The IWG office opportunity – and the need for non-obvious ideas!

In recent weeks, just about every newspaper will have carried articles and opinion pieces about "the coming end of the office":

It makes sense, doesn't it?

• Governments are preventing employees from returning to their office.
• Video conferencing has matured to a point where we can meet remotely.
• Who'd want to commute to an office anyway?

The logic seems impeccable and obvious.

Is it time to sell all office-related investments?

Should we short the stocks of cubicle producers?

Will Dilbert comics become a relic of the past?

Not so fast, I say.

Why is this office property company garnering interest?

The share price of IWG PLC (ISIN JE00BYVQYS01), a company offering rental offices in over 100 countries, provides an interesting case.

During the initial phase of the coronavirus pandemic, it fell from GBp 450 to just GBp 100.

So far, so logical. With its short-term lets, IWG appears particularly vulnerable to an economic downturn, never mind the rise of a secular shift towards working from home.

Surprisingly, the stock is now back at around GBp 300. Its chart makes you wonder if it might be about to crawl up even further.

Aren't we told on an almost daily basis that the concept of corporate offices is about to be canned?

Didn't WeWork, until recently IWG's fiercest competitor, hit the wall?

Much of IWG's recovery feels counter-intuitive.

When something goes against conventional wisdom, my interest immediately gets piqued.

Once you start to look more closely, you find some non-obvious aspects.

And it's that kind of ideas and observations that I am striving to find more of.

Question everything and aim to look beyond the horizon

Proclaiming the coming "end of something" makes for good clickbait – and corresponding ad revenue. However, the reality is that we tend to see evolutionary changes more often than revolutionary changes.

Companies that are well-funded and have experienced management can often turn unexpected evolutionary changes to their advantage.

Rather than face the death of its business model, it appears increasingly likely that IWG will thrive on the back of a revised-and-expanded strategy:

• Given the uncertainty of the current environment, corporations that previously signed long-term rental contracts are now looking towards short-term rentals for additional flexibility.

• We will soon see a ton of new start-ups, all aimed at capitalising on the changing world. Start-ups prefer flexible office space.

• The alleged death of the corporate office may yet turn out to be an exaggerated story altogether, and instead, corporations may simply change their office set-up. Have you ever heard of the hub-and-spoke model? I hadn't, but it's now on the rise and IWG reported "exploding demand". The hub-and-spoke model describes a set-up where a firm has its headquarters in a big city, but also smaller satellite offices elsewhere.

These factors are not immediately apparent, which is why there is at least a chance that they are not priced into stock prices yet.

To succeed in the markets, you need to be ahead of the curve.

Investing based on what's printed in today's newspapers is not going to get you lasting results.

You need to buy before the newspapers report, and then sell into the rising market when everyone else is waking up to the opportunity.

Finding the non-obvious future winners

The stock market is currently awash with obvious coronavirus winners.

These include the blindingly obvious cases of:

• Zoom Video Communications (ISIN US98980L1017), which is now worth a staggering USD 110bn because of the remote working boom.

• Vaccine specialists such as Moderna Therapeutics (ISIN US60770K1079), up fourfold since the start of the pandemic.

• Online retailers, from Amazon (ISIN US0231351067) all the way down to Naked Wines (ISIN GB00B021F836).

These names all represent trains that have long departed the station.

What I am interested in (for the purpose of Undervalued-Shares.com) are companies that are set to benefit from current changes in the world but which no one has identified as such (yet).

For example, I recently sent a research report to my Lifetime Members about a company in the eye-tracking industry. Hardly anyone will have even heard of eye tracking yet, and there is only one significant-sized publicly-listed eye-tracking company in the world. However, the coronavirus crisis might accelerate the growth of the eye-tracking sector. Why's that? It's not obvious, and that's the point! Opportunities that have stayed somewhat hidden up to now are what I am after.

There have got to be others.

What are the surprise developments and under-appreciated innovations that are just about to appear on the horizon?

It could be companies or product classes, or even broader developments.

As an example of the latter, Goldman Sachs has recently been advising its clients that "the likelihood of an approved vaccine in late Q3 / early Q4 still seems to be significantly under-priced by the market."

What are the questions that no one is asking yet, but should be asking?

I have started to draw up a list of candidates, including outliers and outrageous ones, that no one seems to have on their radar (potential future winners!),. E.g.: "Does the pandemic increase the risk of war in Europe, and if so, which companies would benefit?"

It has to be non-obvious and off-the-beaten-path. Ideally, it'll even upset a bunch of people. It should be the equivalent of saying in late 2015: "Donald Trump will beat 16 other candidates and win the election." That kind of open-minded thinking.

To read more about the unique value of non-obvious observations, check back to my December 2019 Weekly Dispatch about "Non-consensus viewpoints", and the excellent book published about the subject by Rupal Bhansali.

Over the coming months, I'll be working hard to deliver more examples of non-obvious, ahead-of-the-curve ideas that are likely to prosper during the ongoing pandemic and beyond. I am preparing a new series along those lines for the Weekly Dispatches, and I have ideas for reports that I will send to my Members and Lifetime Members. (On that note, reader feedback is very much welcome. If you have general or company-specific ideas that you think might fit the bill, please do send them my way.)

The rest of the year will be a superbly exciting time. We'll even be lucky enough to have another US election pan out in front of our eyes. Get your popcorn ready and prepare for interesting investment opportunities arising out of that, too.

Watch this space for my upcoming Weekly Dispatches (free for all) and investment reports (for my Members and Lifetime Members) – with stuff that you won't easily find in other research reports.

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