Investors read every day about ASX shares that have risen spectacularly… or fallen off a cliff.
But what they don’t hear so much about are the stocks that have just gone nowhere. Not even for the most patient long-term investor.
It might be that the business is very cyclical. Or the stock has an image problem, where past performance or trauma has just put potential investors off buying into it.
But if circumstances for the company have changed, it could be a golden buying opportunity before the rest of the market wakes up.
Airlie Funds portfolio manager Emma Fisher reckons she’s found exactly that, revealing a stock that she bought just within the past month:
Fisher has no fear about this business
Building materials maker CSR Limited (ASX: CSR) has disappointed investors in recent times, with its share price only rising 9.18% over the past five years.
The lack of capital growth, Fisher said in an Airlie video, is because investors are always nervous about the cyclical nature of its clientele — the housing market.
“You might be thinking, ‘Emma, you idiot, you’re buying a building products company. Haven’t you seen that building activity is about to fall off a cliff?'”
But this does not worry her one bit.
This is because she and her team feel like the business is now at a point where its fortunes are less exposed to the volatility of the housing sector.
“Everyone’s really worried about the cycle. No one wants to touch it,” said Fisher.
“But if you work through it, it’s got a lot of reasons why it’s going to be quite a resilient business.”
The landscape has changed for CSR
The first reason why the Airlie team thinks CSR will be less volatile is that the dynamics of the markets that it competes in have changed somewhat recently.
“Their worst business was their glass business, and they’ve exited that,” said Fisher.
“They’ve had Boral Limited (ASX: BLD) exit as a competitor in two of their main businesses — plasterboard and bricks.”
Not having to compete with Boral is significant relief for CSR, as the rival was famous for undercutting.
The second reason why Fisher is bullish on CSR is the significant “surplus” real estate holdings that the company possesses.
“They own a big chunk of land in western Sydney, for example, and they’ve had that property independently valued at $1.5 billion. That compares to [CSR’s] market cap of $2.2 billion,” she said.
“You’re actually not paying that much for the building products part of the business.”
These assets mean that CSR’s balance sheet is net cash, which Fisher favours in turbulent times.
And therein lies the opportunity. CSR’s current stock price reflects the fear of volatility, but Fisher reckons that sentiment is no longer justified.
“While it’s still cyclical, we think a lot of that cyclicality might be smoothed from here.”
