Alex Waislitz monitoring for false dawns but predicts equities to regain their shine in six months
The renowned small and mid cap stock picker likes companies which are raising funds at lower valuations than previously and providing a cheaper entry point than a year or two ago.
Billionaire investor Alex Waislitz predicts interest rates will not start falling until the middle or end of 2024 as the western world continues to battle its “big fear” of inflation.
Mr Waislitz, who famously forecast rising rates back in 2021 before inflation took a grip globally last year, says he believes rates have “probably peaked or are very close to peaking” but that they will not come down as quickly as some pundits have been predicting.
“Some people are saying they could even start coming down this calendar year, but personally I don’t see that,” Mr Waislitz tells The Australian.
“I think rates will be somewhere around where they are now for the next six months or more, and then start coming down towards the middle or back end of next calendar year … to correct the damage that is currently being caused (by higher rates and inflation).”
Mr Waislitz says with “inflation being the big fear of the western world”, central banks are taking what they see is necessary action that “creates pain and in some cases is devastating, but that’s the big picture they are taking.”
Mr Waislitz says the equities market will act ahead of the rate falls and bounce, although he cautions that volatility will continue for some time as there will be “a few false dawns or false starts during the next six to nine months” before rates fall – pending any further geopolitical risks such as an elevation of current situations in countries like China, Iran or Russia put a dampener on the global economy.
Mr Waislitz has built a successful career as a stock picker for his private Thorney group, starting the investment firm in 1991 after working for the late Richard Pratt at cardboard manufacturing and recycling giant Visy, and an earlier stint in the New York office of the late Robert Holmes a Court.
Mr Waislitz, previously married to Heloise Pratt, started Thorney with the proceeds of a parcel of Amcor shares worth $1.15m – a present from his grandmother-in-law.
Three decades later, Mr Waislitz also runs listed investment companies Thorney Opportunities and Thorney Technologies and has extensive property, media and philanthropic interests.
Mr Waislitz admits to some frustration that the share price of Thorney Opportunities has been trading at a discount to its net tangible asset value for some time.
The Thorney Opportunities investment portfolio finished the year ended 30 June, 2023 up 8.81 per cent and outperforming the S&P Small Ordinaries Index by 0.36 per cent.
The performance was mostly due to the positive share price of the fund’s engineering and mining services holdings, a sector that Mr Waislitz remains bullish about.
“We think those sectors have great tailwinds. There’s billions of dollars of infrastructure being announced by governments … and if you are a services provider in that area you can do pretty well,” he says.
“Resources, we think is the same. Some stocks might be down now but I still see that as a pretty short-term blip.
“It is still going to be a huge contributor to our economy, there will be strong performances for some speciality resources like the ones in relation to electric vehicles; it is a huge employer and there’s a lot more technology coming into all sorts of aspects of exploration and production.
“So being part of the picks and shovels in that industry, I think, is a good thing.”
Mr Waislitz names stocks such as oil-and-gas industry services provider MMA Marine, Southern Cross Electrical Engineering and Decmil – which provides services to infrastructure, mining, and renewable energy sectors – as stocks that have “good long-term thematics to them”.
As for technology stocks – another Mr Waislitz focus for many years – he says the outlook is still subdued for much of the small and mid-cap aspect of the sector.
While Mr Waislitz says “you want to be part of the technology revolution” and “at a company level there will be companies that we have not heard of today that will be multibillion companies of the future.”
For the foreseeable future, technology stocks are under pressure given uncertainty over the macroeconomic outlook, he says, “but when the market turns the speculative (investment) element will come back, but we are not seeing that yet.”
Thorney and its LIC Thorney Technologies have some pre-IPO investments but Mr Waislitz says the better investment opportunities for now are in companies which are raising funds at lower valuations than previously and providing a cheaper entry point for new investment than was the case a year or two ago.
“The pricing power is with investors, and if you’re looking to employ new money then there are opportunities with companies where valuations are dramatically down and so there’s prospects of getting good returns there in the next few years,” he says.
Unfortunately, US-based firm Updater – which provides online services which help Americans move house – is a prime example.
Somewhat controversially, Updater privatised and delisted from the ASX in 2018 when it had market capitalisation of about $680m in order to seek a better valuation on US private markets.
Thorney has been a long-term shareholder and has suffered as Updater delayed its US float plans. It has reportedly had its valuation slashed to about $US260m ($407m) after a recent capital raising round.
“Updater is a classic example of what not to do when you’re going off a listed company bourse,” Mr Waislitz says.
“We are still in there and are not happy … but you have to wait it out.
“That’s the Darwinian nature of this type of investing; there are those that take advantage and those that suffer in these difficult times.”