Larsson also like Portugal's premier cable operator, Nos, due to its compelling industry dynamics, growing top line, low leverage and falling capex spend.
In his words, a "high-quality investment at a bargain basement price."
Activist investor Anne-Sophie d'Andlau who co-founded CIAM claimed French theme park Euro Disney is at the mercy of its majority shareholder, Walt Disney Company, which is charging it egregious royalties and fees as well. She also believes the company's real estate portfolio is vastly undervalued. The stock is currently subject to two legal investigations that d'Andlau says seek to recover EUR 930 million.
Carve Capital co-founder Bo Bortemark likes Ferrovial given it is trading at a deep discount to net asset value, which he says in itself is "still growing at healthy clip." He argues the strong momentum demonstrated by its most recent results was unfairly overlooked by the market.
Och-Ziff's head of European equities, Adrian Croxson, called budget airline Ryanair a "disruptor" and likes the company's potential to branch further into ancillary travel services. He also noted the Irish airline's low-cost position, sharing the tidbit that it is 50 percent cheaper for Ryanair to fly a passenger within Europe than it is for British competitor easyJet.
Sir Chris Hohn, founder at TCI Fund Management, wrapped up for the speakers, saying U.S. cable company Charter Communications has not yet achieved its potential. Amid other attractions of the stock, he cited the strong growth expectations for the U.S. cable sector, which is currently dominating new broadband subscriber acquisitions at the expense of telecom operators.