Investor Insights

A lot is being written about the low interest rate environment in which we find ourselves. And rightly so: we would rank this as the number one most powerful force affecting asset prices today. As for the reasons behind the interest rate dynamics we are seeing, there are many – including those related to demographics, technology and globalization.

As the reporting season avalanche gathers pace, a few company reports have really caught our eye.  Here’s our take on reports by BHP, a2 Milk, Beacon Lighting and Worley Parsons, and what each firm is saying about their near-term prospects. BHP (ASX:BHP) BHP posted its largest annual profit in five years along with a record dividend.

Technology once presented a major barrier to entry and often stifled competition. So what changed? We see the explosion in the cloud as a catalyst for why we believe small companies represent an attractive area of investor opportunity.

If I were to characterise the domestic small cap market in just one word, it would be ‘dynamic. ’ It is truly dynamic in the sense that it is constantly changing and evolving which creates exciting opportunities for astute investors.

To invest successfully in small companies, you really need to know the people running the businesses. And in Gary Rollo and Dominic Rose, the Montgomery Small Companies Fund has two highly experienced fund managers well equipped to assess the leaders of ASX-listed small companies.

Montgomery Investment Management is pleased to announce the launch of its first Small Companies Fund under a new joint venture that welcomes respected fund managers Gary Rollo and Dominic Rose to the firm.

The share price of Challenger Limited (ASX: CGF) – Australia’s leading annuities provider – has declined by almost 50 per cent in the past 12 months. While the firm is clearly out of favour, I believe its long-term prospects could be better than the market is currently pricing in.

Over the last four years property prices in Australia peaked and reversed, homes listed for sale have plummeted and the share price of REA Group, Australia’s online property classified portal, has… MORE THAN DOUBLED! Sounds strange perhaps, so I have included the chart from Bloomberg below.

Twelve months ago, we saw compelling value in Telstra (ASX: TLS). Since then, its share price has shot up 40 per cent, and it may have further to run. In a market where it’s tough to find value, we think the healthcare business, Healius, could be the next company to outperform.

Is that all there is to a housing slump? Well, yes, according to REA Group, which recently reported a decent set of numbers for the year, and expects a significantly better residential listings market in the months ahead.

Reporting season is now underway and there have already been a few notable share price moves – JB Hi-Fi (ASX:JBH), REA Group (ASX:REA) and James Hardie (ASX:JHX) leading the way for some larger companies. Each stock had something in common, which was a relatively large short interest active in the names.

Reporting season can be brutal for businesses affected by cyclical factors, like the current residential building slump. But experience tells me it’s also a great time for investors to take note of out-of-favour companies that should rebound when the cycle turns up. Exclusive Content This is exclusive content to subscribers on rogermontgomery. com.