Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 370

The 'Heady Hundred' case for unglamorous growth

Imagine you are at a cocktail party in May 2012. The conversation turns to the stock market, and your friend mentions that she bought Facebook at its initial public offering that month. Then you tell everyone that you just invested in a trucking business. While your friend instantly becomes the life of the party, you spend the rest of the evening staring into your drink.

Growth is not only about tech stocks

Your friend made a good call. Facebook’s share price has risen almost sevenfold since the IPO. But your investment in XPO Logistics was also pretty exciting. Its share price performance was even with Facebook’s as recently as January 2020, and both companies delivered similarly strong revenue per share growth through the end of 2019. Since then, the pandemic has been considerably more painful for XPO’s shares than Facebook’s, so you ‘only’ made about 400% overall. But both stocks trounced the S&P500’s 200% return.

The lesson here is that great investments come in many different shapes and sizes, and they may not always seem obvious. The obvious winners in today’s environment have been the so-called FANGAM stocks – Facebook, Amazon, Netflix, Google (Alphabet), Apple, and Microsoft. One can debate their valuations, but whatever your view of these giants, there is strong evidence of truly speculative froth elsewhere.

Recent research by Verdad showed that there are 500 stocks in the US – the ‘Bubble 500’ – that are both more expensive than the FANGAM shares and have worse fundamentals. The vast majority of the Bubble 500 are found in areas such as software, fintech, biotech, and healthcare equipment. It's the virtual happy hour stocks of the present day. A few may turn out to be future giants, but it’s extremely unlikely that all 500 will work out anywhere near that well.

A check on the worst of both worlds

Taking a global view, we ran a similar analysis of our own on the FTSE World Index. We looked for stocks with the worst of both worlds:

  • higher valuations than the FANGAM stocks
  • weaker margins and slower revenue growth.

We found almost 100 such companies, which we call the ‘Heady Hundred’.

Unsurprisingly, software, biotech, and healthcare equipment stocks are well represented, as is the US. As shown in the table below, these companies are about 50% more expensive than the FANGAMs on a price-to-revenue basis and about 30% richer on price-to-earnings multiples yet have delivered only half the revenue growth and with lower profitability.

Astonishingly, this group of stocks carries a market value of more than $3 trillion. To put that in perspective, the Heady Hundred are worth nearly as much as the entire Japanese stockmarket.

A preference for boring, overlooked, hated

Of course, some of these may turn out to be great investments. Prices can often race well ahead of fundamentals for rapidly growing businesses. Amazon has never once looked attractive on traditional valuation metrics, but that hasn’t stopped its shareholders from earning spectacular returns over its 23 years as a public company (Amazon’s recent run has been painful for us to watch, having owned it but sold it far too early.)

The problem is that prices also race well ahead of fundamentals for all the other ‘exciting’ businesses that go on to falter. For those who fail to live up to their Amazonian expectations, the punishment can be swift and severe.

As contrarians, we much prefer the idea of investing in businesses that are boring, overlooked, or even hated. Not only are their fundamentals usually underappreciated, but there is far less room for disappointment since there is so much less enthusiasm reflected in the price.

Besides XPO, other examples in the Orbis Funds include US health insurers, emerging market banks and conglomerates, Japanese drugstores, and even a manufacturer of farm equipment. These ‘boring’ businesses have delivered revenue growth in excess of 10% per annum and some can even hold their own with the FANGAMs.

Most importantly, you don’t need to pay a heady premium for it.

 

Jason Ciccolallo is Head of Distribution for Australia at Orbis Investments, a sponsor of Firstlinks. This report contains general information only and not personal financial or investment advice. It does not take into account the specific investment objectives, financial situation or individual needs of any particular person.

For more articles and papers from Orbis, please click here.

 

Video: Brett Moshal: Our job is to be uncomfortable

Summary points

  • The dramatic rebound in the second quarter has left equity markets much more nuanced and with fewer obvious bargains compared to late March.
  • Some “Growth” stocks appear attractive, while others have never been so expensive. On the other hand, some “Value” stocks appear unusually cheap, while others have been justifiably punished.
  • In Japan, we are finding good companies at great prices and with particularly attractive dividend yields.
  • Markets globally remain highly uncertain, but as always, our focus remains on avoiding the risk of permanent capital loss by being disciplined about the price we pay.

 

RELATED ARTICLES

Why it's a frothy market but not a bubble

FANMAG: Because FAANGs are so yesterday

After 30 years of investing, I prefer to skip this party

banner

Most viewed in recent weeks

Simple maths says the AI investment boom ends badly

This AI cycle feels less like a revolution and more like a rerun. Just like fibre in 2000, shale in 2014, and cannabis in 2019, the technology or product is real but the capital cycle will be brutal. Investors beware.

Why we should follow Canada and cut migration

An explosion in low-skilled migration to Australia has depressed wages, killed productivity, and cut rental vacancy rates to near decades-lows. It’s time both sides of politics addressed the issue.

Are LICs licked?

LICs are continuing to struggle with large discounts and frustrated investors are wondering whether it’s worth holding onto them. This explains why the next 6-12 months will be make or break for many LICs.

Australian house price speculators: What were you thinking?

Australian housing’s 50-year boom was driven by falling rates and rising borrowing power — not rent or yield. With those drivers exhausted, future returns must reconcile with economic fundamentals. Are we ready?

Retirement income expectations hit new highs

Younger Australians think they’ll need $100k a year in retirement - nearly double what current retirees spend. Expectations are rising fast, but are they realistic or just another case of lifestyle inflation?

Welcome to Firstlinks Edition 627 with weekend update

This week, I got the news that my mother has dementia. It came shortly after my father received the same diagnosis. This is a meditation on getting old and my regrets in not getting my parents’ affairs in order sooner.

  • 4 September 2025

Latest Updates

Shares

Why the ASX may be more expensive than the US market

On every valuation metric, the US appears significantly more expensive than Australia. However, American companies are also much more profitable than ours, which means the ASX may be more overvalued than most think.

Economy

No one holds the government to account on spending

Government spending is out of control and there's little sign that Labor will curb it. We need enforceable rules on spending and an empowered budget office to ensure governments act responsibly with taxpayers money.

Retirement

Why a traditional retirement may be pushed back 25 years

The idea of stopping work during your sixties is a man-made concept from another age. In a world where many jobs are knowledge based and can be done from anywhere, it may no longer make much sense at all.

Shares

The quiet winners of AI competition

The tech giants are in a money-throwing contest to secure AI supremacy and may fall short of high investor expectations. The companies supplying this arms race could offer a more attractive way to play AI adoption.

Preparing for aged care

Whether for yourself or a family member, it’s never too early to start thinking about aged care. This looks at the best ways to plan ahead, as well as the changes coming to aged care from November 1 this year.

Infrastructure

Renewable energy investment: gloom or boom?

ESG investing has fallen out of favour with many investors, and Trump's anti-green policies haven't helped. Yet, renewables investment is still surging, which could prove a boon for infrastructure companies.

Investing

The enduring wisdom of John Bogle in five quotes

From buying the whole market to controlling emotions, John Bogle’s legendary advice reminds investors that patience, discipline, and low costs are the keys to investment success in any market environment.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.