Rudi’s View: MNF, REA Group & Afterpay Touch

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 | Sep 27 2019

In this week's Weekly Insights (this is Part Two):

-Market Rotations Are Not The Key Message
-No Weekly Insights For Next Two Weeks
-Conviction Calls
-Is Everybody Into iSignthis?
-Rudi On Tour

[non-highlighted items are in Part One, published on the website on Thursday]

Conviction Calls

By Rudi Filapek-Vandyck, Editor

Morningstar has lined up the biggest casualties from the August reporting season in Australia. The underlying attempt is to identify which stocks have undershot too far to the downside, and thus represent excellent value for investors prepared to sit out the remainder of the bad news cycle, as well as those stocks that have overshot to the upside, and look poised for a serious correction to the downside.

On Morningstar's assessment, the ten stocks that look too cheaply priced post reporting season are CYBG ((CYB)), Iluka Resources ((ILU)), Adelaide Brighton ((ABC)), oOh!media ((OML)), Pact Group ((PGH)), Cimic Group (CIM)), Boral ((BLD)), InvoCare ((IVC)) and Viva Energy Group ((VEA)).

Those outperformers that might be poised to turn into post-season casualties are Afterpay Touch ((APT)), Independence Group ((IGO)), Vocus Group ((VOC)), JB Hi-Fi ((JBH)), WiseTech Global ((WTC)), Downer EDI ((DOW)), Qantas Airways ((QAN)), ALS ltd* ((ALQ)), Credit Corp Group ((CCP)), Orica ((ORI)), Treasury Wine Estates ((TWE)), Spark New Zealand ((SPK)) and Flight Centre ((FLT)).

*[ALS ltd releases its official earnings report on Monday.]

Investors should note Morningstar has a stringent valuation-oriented system for ranking stocks which is solely based on what valuation the in-house analyst calculates for a given stock. This calculation can diverge significantly from modeling done elsewhere.

For example, Morningstar recently initiated coverage on Afterpay Touch with a fair value calculation of $22.


In similar fashion, and following on from its update on the list of Conviction Buys, stockbroker Morgans has put together three selections of stocks that come with a clear negative assessment. Morgans has been one of the local experts who has been warning about bloated valuations for a while now, and that theme continues to dominate the stockbroker's preferences post August.

Stock that should be sold, according to Morgans, include Costa Group ((CGC)), Flight Centre, Orica, Magellan Financial ((MFG)), Insurance Australia Group ((IAG)) and Paradigm Biopharma ((PAR)).

Stocks that are best avoided ("no need to be there") include Coles ((COL)), Newcrest Mining ((NCM)), Nufarm ((NUF)), Graincorp ((GNC)), Blackmores ((BKL)) and Bega Cheese ((BGA)).

Stocks that look too expensive, with the recommendation that investors should trim their holding, include Spark Infrastructure ((SKI)), AGL Energy ((AGL)), ASX ((ASX)), REA Group ((REA)), Carsales ((CAR)), Domain Group ((DHG)), Fortescue Metals ((FMG)), Coca-Cola Amatil ((CCA)) and Freedom Foods ((FNP)).

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