February Reports: Equity Favourites And Warnings

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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 | Feb 13 2020

Dear time-poor reader: a line up of stockbrokers' favourites ahead of February reports, amidst scepticism and warnings

In this week's Weekly Insights:

-February Reports: Equity Favourites And Warnings
-Four Tips For Reporting Season
-The Green Revolution Is Awakening
-Get More Out Of Your Subscription


February Reports: Equity Favourites And Warnings

By Rudi Filapek-Vandyck, Editor FNArena

Paying attention to stockbroking analysts announcing their Conviction Buys and Sells can be highly beneficial to one's investment portfolio, as no doubt experienced by many an FNArena subscriber.

Over the past two years in particular, I have methodically kept track of Conviction Calls in the market, and those have included ResMed, Magellan Financial Group, IDP Education, Cochlear, Goodman Group, Appen, EML Payments and various other high flyers.

Every now and then these Conviction Calls generate an absolute blooper; the stinker that leaves a bad taste that simply won't go away. Boral and Challenger Financial come to mind, as well as EclipX Group and G8 Education.

In January we had the profit warning from Treasury Wine Estates ((TWE)) which, on one hand, vindicated the persistent Sell rating maintained by analysts at Citi, irrespective of their peers releasing more bullish assessments.

On the other hand, the Buy ratings that stood out prominently in December and early January subsequently led to four downgrades to Neutral while for Citi it was time to upgrade to Neutral, as the share price tanked.

One team of analysts that hasn't budget post profit warning and quite the significant de-rating for the stock is the team at CLSA.

The analysts were left licking their wounds, but subsequently stated they had been negative on the US market anyway. It's the company's growth prospect in China that keeps optimism alive, and CLSA's rating on Buy.

Analysts Richard Barwick and Deija Li cannot believe how "cheap" the share price looks today (it has been falling on most days since the day of warning).

But even they have to acknowledge, Treasury Wine has now de facto become a long-term story. Short term, there are a number of investors out there who lost a lot of money, and they'd be vying for blood & revenge. Don't be surprised if Treasury Wine remains in the naughty corner for quite a while.

In the meantime, there are no guarantees the bad news flow won't continue for longer.

See also last week's https://www.fnarena.com/index.php/2020/02/06/february-reports-global-uncertainties-profit-warnings-and/

And the previous week's https://www.fnarena.com/index.php/2020/01/16/rudis-view-xero-treasury-wines-and-appen/

As well as https://www.fnarena.com/index.php/2020/01/17/rudis-view-part-2-iress-oz-minerals-and-super-retail/

?

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On my own observations, and I have some incomplete data to support this statement, most declared Conviction Calls perform better than the market average, which is why I thought it apposite to share the various favourites and Hot Stocks that have been picked ahead of the February reporting season.

The obvious comment to make is that sudden warnings, like the one issued by Treasury Wine, if such event were to occur, can change a stock's trajectory dramatically. The same goes for share price movement and the profit report release itself this month.

Diversified financials are expected to release weak results this month, potentially with the exception of Magellan Financial. Analysts at Credit Suisse see potential for negative surprises and have lined up Challenger Financial ((CGF)), Netwealth ((NWL)), Perpetual ((PPT)), Hub24 ((HUB)), and Link Administration ((LNK)) as stocks carrying additional negative potential.

Noteworthy: outside of Magellan, no other stock in this sector is seen as a potential upside surprise.

Credit Suisse finds more hope could be emerging from the insurance sector where even AMP ((AMP)) is seen as a stock that might have upside on a not-as-bad-as-feared results release, accompanied by some clarification from management around customer remediation.

QBE Insurance ((QBE)), AUB Group ((AUB)) and Steadfast Group ((SDF)) are equally believed to carry upside surprise potential. The odds seem less favourable for the likes of Suncorp ((SUN)), Insurance Australia Group ((IAG)), Medibank Private ((MPL)) and nib Holdings ((NHF)), at least if Credit Suisse's pre-release assessments prove accurate.


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