Two old world companies the market is underestimating Investors often focus on the ‘buy or build’ decision, and our view is that as the barriers go up to building new things, many existing assets become more valuable to buy rather than build. Newcrest Mining and Origin Energy are examples of good assets that have received attractive takeover bids in the past few months, Newcrest at a 30% premium and Origin at a 53% premium. Money was free a few years ago but now there’s a cost. Interest rates are higher and competition among brands for a customer base is intense, and there’s less funding available for new businesses. There are more political constraints and fewer trades people. Anyone who has attempted an investment development such as residential or commercial property or a major project will know it is taking longer and it is much more expensive. In fact, ‘old world’ assets are becoming more attractive because the barriers to building new things are getting higher. Uncomfortable opportunities in real assets We hear a lot about new world assets, but in reality, it means higher expectations and greater potential to disappoint. To find unpopular opportunities, a different framework for thinking is required. The stockmarket is going through a phase when global investors are attracted to the ‘new world’ of large tech, growth companies. However, this underperformance has historically created an attractive entry point, as smaller companies deliver their strongest absolute and relative performance over larger companies when the economic outlook starts to improve. Small caps are now trading on a material discount to their historical relative valuations versus large caps. When the outlook starts to deteriorate, investors rush out of small caps and into large, liquid defensive stocks. Small caps are more exposed to the economy, have less diversified businesses, and are less liquid than large caps. This is especially true in smaller companies, which have underperformed their large cap peers in 2022 and into 2023 against a backdrop of rising interest rates and a bleak economic outlook. Here's a snapshot of how the markets look now.Investing in unpopular stocks is a great way to make money for investors but a disciplined process is required to find uncomfortable opportunities. Seasoned investor Warren Buffett agrees that it's a smart place to begin, in part because they fluctuate with the market, making them less risky than individually selected stocks. If you are thinking about getting into investing, experts often advise starting with index funds, which hold every stock in an index, such as the S&P 500. While both Domino's and Google's shares have done well over the years, it's important to note that any individual stock can over- or under-perform, and past returns do not predict future results. That way, it can target consumers with promotions that will incentivize them to spend more when ordering.ĭomino's CEO Ritch Allison announced during Thursday's Q4 earnings call that the pizza chain will introduce new menu items this summer as a way to boost profits. Additionally, the pizza company aims to encourage customers to make their pizza orders online or via its app. In an effort to keep up with its delivery rivals, Domino's is working to expand its carryout sales and shorten delivery times by adding more U.S. same-store sales by 3.4% during Q4, beating the 2.3% Wall Street expected. Despite the pressure, Domino's grew its U.S. As a pizza delivery service, it's had to keep up with ever-growing pressure from others in the delivery space, such as UberEats and DoorDash. Today, Domino's has managed to stay successful even in the face of heavy competition. It also outperformed big-name companies during that period, including Amazon, Apple and Netflix. As part of its "Domino's Pizza Turnaround" campaign, the company heavily publicized the improvements it made to its recipe.įollowing this brand revamp, Domino's saw its stock gain more than 2,000% from 2010 to 2017. "Microwave pizza is far superior" and "Domino's tastes like cardboard" are just a few of the critical remarks customers made. In 2009, the company received so many poor reviews over its menu items that it decided to overhaul its business model. As a result, its shares soared 25% that day.īut Domino's hasn't always been doing well. Last week, Domino's reported its fourth-quarter earnings with news that it had beaten Wall Street expectations. Other than the fact that people clearly love pizza, this data shows that companies don't necessarily have to dominate a trendy industry to have a top-traded stock.
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