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Market-thumping fund manager names “dramatically undervalued” shares it’s buying

It might have got off to a disappointing started as a listed investment company but the managers of the L1 Long Short Fund Ltd (ASX: LSF) have an impressive long-term tracking record when it comes to stock picking.

In fact according to their latest update today the original L1 Long Short Fund has delivered an annualised net return of 20.6% per year since inception in 2014 or a 132% total return since inception.

I’m not aware of a listed investment company on the local market with returns better than this, especially considering it generally invests in the mid to large-cap space.

However, it should be noted past performance is no guide to future performance (well not always) and that the LSF share price today sells for $1.45 compared to its April 2018 listing price of $2. In other words IPO investors are down over 25% already.

This is partly because the LIC now trades at a discount to its pre tax net tangible asset value of $1.62 as it seems subscribers to the wildly popular IPO are losing the faith.

Over the long-term though its managers appear to have a strong track record, so today’s share price could be cheap.

As such, let’s take a look at a few of its best ASX share picks according to today’s update.

Boral Limited (ASX: BLD) is the building materials business that has de-rated to a 10x price-to-earnings multiple, compared to its historical average of 18x. The fund manager is confident it will deliver a stronger second half partly on the back of a recent research trip they undertook to take a look at Boral’s US business including its Headwater acquisition.

Chorus Limited (ASX: CNU) shares have been a strong performer over the past year rising from $3.72 to $5.50 today. L1 likes the New Zealand-based internet services provider thanks to its competitive position and potential to benefit from recent large capital expenditures. L1 even calls the shares “extremely undervalued” and “expects dividends to accelerate over the next five years”.

News Corp (ASX: NWS) shares are described as “dramatically undervalued” by the fundie given its assets outside REA Group Limited (ASX: REA) and Move Inc. are currently being valued close to zero according to the manager. News Corp also has no debt and $2.4 billion in net cash that makes for a seemingly strong investment case.

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Motley Fool contributor Tom Richardson owns shares of REA Group Limited.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia has recommended REA Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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