Rudi's View | Jun 21 2018
In this week's Weekly Insights (this is part two):
–Finding Opportunities In A Heavily Polarised Market
-Growth Or Weakness?
-Morgan Stanley's US Cycle Indicator
-Rudi On TV
-Rudi On Tour
[Note the non-highlighted items will appeared in part two on the website on Thursday]
By Rudi Filapek-Vandyck, Editor FNArena
The guardians of Model Portfolios at stockbroker Morgans have been nibbling away at beaten down yield stocks including CommBank ((CBA)) and Telstra ((TLS)) recently. In both cases, Morgans is by no means convinced the bad news is over, but what we are experiencing is most likely "peak negativity" towards banks and telcos, and the stockbroker remains confident no dividend cuts are on the horizon.
[Late addition: Morgans has now changed its tune regarding Telstra dividends post what has been a much worse than anticipated update provided by the company at yesterday's investor day. But the stockbroker has not abandoned its positive view. See today's Australian Broker Call Report for more insights into the latest updates on Telstra.]
The Growth Model Portfolio has increased its exposure to Wagners Holding ((WGN)), while placing Rio Tinto ((RIO)), ALS ltd ((ALQ)) and Beacon Lighting ((BLX)) on the watchlist with the aim of accumulating shares on weakness. Already on that watchlist: Link Administration ((LNK)), Australian Finance Group ((AFG)), and Motorcycle Holdings ((MTO)).
Investors still looking for opportunities in the yield space might be interested to know Morgans favourite remains Aventus Retail Property Fund ((AVN)), with Viva Energy REIT ((VVR)) and Centuria Industrial REIT ((CIP)) also seen as attractive.
Bell Potter analyst Chris Savage has updated his key picks in the local tech sector with Citadel Group ((CGL)), Integrated Research ((IRI)), and TechnologyOne ((TNE)) the three sector favourites. This means Infomedia ((IFM)) is no longer a favourite, thanks to a rally in the share price.
Bell Potter's sole Sell rating for the sector remains with WiseTech Global ((WTC)) with analyst Savage making the extra effort in pointing out he holds the company in high regard; it's just he cannot reconcile the stock's excessive valuation.
David Cassidy and Jim Xu are also responsible for the Model Portfolio at UBS. They recently removed Mirvac ((MGR)), Westfield (absorbed by Unibail-Rodamco) and ResMed ((RMD)). Instead the Portfolio has now exposure to Treasury Wine Estates ((TWE)) and Scentre Group ((SCG)).
Treasury Wine is seen as attractive following share price weakness while in Scentre Group's case, the valuation is seen as "undemanding" as investors retain low appetite for retail exposed bond proxies in the share market.
The UBS' Model Portfolio's key overweight positions include AGL Energy ((AGL)), Aristocrat Leisure ((ALL)), BHP ((BHP)), Iluka Resources ((ILU)), Janus Henderson ((JHG)), Macquarie Group ((MQG)), Origin Energy ((ORG)), Seven Group Holdings ((SVW)), Star Entertainment ((SGR)), and Woodside Petroleum ((WPL)).
Over at Credit Suisse, market strategists have gone long ANZ Bank ((ANZ)) and short Ramsay Health Care ((RHC)). The latter occurred in conjunction with a negative sector report which pushed Ramsay's share price below $60, but the share price has since recovered back above that level.
Are no longer included in Credit Suisse's Top Investment Ideas for Australian Investors, otherwise known as Australia Top Picks; AGL Energy, Caltex Australia ((CTX)), National Australia Bank ((NAB)), and Suncorp ((SUN)).
Morgans removed BHP ((BHP)), given the share price has now rallied beyond the broker's target, as well as Link Administration. The latter because of regulatory risk on the financial sector that has the potential to "escalate" on the company's fund administration business.
Morgans finds earnings momentum in Australia is pretty much restricted to resources and certain pockets, including ResMed, Aristocrat Leisure ((ALL)), CSL ((CSL)), and Computershare ((CPU)). The stockbroker declares last year's Goldilocks period is over and 2018 is not a year for "complacent investing".
Overall, the stockbroker remains of the view the general environment continues to favour genuine growth companies (such as CSL, ResMed, etc) but "it is time to be more selective now".
Morgan Stanley's US Cycle Indicator
In Australia, Morgan Stanley sides with the bears in general terms, which corresponds with rather benign expectations for share market performance in general, but in particular for the banks. Morgan Stanley has been advocating investor portfolios should be overweigtht Resources, Energy in particular.
In the US, Morgan Stanley strategists seem a lot more sanguine, even though they concede a robust US economy while the rest of the world seems to be decelerating can, at some point, turn into a nasty negative with inflation rising faster and the Federal Reserve turning more hawkish than investors would expect.
The team of economists at the firm is keeping a close watch on economic momentum for the world's leading, and still largest, economy. As shown on the chart below, there is currently not much to worry about, but the economists are of the view this cycle is feeling old and more mature by the day, so they wouldn't necessarily bet on 'Goldilocks' remaining with us indefinitely.
Rudi On TV
This week my appearances on the Sky Business channel are scheduled as follows:
-Tuesday, 11.00am Skype-link to discuss broker calls
-Thursday, from midday until 2pm
-Friday, 11am, Skype-link to discuss broker calls
Rudi On Tour
-ATAA members presentation Newcastle, 14 July
-AIA National Conference, Gold Coast QLD, June 29-August 1
-ASA Presentation Canberra, 3 August
-Presentation to ASA members and guests Wollongong, on September 11
-Presentation to AIA members and guests Chatswood, on October 10
(This story was written on Monday 18th June 2018. Part One was published on the day in the form of an email to paying subscribers at FNArena, and again on 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: firstname.lastname@example.org or via the direct messaging system on the website).
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(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.)
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