Top Investment Opportunities for April 2023
Amidst global turmoil and economic unpredictability, savvy investors recognise the potential for strategic opportunities. As market volatility persists, there's a shift in focus towards undervalued assets with strong fundamentals. In the upcoming month of April 2023, we unveil three top-tier investment prospects that have weathered recent market fluctuations. Explore the resilience of esteemed global franchises including Macquarie Group, ResMed, and tech giant Microsoft, all presenting compelling value propositions after experiencing double-digit share price declines. Discover why these high-quality businesses stand out amidst the current economic landscape.
Macquarie Group
Macquarie Group (MQG), an Australian success story, showcases its prowess in international expansion, with a significant 72% of its total operating income generated from overseas markets. The company's growth strategy is characterised by several key elements: operating in niche areas where it holds a competitive edge, leveraging its unique expertise to expand into related sectors gradually, and strategically augmenting organic growth through well-timed acquisitions to bolster its scale and presence in the market.
What remains true of Macquarie Group is that management has done what we see as an excellent job positioning the company with broad exposure to long-term structural growth areas like Infrastructure, Green Energy transition, and Private Equity. Macquarie Group’s ability to build and maintain a sustained competitive advantage over time is highlighted by the fact that it has delivered an impressive average 14% return on equity over the last 16 years.
Finally, a key takeaway from Macquarie Group’s recent US investor tour was that even in areas where it has a strong market position, the company still believes it has significant headroom to grow. An example of this is in the US gas market, where despite Macquarie Group being the number one US gas marketer, the company still only has around 10% market share. In our view, Macquarie Group is a quality global business, with a proliferation of avenues for ongoing growth.
Microsoft Corporation
Microsoft Corporation (MSFT) dominates as the provider of critical technology that improves business productivity worldwide. Its Windows operating system granted Microsoft dominance in the personal computer market, and the company has continuously leveraged this into numerous high-quality business-critical earning streams.
Microsoft, renowned for its flagship product Microsoft Office, embraced by approximately 90% of businesses globally, alongside the ubiquitous Microsoft Outlook, often employed for email communication. The company operates across distinct business segments, comprising Productivity and Business Processes, encompassing Office, Teams, and LinkedIn; the Intelligent Cloud, synonymous with Cloud Computing, the Internet of Things, and Microsoft Azure; and Personal Computing, offering diverse services ranging from internet search facilitated by ChatGPT, to the provision of laptops, Virtual Reality devices, and Xbox electronic gaming consoles.
Microsoft also operates arguably the largest cybersecurity business in the world, which seems unlikely to be anything other than a major growth area. The bulk of Microsoft's revenue is recurring and sold through channel partners.
Microsoft has defensive earning streams, numerous growth projects, and is a cash-generating machine. Its return on equity over the last 15 years has averaged 15%. Microsoft's dividend has grown every year over the last decade, and its free cashflow is largely returned to shareholders via dividends and on-market share buybacks.
Despite expectations of a global economic slowdown, the market forecasts Microsoft's earnings and dividends to grow in the coming years. Microsoft's CEO Satya Nadella said it best when he suggested that Microsoft is set to "participate in the secular trend where digital spend as a percentage of GDP is only going to increase."
He also indicated that Microsoft aspires "to lead in the AI (artificial intelligence) era, knowing that maximum enterprise value gets created during platform shifts."
ResMed
ResMed (RMD) holds a dominant position in the global market for Sleep and Respiratory Care, which makes up around 90% of its net revenue. It is developing innovative products designed to enable clinicians to better manage patients and improve patients’ long-term adherence to therapy, with sales in more than 140 countries worldwide.
This market remains globally underpenetrated and poised for continued growth, fuelled by geographic expansion and increasing awareness of respiratory disorders.
Uniquely, the company has complemented this segment with cloud-based software health applications and devices targeting the fragmented and underserved out-of-hospital care market.
These products and health technology solutions are designed to provide ‘connected care’, a key value proposition where we see significant opportunity to address sector ‘pinch-points’ (in other words, improving patient outcomes, helping physicians and providers better manage chronic disease, and reducing overall healthcare system costs).
In addition, a combination of continued product development, product and technology acquisitions, and innovation further strengthens ResMed’s competitive advantage and should provide a strong platform for sustainable growth.
While global supply chain disruptions have seen shares pull back around 20% from their COVID-inflated highs, we view easing logistic concerns and a benign competitive environment as lending further support to this structural growth story. With a strong track record of high returns, strong cash generation, and one of the best balance sheets in the market, ResMed is a quality global franchise and a key portfolio holding.
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