At current valuations, TCL (Transurban, the big toll roads operator) needs to grow, and by a lot, to make a market like rate of return (here, a 7% CAGR, decapitalised at a market PE).
And that’s with a prospective rates headwind too. Challenging, to our minds.
Stocks like SUL don’t need to grow, too much, but they do need to retain a lot of the “share of wallet” increase. Which doesn’t seem especially likely. Same with most of the discretionary retailers.
As for healthcare, well, they have some of the most egregious “required earnings trajectories” going, to justify their current market caps. SHL, is probably amongst the better, of the sector, believe it or not.
These kind of difficult-to-achieve embedded expectations are part of what we call the secular growth narrative, and, given rich valuations, are the kinds of stocks and sectors we are actively reducing our exposures to.
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