Three high-quality stocks at low valuations

Professional investor Joe Bauernfreund of the AVI Global Trust selects three of his favourite enterprises that currently trade at a discount to the value of their assets.

Since 1985 our trust has invested in high-quality assets held through unconventional structures and trading at discounts to their net asset value (NAV). The portfolio comprises three main types of company: family-controlled holding companies; closed-end funds; and other asset-backed special situations, such as cash-rich Japanese operating companies. 

We aim to benefit from both NAV growth and discount narrowing, driving attractive long-term returns in excess of global equity markets. We are bound by our core philosophy: quality assets at discounted valuations. 

A widely diversified holding company

One stock we consider particularly attractive is EXOR (Milan: EXO), the holding company of the Agnelli family. EXOR is a diversified investment holding company, with stakes in Fiat Chrysler, Ferrari and capital goods specialist CNH Industrial, as well 100% ownership of global reinsurer PartnerRe. EXOR trades at a discount to NAV of about 40%. 

We expect this discount to narrow over time and the NAV itself to compound at an attractive rate, the combination of which should drive strong returns. 

The upcoming merger of Fiat Chrysler with Peugeot-owner PSA will create the world’s fourth-largest car manufacturer, with attractive growth prospects, strong margins and, in Carlos Tavares, an industry-leading CEO likely to capture valuable synergies. 

Similarly, we see upside at CNH where demand for agricultural equipment, as farmers replace old machines, should drive strong profit growth, while a splitting of the company should lead to multiple expansion. PartnerRe, moreover, will benefit as pricing continues to harden. 

The lap of luxury 

Another firm we like is Christian Dior (Paris: CDI), the French-listed holding company through which the Arnault family controls luxury-goods conglomerate LVMH. Historically Christian Dior has traded in lockstep with LVMH, at or around NAV. However, amid the volatility of 2020 a near-25% gap has opened up between the two. 

We expect this to close over time, either naturally or through the family deciding to collapse the structure. In the meantime investors are exposed to expansion at LVMH, whose irreplicable brands enjoy strong growth prospects, attractive margins, and significant scale advantages that will see them emerge from Covid-19 in an even more dominant position. 

Oakley Capital Investments (LSE: OCI) is a London-listed private-equity fund trading on a 23% discount to NAV. OCI has a unique approach to private-equity investing: it sources companies through a network of entrepreneurs who believe in the Oakley philosophy, and it focuses on complex situations (such as carve-outs) that help bypass the traditional auction process. 

OCI has thus assembled an array of fast-growing companies at reasonable prices in the consumer, TMT (telecoms, media and technology) and education sectors. The discount reflects both weak previous corporate governance and dilutive share issuances. However, OCI has moved past these issues. As the market updates its view  of OCI, we believe that the discount will narrow, providing an additional tailwind to returns on top of NAV growth. 

Recommended

University spin-outs: where to find companies involved in cutting-edge science
Share tips

University spin-outs: where to find companies involved in cutting-edge science

Universities are innovation incubators and often launch businesses involved in fast-growing fields ranging from biotechnology to artificial intelligen…
24 Sep 2021
Russia's rigged election won’t rattle investors
Emerging markets

Russia's rigged election won’t rattle investors

Russian stocks are soaring, despite last week’s blatantly rigged election.
24 Sep 2021
Investing in football clubs: how you can profit from the beautiful game
Share tips

Investing in football clubs: how you can profit from the beautiful game

Football clubs may often be money pits for oligarchs, but they are also huge global brands, says John Chambers – and investors are now starting to rec…
24 Sep 2021
Share tips of the week – 24 September
Share tips

Share tips of the week – 24 September

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
24 Sep 2021

Most Popular

Two shipping funds to buy for steady income
Investment trusts

Two shipping funds to buy for steady income

Returns from owning ships are volatile, but these two investment trusts are trying to make the sector less risky.
7 Sep 2021
Should investors be worried about stagflation?
US Economy

Should investors be worried about stagflation?

The latest US employment data has raised the ugly spectre of “stagflation” – weak growth and high inflation. John Stepek looks at what’s going on and …
6 Sep 2021
The times may be changing, but don’t change how you invest
Small cap stocks

The times may be changing, but don’t change how you invest

We are living in strange times. But the basics of investing remain the same: buy fairly-priced stocks that can provide an income. And there are few be…
13 Sep 2021