Fund manager sees some 'hugely undervalued' global stocks that should be a 'screamingly obvious' buy for investors

Published Wed, Jul 21 20219:39 AM EDTUpdated Thu, Jul 22 20212:18 AM EDT

Sam Meredith @in/samuelmeredith @smeredith19

A "hugely undervalued" part of the market is being overlooked by investors, according to Freddie Lait, managing partner at Latitude Investment Management, who believes these stocks are worth holding as the reopening momentum of Europe's economy builds. Several countries in Europe in recent weeks have moved to reimpose public health restrictions amid deepening concern over rapidly rising cases of the highly transmissible delta variant. The pandemic — coupled with a renewed sense of concern over a surge in infections — briefly triggered investors to rush to safety earlier this week, before a sense of calm crept back into European markets. "We really like European infrastructure stocks, so things like Vinci and Eiffage , which are 70% invested in recurring revenue assets like toll roads and airports — which admittedly at the moment are struggling a little bit," Lait told CNBC's Julianna Tatelbaum on a CNBC Pro Talks event Wednesday. "But they are very, very high-quality assets and they are trading on 10 or 11 times earnings, with decent growth rates and great opportunities to invest their surplus cash flow," he added, referring to an important metric used by traders to frame a company's stock price in terms of its earnings. When asked what was likely to be the catalyst to spark higher valuations for European infrastructure stocks, Lait replied: "I don't know, because to us it seems screamingly obvious that there is a lot of value in certain sectors in Europe and the U.K." "We're not investing these stocks for short-term reratings. We're investing because we truly believe the intrinsic value," he continued. "So, we are intent to hold those stocks for many, many years. If they happen to revalue higher, we may sell them and find a better opportunity, but it is sort of not worth playing for." Shares of French infrastructure group Vinci are up more than 7.4% this year, while French construction group Eiffage 's stock price has climbed almost 7% in 2021. "One part of the market or many smaller parts of the market are hugely undervalued in our view and just completely out of the scope of many investors these days, and I think it'll change," Lait said. "These European infrastructure stocks have construction arms that are doing a huge amount around renewable energy, renewable energy development [and] lower-cost energy deployment into buildings around cities." What's more, Lait said he sees potential for private equity opportunities in this space. "If you took the assets that are listed in the public market and compare them to private equity assets and the sort of yields that they're getting there, they're almost twice as valuable in the private one," Lait said. "So, it wouldn't surprise me if some of these sorts of assets were taken private in the next few years."

Road maintenance workers install a tourist sign on the A71 motorway near Saint-Amand-Montrond in Saint-Vitte on June 23, 2021.

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