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Rudi’s View: Link Administration, Blue Sky And Costa Group

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Always an independent thinker, Rudi has not shied away from making big out-of-consensus predictions that proved accurate later on. When Rio Tinto shares surged above $120 he wrote investors should sell. In mid-2008 he warned investors not to hold on to equities in oil producers. In August 2008 he predicted the largest sell-off in commodities stocks was about to follow. In 2009 he suggested Australian banks were an excellent buy. Between 2011 and 2015 Rudi consistently maintained investors were better off avoiding exposure to commodities and to commodities stocks. Post GFC, he dedicated his research to finding All-Weather Performers. See also "All-Weather Performers" on this website, as well as the Special Reports section.

Rudi's View | Nov 09 2017

In this week's Weekly Insights (this is part two):

-Australian Equities: Angels, Falling And Rising
-The Many Joys Of October
-Conviction Calls: Morningstar, UBS, Ord Minnett, Wilson, GS, Bell Potter, DB, Morgans
-RBA Rate Hikes: Slip Slidin' Away

-Sold Out
-No Weekly Insights Next Week

-Rudi On BoardRoom.Media (Updated)
-2016 – L'Année Extraordinaire
-All-Weather Model Portfolio
-Rudi On TV
-Rudi On Tour

[Note the non-highlighted items appeared in part one on the website on Wednesday]

Conviction Calls: Morningstar, UBS, Ord Minnett, Wilson, GS, Bell Potter, DB, Morgans

By Rudi Filapek-Vandyck, Editor FNArena

Morningstar recently updated its list of Global Equity Best Ideas and among the new additions we find three ASX-listed names; Telstra ((TLS)), Aveo Group ((AOG)) and Crown Resorts ((CWN)). Given the share price history for each of these three, we do not have to double check for the reasons behind their inclusion. Hint: it's share price weakness related.

There were no Australian names among those who have been removed, which means the three newcomers join Domino's Pizza ((DMP)), Coca-Cola Amatil ((CCL)), Santos ((STO)), QBE Insurance ((QBE)), CommBank ((CBA)), Healthscope ((HSO)), Ramsay Health Care ((RHC)), Brambles ((BXB)) and Westfield ((WFD)) to make for a total of twelve stocks that have been put to clients across the world to consider buying, in case of any need to put money to work in Australia.

The same twelve stock ideas have been communicated to Australian investors through the weekly report that once upon a time was widely referred to as "Huntleys", but nowadays is titled Your Money Weekly, Issue 42.

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Strategists at UBS remain of the view that Australian equities should be able to deliver a total return of 8-10% in 2018, even though their end-of-calendar-year 2017 target for the ASX200 remains at 5875, below where the index is trading at in the second week of November.

Broadly taken, the strategists remain overweight both resources and banks and with investors pushing up share prices across other sectors, UBS strategists has the focus out for growth at a reasonable price (GARP). This month's new model portfolio inclusions are Independence Group ((IGO)), Link Administration ((LNK)) and QBE Insurance ((QBE)) while all of BlueScope Steel ((BSL)), Boral ((BLD)), Incitec Pivot ((IPL)), James Hardie ((JHX)) and Sims Metal Management ((SGM)) have been removed.

Juicy detail: the removal of these five stocks occurred because the responsible analysts left the firm and there's no coverage until a new analyst enters the frame.

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Emerging companies specialists at Ord Minett have seen no reason to change their Top Pick and Bottom Pick this month. Salmon producer Huon Aquaculture ((HUO)) remains Top Pick with the broker's forecasts sitting well above market consensus, while Collection House ((CLH)) is still seen as the stock to avoid.

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MSCI is scheduled to update investors about any changes to the composition of its widely followed indices. Analysts at Wilson do not think there will be any changes for the MSCI Australia index, but there should be plenty for the MSCI Small Cap index.

Most likely to be included, on Wilson's assessment, are Soul Pattinson ((SOL)), Afterpay Touch ((APT)), Lynas ((LYC)), Bingo Industries ((BIN)), Servcorp ((SRV)), Blue Sky Alternative Investments ((BLA)), CleanTeq ((CLQ)), Ausdrill ((ASL)), BWX ltd ((BWX)) and RCR Tomlinson ((RCR)).

About to be booted out, according to Wilson, are Cabcharge ((CAB)), Liquified Natural Gas ltd ((LNG)), Vita Group ((VTG)), Catapult Group ((CAT)), Karoon Gas ((KAR)), OzForex ((OFX)) and Energy World Corp ((EWC)).

Wilsons also adds a few possible inclusions at lower conviction: Collins Foods ((CKF)) and Appen ((APX)). Lower conviction candidates for removal include Select Harvests ((SHV)), Donaco International ((DNA)) and RCG corp ((RCG)).

Preferred trading strategies are to position "long" Afterpay Touch, Blue Sky and Washington H Soul Pattinson while being "short" Energy World Corp.

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Strategists at Deutsche Bank have used an analysis on high and low Price-Earnings (PE) stocks in the Australian share market to highlight their preference for Stockland ((SGP) and Harvey Norman ((HVN)), as well as for AGL Energy ((AGL)) and Suncorp ((SUN)).

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Costa Group ((CGC)) has now been removed from Goldman Sachs' Australia/NZ Conviction Buy list, which should come as no surprise given the fierce and relentless share price rally that has preceded.

Goldman Sachs cut its rating to Neutral from Buy, as its twelve month target of $6 is now well below where the share price is trading.

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Meanwhile, TechnologyOne ((TNE)) has been announcing no less than ten new major deals to the stock exchange recently. On the company's own assessment, it is winning more than 90% of all new contracts from local governments. So much for any impact from the Brisbane debacle.

Bell Potter analyst Chris Savage, one of few who has a day job of covering the local tech sector, has responded by lifting his price target to $6 (up 50c) on what he describes as "rising confidence" that the company's misfortunes in FY17 will prove to be of a one-off nature.

TechnologyOne's share price has swiftly recovered from the initial sell-down response, but remains doubld digit percentage below Bell Potter's new target.

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Last week I reported stockbroker Morgans had added Link Administration ((LNK)) to its High Conviction List. It has since emerged that move coincided with the removal of data centres operator NextDC ((NXT)). The latter move is explained as a profit taking exercise. "We retain a positive view on the outlook for the stock and keep it on the watchlist for future re-inclusion".

Including these two changes, the High Conviction List now consists of ResMed ((RMD)), Link Administration, Westpac ((WBC)), Oil Search ((OSH)), Motorcycle Holdings ((MTO)), Aventus Retail Fund ((AVN)), Bapcor ((BAP)) and PWR Holdings ((PWH)).

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With a rare exception, Weekly Insights has been updating on analysts conviction calls since early February this year. Paid subscribers can re-read past editions via the Rudi's Views section on the FNArena website.

RBA Rate Hikes: Slip Slidin' Away

Recently, RBA board member Harper opened up the possibility the Reserve Bank could still consider cutting rates in response to entrenched weakness in consumer spending. That said, at the time, Harper did not think that consumption would remain weak, and as such, was merely highlighting a scenario rather than base case, pointed out economists at Credit Suisse this week.

Now that we've seen the release of yet another underwhelming update on retail sales in Australia, should we switch our attention towards the scenario suggested by Harper? Credit Suisse, still predicting two more rate cuts (not hikes) in 2018, suggests others inside the RBA would be paying attention given the overall importance of consumer spending.

Apart from the jobs market, other drivers of consumer spending have deteriorated, points out Credit Suisse, including:

1. Anaemic nominal wage growth.
2. A sharp increase in the basic cost of living (e.g. utilities).
3. Ongoing debt servicing issues from over-indebtedness.
4. Falling house prices, creating negative wealth and credit effects

Rate Hike anyone?

Meanwhile, observe the sharp fall in Credit Suisse's freshly constructed indicator for measuring real growth in Gross Domestic Income (GDI) in Australia:


 

This new indicator forms one of the cornerstone arguments behind Credit Suisse's house view as to why the RBA may not be done yet with cutting its cash rate, even if it wants to.

Investors should note Australian bonds are now pricing in a full 25bp extra by May 2019, from December 2018 prior. Not that this cannot change quickly if the facts change, but that sound you are all hearing in the background is the ducking of economists underneath their desks who previously were all too eager to predict the start of a new, steep hiking cycle soon.

Sold Out

Last week I reported there was one final ticket still available for An Evening With Rudi in Paddington on November 22. That ticket has now been sold.

Truly looking forward to sharing my latest insights, alongside various genuinely revealing tables and price charts, big trends and personal observations.

But first I will travel to Adelaide to share all of it with local members of Australian Investors' Association, and guests.

No Weekly Insights Next Week

Next week (Nov 13-17) I am visiting Adelaide to present to the local chapter of the Australian Investors' Association (AIA) on Tuesday. As I will be traveling on Monday, there shall be no Weekly Insights for the week. No doubt, I will have plenty to write about the following Monday.

My presentation in Adelaide is the final event locally for the running calendar year, and as such there will be bickies and drinks afterwards. If you are a regular reader or paid subscriber attending the event, please say hello whenever the opportunity arises. My ear is always available for both praise and for constructive criticism. This year's newly launched website is an eternal work in progress. All ideas are welcome.

I intend to take an overdue break in December, thus the number of Weekly Insights this year post this week will be limited to a maximum of three.

Rudi On BoardRoom.Media (Updated)

Audio interview from Tuesday last week:

https://boardroom.media/broadcast/?eid=5a0238dfa987f52f21a3c1b6

2016 – L'Année Extraordinaire

It was quite the exceptional year, 2016, and I did grab the opportunity to write down my observations and offer investors today the opportunity to look back, relive the moments and draw some hard conclusions about investing in the world today.

If you are a paid subscriber to FNArena, and you still haven't downloaded your copy, all you have to do is visit the website, look up "Special Reports" and download your very own copy of "Who's Afraid Of The Big Bad Bear. Chronicles of 2016, A Veritable Year Extraordinaire" (in PDF).

For all others who still haven't been convinced, eBook copies are for sale on Amazon and many other online channels. You'll have to visit a foreign Amazon website to also find the print book version.
 

All-Weather Model Portfolio

In partnership with Queensland based Vested Equities, FNArena manages an All-Weather Model Portfolio based upon my post-GFC research. The idea is to offer diversification away from banks and resources stocks which are so dominant in Australia, while also providing ongoing real time evidence into the validity of my research into All-Weather Performers.

This All-Weather Model Portfolio is available through Self-Managed Accounts (SMAs) on the Praemium platform. For more info: info@fnarena.com

Rudi On TV

This week my appearances on the Sky Business channel are scheduled as follows:

-Tuesday, 11.15am Skype-link to discuss broker calls
-Wednesday, 7-8pm, hosting Your Money, Your Call
-Thursday, Noon-2pm, Trading Day Live
-Friday, 11.15am Skype-link to discuss broker calls

Rudi On Tour

– I will be presenting in Adelaide on November 14th to members of Australian Investors Association and other investors, 7pm inside the Fullarton Community Centre, 411 Fullarton Rd, Fullarton. Title of presentation: Investing In A Slow Growing World – An Update

(This story was written on Monday 6th November, 2017. The first part was published on the day in the form of an email to paying subscribers at FNArena, and again on the following Wednesday as a story on the website. This is part two).

(Do note that, in line with all my analyses, appearances and presentations, all of the above names and calculations are provided for educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views are mine and not by association FNArena's – see disclaimer on the website.

In addition, since FNArena runs a Model Portfolio based upon my research on All-Weather Performers it is more than likely that stocks mentioned are included in this Model Portfolio. For all questions about this: info@fnarena.com or via the direct messaging system on the website).

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BONUS PUBLICATIONS FOR FNARENA SUBSCRIBERS

Paid subscribers to FNArena (6 and 12 mnths) receive several bonus publications, at no extra cost, including:

– The AUD and the Australian Share Market (which stocks benefit from a weaker AUD, and which ones don't?)
– Make Risk Your Friend. Finding All-Weather Performers, January 2013 (The rationale behind investing in stocks that perform irrespective of the overall investment climate)
– Make Risk Your Friend. Finding All-Weather Performers, December 2014 (The follow-up that accounts for an ever changing world and updated stock selection)
– Change. Investing in a Low Growth World. eBook that sells through Amazon and other channels. Tackles the main issues impacting on investment strategies today and the world of tomorrow.
– Who's Afraid Of The Big Bad Bear? eBook and Book (print) available through Amazon and other channels. Your chance to relive 2016, and become a wiser investor along the way.

Subscriptions cost $380 for twelve months or $210 for six and can be purchased here (depending on your status, a subscription to FNArena might be tax deductible): https://www.fnarena.com/index2.cfm?type=dsp_signup

(Do note that, in line with all my analyses, appearances and presentations, all of the above names and calculations are provided for educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions.)  

P.S. I – All paying members at FNArena are being reminded they can set an email alert for my Rudi's View stories. Go to My Alerts (top bar of the website) and tick the box in front of 'Rudi's View'. You will receive an email alert every time a new Rudi's View story has been published on the website. 

P.S. II – If you are reading this story through a third party distribution channel and you cannot see charts included, we apologise, but technical limitations are to blame.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.

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CHARTS

AGL AOG APT APX ASL AVN BAP BIN BLA BLD BSL BWX BXB CAB CAT CBA CCL CGC CKF CLH CLQ CWN DMP DNA EWC HSO HUO HVN IGO IPL JHX KAR LNG LNK LYC MTO NXT OFX OSH PWH QBE RCR RHC RMD SGM SHV SOL SRV STO SUN TLS TNE VTG WBC WFD