Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 303

Boring can be beautiful when investing

Buying the hottest stock in the hottest industry can be a dangerous game in investing. Valuations and expectations are typically very high, and many an investor has been burnt by purchasing a fashionable stock too late in the cycle. For example, tech darling Tesla is now 30% off its high following a stellar run through to 2017.

Often the best opportunities come from boring industries, which don’t generate much ‘buzz’ but quietly build something special. Sir James Dyson became rich in vacuum cleaners, becoming a household name in a low-growth industry where competition and innovation was previously low.

Overlooked not overcooked

If you can find the right company in an overlooked industry, returns can be exponential. Earnings exceed expectations and the valuation multiple applied to those earnings increases as investors appreciate the better than expected outlook. It’s a double kicker to investment returns.

The table below shows some recent examples of winners operating in boring, low-growth industries that have performed exceptionally well over the last 12 months.

Recent winners

CompanyCode12 month returnIndustry
SpicersSRS110%Paper products distribution
InfomediaIFM90%Auto dealership software
Vista GroupVGL70%Cinema software
Breville GroupBRG60%Kitchen appliances

Spicers distributes paper-based products and has been negatively impacted by the move to paperless communication. Along with capital structure issues the stock did little for seven years. However, the industry has consolidated, Spicers had net tangible assets well above the share price, undertook a successful turnaround and then received a takeover offer.

Infomedia is a global provider of software to the parts and service sector of the automotive industry. The automotive sector is mature, making costs an increasing focus. Yet Infomedia has grown by improving its customer efficiency and adding significant value.

Vista is the leading provider of software to cinema operators globally, which is currently being challenged by streaming providers like Netflix. However, cinema attendances globally are moderately growing, and Vista has delivered five consecutive years of revenue growth above 20%. An exciting new marketing opportunity is also beginning to scale.

Breville has developed an innovative and appealing range of kitchen appliances like toasters and kettles. Hardly exciting. Yet it is expanding globally, broadening the product range and recently reported earnings per share growth of 20%.

What are some new ideas on this theme?

What are some other 'boring' industries which offer investment opportunities? The table below shows some new ideas that we like among stocks in industries which may be considered unfashionable.

New ideas

CompanyCodePriceIndustry
EQT HoldingsEQT$26.80Trustee services
GTNGTN$1.30Radio advertising
Ive GroupIGL$2.23Printing

EQT provides trustee services for individuals and corporates. It’s considered a relatively stable industry. Existing customers are unlikely to leave but it’s also hard to win new customers. New management has reinvigorated the business and earnings growth is accelerating. The recent Financial Services Royal Commission is likely to be significantly beneficial as greater importance is placed on external, independent trustees like EQT.

GTN has a near monopoly providing real-time traffic information to radio stations and sells attached advertising. It was sold down heavily after a downgrade in December 2018, but we understand those issues have now been resolved. It is about to benefit from accelerating earnings growth in Canada and Brazil and trades on an FY20 PE of 9x and yields 9%. Only a little needs to go right for investment returns to be large.

Ive Group is a printing and marketing company. The industry is challenged, but recently consolidated, and is increasingly rational. IGL just completed a capex programme and is about to reap the returns. Trading on a free cashflow yield of c. 20%, shareholders should benefit from higher dividends and value-accretive acquisitions.

Sometimes, frogs do turn into princes.

 

Richard Ivers is Portfolio Manager of the Prime Value Emerging Opportunities Fund, a concentrated fund which invests in companies outside the S&P/ASX100. This article is general information and does not consider the circumstances of any investor.

RELATED ARTICLES

Get me out of Australia?

Check 6 key ‘moats’ around small stocks

The investment bias against small companies

banner

Most viewed in recent weeks

Nest and nest egg: 23 aspects of housing and ageing

The family home is the biggest asset of most Australians across all age groups, and its role as both a place to live and an investment makes home ownership the biggest retirement policy issue.

20 favourite investment and life lesson quotes

Favourite quotations from famous people on markets, investing, processes, noise, pessimism, self perception and life balance. These lessons carry across investment cycles and lifetimes.   

Sorry, there’s no real place to hide

Billions of dollars of personal savings are flowing into 'fixed interest' funds, but do investors understand the risks? These funds have a place but they are not a short-term haven for worried retirees.

Media worth consuming - November 2019

Links to dozens of global media articles that often do not receive mainstream coverage in Australia. It's sceptical, fun and revealing, often challenging consensus and accepted wisdom.

We need national and personal visions for retirement

Two different articles cover a recent report on the attitudes of Australians towards retirement. What should be a enjoyable life stage is feared by many, and they fail to plan and work towards it.

How ‘residential for rent’ may change Australian housing

Australia has lagged many developed countries in providing top quality rental accommodation owned by institutions, but it is changing, driven by social preferences, affordability and investor needs.

Latest Updates

Investing

Millennials struggle to invest, but property top priority

The investment industry is looking for the best ways to engage with millennials. While younger people want to invest, they are either saving for a home or cannot afford to invest at the moment. 

Superannuation

Four major insights from APRA’s super heatmap

Check your fund on the heatmap. Many super trustees must decide whether to stick with their strategies or accept that APRA will take a tough approach to weeding out underperformers with high fees.

Superannuation

Checking the temperature of the APRA heatmap

The APRA MySuper heatmap uses a consistent methodology, and some funds come out badly. How will members and trustees react, and should APRA have sorted out the problems privately? 

Exchange traded products

Australian ETFs further widen their appeal

ETFs continue to increase strongly, especially in the fixed income category, with younger people and advisers among the major growth categories. Within a year, assets could hit $75 billion. 

Shares

A decade of Aussie shares: who delivered, who dithered?

Following the uncertainty of the GFC, 2010 to 2019 delivered decent Australian share results overall, with wide variations by sector. It's fascinating to see who won and lost over the decade.

Sponsors

Alliances

Special eBooks

Specially-selected collections of the best articles 

Read more

Pandora Archive

Firstlinks articles are collected in Pandora, Australia's national archive.

Read more