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Rudi’s View (Part 2): Iress, Oz Minerals And Super Retail

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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 | Jan 17 2020

Part Two of the calendar year's first update on Conviction Calls for the year ahead.

By Rudi Filapek-Vandyck, Editor FNArena

On Thursday afternoon, while I was writing Part One, I couldn't help noticing the local share market was charging higher. I thus tweeted: Question that needs to be asked: is that a raging bull out there or are we witnessing a herd of lemmings?

To which a few fellow-twitterers responded by asking: what is the difference?

The difference, of course, is a sustainable rise in scenario number one and the opposite, exact timing unknown, under scenario numero secundo.

Here's what market strategists at CLSA had to say on the same day: "With sentiment indicators at or near record levels, we see global equity markets vulnerable to a short 2- to 3-week lasting pullback/washout into a second half of January, which we would expect to be the set up for another rally in equities into April/May.

"From there we would expect to see selectivity and distributive signals develop."

I cannot help but think about what the local February reporting season is going to offer. My best guess is: elevated volatility. Companies better meet or beat market expectations, or else.

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I received an invitation to contribute to a general outlook story for the Australian share market. Turned out, they liked my contribution so much at Finder.com.au, they turned it into a stand-alone story for FinderX.

So here it is, my outlook story for Australian equities: https://www.finder.com.au/investing-in-2020-volatility-and-opportunities

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Contrary to years prior, analysts at stockbroker Morgans have been rather slow to jump back into action post the 2019 end-of-year holiday break, but the strategy desk was fast as lightning to get the short list of Best Ideas across the national network of brokers and advisors.

These Best Ideas, explains the broker, are those stocks believed to offer the highest risk-adjusted return over the coming twelve months, supported by a higher-than-average level of confidence. Another way of looking at it is, these are Morgans'  most preferred sector exposures.

Which is why Best Ideas consists of no less than 26 names; Telstra ((TLS)), Treasury Wine Estates ((TWE)), Woodside Petroleum ((WPL)), Westpac ((WBC)), Sonic Healthcare ((SHL)), Transurban ((TCL)), Aurizon Holdings ((AZJ)), APA Group ((APA)), ResMed ((RMD)), Cleanaway Waste Management ((CWY)), Link Administration ((LNK)), Orora ((ORA)), Frontier Digital Ventures ((FDV)), PWR Holdings ((PWH)), Lovisa Holdings ((LOV)), Baby Bunting ((BBN)), Cooper Energy ((COE)), Kina Securities ((KSL)), Generation Development ((GDG)), Pro Medicus ((PME)), Volpara ((VHT)), Over The Wire ((OTW)), Iress ((IRE)), Orocobre ((ORE)), Red 5 ((RED)), Aventus Group ((AVN)), and APN Convenience Retail REIT ((AQR)).

Oil Search ((OSH)) and OZ Minerals ((OZL)) have both been removed early in the month, while Aurizon is the sole newcomer.

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Portfolio managers at Morgans kept a low profile during December and early January, only switching out of Oil Search into Woodside Petroleum, and selling OZ Minerals and buying South32 ((S32)) instead.

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Bell Potter released its selection of most favoured stocks for 2020 and regular readers of my research into All-Weather Performers will notice the overlap. See the website. Sorry, paying subscribers only.

Bell Potter's selection includes Amcor ((AMC)), Aristocrat Leisure ((ALL)), CSL ((CSL)), Downer EDI ((DOW)), Goodman Group ((GMG)), Macquarie Group ((MQG)), Netwealth ((NWL)), Sonic Healthcare ((SHL)), Woolworths ((WOW)), and WorleyParsons ((WOR)).

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An update by Morgan Stanley strategists on their 37 stocks-selection of Global Best Business Models has revealed an underperformance versus the MSCI ACWI (benchmark for global equities) last year; 19.9% versus 22.9%.

The Best Business Model is an attempt by Morgan Stanley to identify companies that have the best business model in their sector globally supporting the belief that such superiority will translate into outperformance in the share market over the medium to long term. The analysts use additional screening for profitability, use of capital, balance sheet risk and fundamental value as well as Environmental, Social and Governance (ESG) factors.

One could argue their research is an in-depth, quantitative attempt to identify All-Weather Performers across equities worldwide, though I am 100% convinced we'd clash when discussing some of the outcomes from the research. For instance, the 37 stocks include Boeing and iron ore producer Vale.

Other stocks on the list are Amazon, Visa, Komatsu, Tencent, Walt Disney, Eli Lilly, Texas Instruments, Roche, Adobe, Honda Motors, Nestle, Costco, Blackrock, LVMH, UnitedHealth, JP Morgan Chase, and UBS.

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One of this year's Conviction Calls that has had a bit of a rough start to the new calendar year is CLSA's Top Buy recommendation for Super Retail ((SUL)), considered heavily undervalued and likely to regain investor interest on the back of renewed interest in the value part of equity markets.

CLSA has joined many others in anticipating 2020 will witness the come-back of value stocks in generating outperformance on the back of a resumption in global growth.

At the start of the year, with the share price falling just short of $10.50 on the back of a positive swing upwards in December, CLSA's price target was suggesting potential total return of no less than 33%.

Clearly, not everybody shares the same view. The shares have trended lower since and on Thursday JPMorgan/Ord Minnett chimed in with a downgrade to Hold which promptly pulled the share price down by close to -6% on the day. Don't expect the supporters at CLSA to change their view anytime soon.

And that, as they say, makes a market.

(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. 

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CHARTS

ALL AMC APA AQR AVN AZJ BBN COE CSL CWY DOW FDV GDG GMG IRE KSL LNK LOV MQG NWL ORA ORE OSH OTW OZL PME PWH RED RMD S32 SHL SUL TCL TLS TWE VHT WBC WOR WOW WPL