Rudi’s View: Gold, Conviction Calls & Early Results

rudi-views
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 13 2020

Dear time-constraint investor: uncertainty remains, while gold will surprise the many fans, and conviction calls changes ahead of the August reporting season

In this week's Weekly Insights:

-August 2020: Early Results
-Rudi Talks
-Gold, The Enigma
-Conviction Calls

August 2020: Early Results

By Rudi Filapek-Vandyck, Editor FNArena

The local reporting season in Australia is slowly gathering pace. Let’s remind ourselves how important financial results are for market sentiment and thus for how share prices will be treated for the weeks and months ahead.

Often, how companies are being judged is through the lense of: beat or disappointment? Black or white. Superb or poor.

That judgment is made not on the 30% profit growth, or the decision to pay out a dividend, or the heavy losses incurred during lockdowns or bushfires, but on how the financials compare to what analysts had penciled in their modeling.

The ruling narrative is companies which disappoint might see their share price underperform for up to four months, while those who manage to surprise positively are most likely rewarded with longer-lasting outperformance.

That’s one side of the story.

The other side is that sustainable, structural growers can disappoint with their market update, and all of CSL ((CSL)), Cochlear ((COH)), REA Group ((REA)), TechnologyOne ((TNE)), and others have at varying times done exactly that, with direct consequences for the share price in the immediate aftermath.

But take a longer-term view, and what do we see? Every single one of those sell-offs today looks nothing but a temporary blip in an ongoing, long-term uptrend.

And that, I like to think, is the key message investors should keep in mind when volatility hits this reporting season.

The early stage of the August reporting season saw REA Group showing off its in-built resilience, while ResMed’s result was better-than-expected but downgraded as “low quality” with cautious guidance by management not received well by flighty traders.

Clearly, day-to-day operations for healthcare bellwethers CSL, Cochlear and ResMed have been impacted by the virus and forced lockdowns, but the real question investors should be asking is whether this means these companies are running out of puff and soon will find themselves having turned ex-growth.

You know my opinion on this. All three, as well as REA Group, remain firmly embedded in my selection of All-Weather Stocks on the ASX.

Admittedly, a continuing strengthening of the Aussie dollar, as predicted by some, will complicate the outlook for foreign earners in Australia, but when it comes to forecasting FX, most experts’ track record is not something to boast about.

Shorter term, market forecasts and expectations have seldom been as wide as for FY20, including for healthcare companies with most having withdrawn guidance, leaving analysts and investors to speculate what can and should be expected.

One positive stand-out to date is Ansell ((ANN)), not a typical healthcare stock, but Credit Suisse believes this is the early stage of a structural switch that will put the company’s growth outlook on much firmer footing.

The most talked about remains, of course, Australia’s number one biotech stock, CSL. It’ll be interesting to see how much guidance management is prepared to share regarding the outlook for plasma and other parts of the business in FY21, and beyond.

CSL is too complex for most investors during less complicated times. This time around it’s anyone’s guess what will become the focus post reporting on August 19.

****

Outside of the local healthcare sector, analysts are still busy assessing what might and can be revealed this month, but investors should appreciate uncertainty has seldom been at this year’s level.

For sectors including airports, airlines, accommodation, travel and leisure, and Australian banks, August comes too early; many questions will remain unanswered. Analysts anticipate companies might defer to the AGM season in November when attempting to predict what comes next.

Iron ore producers are generating lots of cash, but how cautious will company boards be when deciding how much to pay out in dividends to shareholders?

Sectors like oil and gas producers will have horror updates to make, including the scrapping of dividends and capex/expenses, while writing down the value of assets – but investors are very well aware of it all.

Meanwhile, portfolio rotation (or at least: attempts to it), currency movements and other macro factors will continue to impact on general sentiment and share prices.

FNArena will be keeping track of post-financial results updates via Australia’s one and only Corporate Results Monitor (including calendar):

https://www.fnarena.com/index.php/reporting_season/

See also:

-Coming Soon: The August Reporting Season:

-https://www.fnarena.com/index.php/2020/07/30/rudis-view-coming-soon-the-august-reporting-season/

-August 2020: Nothing Like The Past:

https://www.fnarena.com/index.php/2020/08/06/rudys-view-august-2020-nothing-like-the-past/

Equally important, for those who worry share markets are over-priced:

-Forecasts, Not Valuations:

https://www.fnarena.com/index.php/2020/07/23/forecasts-not-valuations/


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