As we begin another year here at QuotedData, we thought we’d have some fun and challenge our analysts to come up with some ideas for investment companies that they like and think could do well over the course of 2024. To keep things interesting, each analyst has been asked to select two ideas – one that is a relatively mainstream core investment (although this could, for example, have a strong growth flavour to it and so is not without risk) and a spicy idea that is a bit more adventurous. Each idea has a brief summary below.
We plan to pop back later in the year and see how our choices are doing and, for the avoidance of doubt, our yardstick will be their performance in share price total returns (sterling adjusted). Please note, nothing in this article is intended to encourage the reader to deal in any of the securities mentioned in this article. However, if you have any thoughts – maybe you share our optimism or think we have got it all wrong – we’d love to read about it in the comments below. Otherwise, we wish you all a happy and prosperous 2024.
Matthew Read
Core idea: Asia and growth strategies have suffered significant headwinds during the last couple of years but, against a backdrop of election uncertainty in the US, signs of inflation easing in the west and China continuing to recover, these could be well positioned to perform well during this year and next. Pacific Horizon (PHI) is well-positioned to capture these recoveries as they emerge, and the effects could be significant. Valuations across the region look cheap versus history – particularly in China where the managers have been adding exposure – and this should trigger a narrowing of PHI’s discount which is above its long-term averages (11.1% today versus a five-year average of 1.2%).
Spicier idea: Geiger Counter (GCL), which invests in companies involved in the exploration, development and production of uranium, benefits from a number of long-term structural growth drivers. Nuclear will be an essential part of the energy mix if we are to decarbonise power generation, but a 10-year bear market has restricted investment in new supply in what is already a highly-concentrated market that is in supply deficit. This has created a highly supportive backdrop for the uranium price, which has increased significantly during last nine months – from around US$50 to around US$91 per pound – yet GCL trades at a 12% discount versus a five-year average premium of around 2%.
James Carthew
Core idea: Montanaro European Smaller Companies (MTE) has been hit by threefold headwinds. The aversion to growth investing that accompanied interest rate rises, a derating of stocks perceived as high quality and the general underperformance of smaller companies. That combination has translated into a fall in its NAV over the past three years and this has contributed to a widening of its discount to over 14%. Rates look to have peaked as inflation has been tamed. Now the focus is shifting towards the likelihood of recession – which should mean that investors favour companies with strong franchises and balance sheets. If, as I suspect, investors decide that the elastic on the gap between large cap and small cap valuations has stretched too far, MTE could be set for a year of recovery.
Spicier idea: Chrysalis Investments (CHRY) was hit hard by the dramatic shift in sentiment towards growth stocks at the start of 2022. That was driven largely by rising interest rates, but as rates now look to have peaked, that removes a major obstacle to CHRY’s recovery. However, the real kicker should come as CHRY starts making disposals. It has already flagged an NAV enhancing sale. That will free up cash that can be used to fund share buybacks, which should help narrow the trust’s 43% discount.
David Johnson
Core idea: I believe the US will see at least one more year of market leadership, thanks to it being ahead of the curve when it comes to inflation management and 2024 being an election year (no president wants a period of difficult financial markets in the run up to an election). I feel that the best opportunity within America will come from a growth strategy, given where we are in the economic cycle, as an interest rate cut will overwhelmingly favour growth stocks. This makes Baillie Gifford US Growth (USA) my natural choice as not only is it the only dedicated US growth strategy but also offers the benefits of a c.13% discount, the widest of any US strategy.
Spicier idea: Digital9 Infrastructure (DGI9) offers a great way to capitalise on the forthcoming interest rate-cut opportunity, given that its portfolio is effectively invested in unlisted growth stocks, which means the c.70% discount it currently trades on gives it strong rebound potential. Its portfolio also invests in obvious mega trends, which may also make it a prime candidate to be taken over if its current discount persists. The board also began a strategic review in November to improve shareholder value, following the sale of its stake in the Verne Global group, which should hopefully be implemented in 2024 and drive up its share price.
Andrew Courtney
Core idea: Ecofin Global Utilities and Infrastructure (EGL) provides a steady hand for an unknown future. The company has been impacted heavily by rising interest rates despite maintaining impressive fundamentals and with the market pricing multiple rate cuts through 2024, we would expect its discount, which currently sits at around 11%, to head rapidly back towards the lofty premium it held as recently as September 2022. With heavily contracted earnings as well as exposure to more juicy storage, nuclear, and hydrogen assets, the company has a foot in both reflationary and deflationary camps, making it well equipped to ride out the increasingly uncertain macro-outlook.
Spicier idea: It would be fair to say that few people would have predicted the barnstorming run global markets have had through 2023, particularly in the US with the Nasdaq-100 raising the bat for its half century. The overwhelming consensus was for recession and look where we ended up. I’d argue things are even more confusing coming into 2024 with big question marks around the direction of rates, geopolitics, elections, China, US valuations, and of course inflation. While the soft-landing crowd rejoices, the risk of “stagflation” remains intact, and such a scenario should be like catnip to our old friend Golden Prospect Precious Metals (GPM), a high beta play on the price of gold.
Richard Williams
Core idea: Real estate had a torrid time of it in 2023 due mainly to the endless interest rate hikes impacting negatively on valuations. Given that it appears we may get some rate cuts this year, the sector could be in a good place for a rebound. In a position of strength is LondonMetric (LMP), which is heavily weighted to the logistics sector and a sizeable long-income portfolio. It picked up CT Property Trust for a bargain price in 2023 and is on the hunt for more M&A – setting its sights on LXi REIT in December. That deal could be transformational, the timing of which may give it the chance to sell off some gems in a rising market. Growing income, fully covering its dividend and the potential for capital growth makes it a solid choice in any event.
Spicier idea: Retail property has been in the doldrums for years, but 2024 could be the year of a comeback. Values seem to have found a base from which to build and if so NewRiver REIT would be my bet. It has done a great job sorting out its balance sheet (LTV is now a comfortable 29.5%), while its portfolio is weighted towards the retail park sub-sector, which has robust rental growth characteristics. The kicker is the group’s growing partnerships arm with pension funds and councils, where asset management fee income will boost earnings. A 28.5% discount is enticing.