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Rudi’s View: Ausdrill, Lynas, IPH ltd And Noni B

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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 | Oct 11 2018

In this week's Weekly Insights (published in two parts):

-Investing Used To Be So Much Easier
Conviction Calls
Rudi On TV
-Rudi On Tour

[Non-highlighted parts appeared on Wednesday]

Conviction Calls

By Rudi Filapek-Vandyck, Editor FNArena

On September 13, I noted analysts at CLSA had made rare earth minerals miner with an Malaysian chip on its shoulder, Lynas ((LYC)), one of their High Conviction Buys for the year ahead, with a price target of $4.10. Since then the share price has fallen a lot deeper with risk rising there will be unwelcome action put in place by the Malaysian government.

Investors waiting for the share price to recover might take some heart from the fact CLSA analyst Dylan Kelly travelled to the country and reports back that nobody, from politicians, to protest groups, to government ministeries expects the production facility in the country to shut up shop.

One motivation is Malaysia does not want China to have a global monopoly on the supply of rare earth elements, reports Kelly. A solution shall thus be found. This means the share price cannot stay this low indefinitely. On CLSA's assessment, Lynas' share price now effectively implies a total loss of the Malaysian operation, hence no surprise CLSA reiterates its High Conviction Buy rating for the stock, with an unchanged $4.10 price target.

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Goldman Sachs' Conviction Buy list currently consists of the following names: Afterpay Touch ((APT)), ANZ Bank ((ANZ)), Aristocrat Leisure ((ALL)), Bingo Industries ((BIN)), Crown Resorts ((CWN)), Huon Aquaculture ((HUO)), IMF Australia ((IMF)), Lend Lease ((LLC)), Lifestyle Communities ((LIC)), Metcash ((MTS)), Origin Energy ((ORG)), Orora ((ORA)), and Telstra ((TLS)).

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Stockmarket strategists at stockbroker Morgans have for a while expressed the view that elevated valuations imply further upside potential looks harder and harder to achieve for the Australian share market, and this view has been repeated in recent updates.

Morgans has been suggesting to its clientele to seek further gains, and downside protection, through portfolio rotation. As reported earlier, Morgans' projection is for the ASX200 to finish calendar 2018 near 6300, with the added remark that vulnerability is rising due to global macro-economic risks.

The stockbroker's selection of High Conviction Stocks now includes Reliance Worldwide ((RWC)) while removing Atlas Arteria ((ALX)) following share price strength in September.

Other names on the list are OZ Minerals ((OZL)), Westpac ((WBC)), Volpara Health Technologies ((VHT)), PWR Holdings ((PWH)), Noni B ((NBL)), Kina Securities ((KSL)), CML Group ((CGR)), and Australian Finance Group ((AFG)).

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The Australian Large Cap Model Portfolio at Shaw and Partners found itself on the wrong side of market momentum in August, but a reversal followed in September, pulling the annual return to 13% (year-to-date 6.3%). Shaw CIO Martin Crabb remains a true adherent of the reflation trade and thus the Portfolio usually consists of miners and financials. This time is no different.

Changes made include swapping Northern Star ((NSR)) for Evolution Mining ((EVN)) and IOOF Holdings ((IFL)) for Macquarie Group ((MQG)), reducing exposure to Woodside Petroleum ((WPL)) in favour of Oil Search ((OSH)) and reducing exposure to banks in favour of BHP ((BHP)).

The position in Alumina Ltd ((AWC)) has been sold in favour of OZ Minerals.

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Guardians of the Model Portfolio for Australia at Morgan Stanley have been making several adjustments as the break higher in US bond yields confirms their view global equities are now in Late Cycle mode. The portfolio remains Overweight Resources, and has moved further Overweight, while further reducing exposure to local banks, widening the Underweight exposure to the sector.

In search for more exposure to offshore earners, the Portfolio has added Santos ((STO)), Aristocrat Leisure ((ALL)), ResMed ((RMD)) and Nearmap ((NEA)), while removing Nufarm ((NUF)), InvoCare ((IVC)) and Ansell ((ANN)).

The Portfolio remains Underweight healthcare, but has reshuffled its exposure to also include ResMed next to CSL ((CSL)) and Cochlear ((COH)). Inside the banks, largest exposure is ANZ Bank, lowest is Westpac ((WBC)).

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The good news is Citi's Bear Market checklist is signalling concerns for the next bear market downturn appears to be too early as yet. The not so good news is projections and calculations suggest global equities will only rise by a further 6% between now and late 2019.

Citi's global strategy team remains of the view it is too early yet to move in defensive mode. The house view continues to favour US equities and IT stocks, as well as Healthcare. The UK is now Citi's most preferred value trade.

Digging into the finer details shows Australia, together with Japan, are Citi's least preferred geographies (recommendation for both is Underweight). Irrespective, Citi's target of 6750 for the ASX200 by end of calendar 2019 still suggests the local share market will leave many behind on next year's performance rankings.

The big "but" behind all of the above is that Citi is only keen on three sectors locally: Energy, Materials (=mining) and Telecommunication.

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Small cap specialists at JP Morgan ("emerging companies") still retain Sims Metal Management ((SGM)) as their top pick favourite, while least preferred "bottom pick" remains Tassal Group ((TGR)).

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Analysts Sam Haddad and TS Lim at Bell Potter see incredible value among intellectual property services companies with each of IPH ltd ((IPH)), Qantm Intellectual Property ((QIP)) and Xenith IP ((XIP)) rated Buy with price targets of respectively $6.60, $1.68 and $1.80.

The Bell Potter thesis is that after years of constant disappointment, underlying growth is returning and this will be reflected in profit releases and thus in the share price. The analysts think there is scope for a general sector re-rating.

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Wilsons Australian Equities portfolio has been increasing exposure to CommBank ((CBA)), as well as to GWA Group ((GWA)), while removing Stockland ((SGP)) from the Income Portfolio.

In September, Wilsons Conviction Buys were expanded with Ausdrill ((ASL)) and Nanosonics ((NAN)). Retained were ARQ Group ((ARQ)), Afterpay Touch ((APT)), Bravura Solutions ((BVS)), Collins Foods ((CKF)), Ruralco ((RHL)), Ridley Corp ((RIC)), ImpediMed ((IPD)), Pinnacle Investment ((PNI)), Noni B ((NBL)), Mastermyne ((MYE)), and NRW Holdings ((NWH)).

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Finally, the selection of Top Australian Stock Picks for analysts at Canaccord Genuity, that specialise in smaller cap stocks, consists of the following: Codan ltd ((CDA)), CML Group ((CGR)), EML Payments ((EML)), FAR ltd ((FAR)), Galilee Energy ((GLL)), HT&E ((HT1)), Marley Spoon ((MMM)), Money3 Corp ((MNY)), Primero Group ((PGX)), Pioneer Credit ((PNC)), Perseus Mining ((PRU)), and Redbubble ((RBL)).

Rudi On TV

Lots of changes are taking place at Your Money, the renamed Sky News Business TV channel. As a result, the schedule below might be subject to changes:

This week my appearances on Your Money are scheduled as follows:

-Tuesday, 11.15am, Skype-link to discuss broker calls
-Thursday, 1pm-2pm
-Friday, 11.15am, Skype-link to discuss broker calls

Rudi On Tour

-Presentation to AIA members and guests Chatswood, on October 10
-Presentation to ATAA members and guests Sydney, on 18 October
-AIA Celebrity Lunch, Brisbane, on November 3

(This story was written on Monday 8th October 2018. It was published on the Monday 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: info@fnarena.com 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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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.

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CHARTS

AFG ALL ALX ANN ANZ APT ARQ ASL AWC BHP BIN BVS CBA CDA CGR CKF COH CSL CWN EML EVN FAR GLL GWA HT1 HUO IFL IMF IPD IPH IVC KSL LIC LLC LYC MMM MNY MQG MTS MYE NAN NBL NEA NSR NUF NWH ORA ORG OSH OZL PGX PNC PNI PRU PWH QIP RBL RHL RIC RMD RWC SGM SGP STO TGR TLS VHT WBC WPL