The Quality Of Quality Continues To Show

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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 | Aug 28 2019

Dear time-poor reader: August corporate reporting is once again putting quality in focus.

In this week's Weekly Insights:

-The Quality Of Quality Continues To Show
-Rudi On Tour

The Quality Of Quality Continues To Show

By Rudi Filapek-Vandyck, Editor FNArena

A lot of ink and airtime have been spent on the never ending debate on Value versus Growth investing in the Australian share market, but if the August 2019 corporate reporting season is proving anything it is that investors might be best off by focusing on corporate quality and leaving the Value/Growth debate for another day.

Sure, BWX shares were trading not that far off all-time lows when the company released FY19 financials last week which triggered a rally on the day of 28.7%. And Mayne Pharma shares that were trading near $2 not that long ago, and above $1 late last year, jumped nearly 9.5% to 52c upon releasing FY19 numbers.

But for each such positive example -often accompanied by suspicion of forced short covering- there is at least another observation that compensates with a far more negative outcome.

Boral shares dived in excess of -19% on Monday leading the stock to join the likes of Adelaide Brighton, Platinum Asset Management and Event Hospitality and Entertainment in falling to a multi-year low. Shares in ARQ Group fell to a fifteen year low this week. Shares in Michael Hill have never since its IPO traded at a cheaper price level.

In sharp contrast, dependable, high quality, structural growth achievers including CSL ((CSL)), ResMed ((RMD)), and REA Group ((REA)) all traded at all-time highs before another wave of selling hit the local share market on escalations in the USA-China trade conflict.

Equally remarkable, shares in some of the better performing retailers are also at multi-year, if not all-time highs, including Baby Bunting ((BBN)), Lovisa ((LOV)), and JB Hi-Fi ((JBH)). Footwear retailer Accent Group ((AX1)) equally appears to be performing from a sweet spot.

Inside the property sector there is similarly a noticeable divergence between, say, Scentre Group and Stockland (not so good) and the much better performing Aventus Group ((AVN)), Charter Hall ((CHC)) and Goodman Group ((GMG)); companies which are clearly enjoying much better operational dynamics, and are expected to continue enjoying just that in the year(s) ahead.


Investors are usually obsessed with valuations and how much growth can be expected and is potentially already/not yet priced in. But this August reporting season is proving yet again that (much) weaker share prices do not by default equal lower risk. Cue Costa Group. Japara Healthcare. The examples above. Numerous others.

In contrast, high-flying a2 Milk ((A2M)) and IDP Education ((IEL)) equally surprised in a negative sense, and were heavily punished for it, but a rather large number of companies in a similar position met with share market approval, irrespective of large gains, high valuations and sometimes even small misses compared with market expectations. Cue Carsales ((CAR)), Altium ((ALU)), Medibank Private ((MPL)), and numerous others.


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