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Rudi’s View: Investment Themes In Australia

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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 | Oct 15 2020

This story features ALTIUM LIMITED, and other companies. For more info SHARE ANALYSIS: ALU

In this week’s Weekly Insights:

-Investment Themes In Australia
-Conviction Calls
-That Dreadful ASX Website (But Exciting News Ahead for FNArena)
-Rudi Talks

Investment Themes In Australia

By Rudi Filapek-Vandyck, Editor FNArena

As per tradition, one of the popular themes that dominated the local share market post Canberra-budget has been: which companies and sectors are the winners and losers?

The obvious answer, judging by the price action over the week past is: the banks are major beneficiaries.

Firstly, a relaxed framework around responsible lending almost by definition means more credit shall be provided both to small businesses and aspiring property owners.

Already sales teams inside the major banks have been busy contacting bank customers, making sure everyone understands the government wants small businesses to invest, and there are now instant tax benefits available.

In addition, putting more money in people’s pockets while propping up infrastructure and construction in general lowers the lingering risks for the Australian economy, and thus for the banks.

In the end, what is good for Australia, economy-wise, can only be good for the banks. Add cheap looking valuations and investors quickly read the message.

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It goes without saying, investing in the share market beyond the immediate outlook is seldom guided by one such straightforward theme only, and this time is no different.

I couldn’t help but noticing, for instance, local representatives of the technology & disruption-theme, Altium ((ALU)), Appen ((APX)), NextDC ((NXT)) and Xero ((XRO)), equally all have had a jolly good time in October thus far.

Message to ourselves: those tectonic changes will remain around us for a lot longer, as will low bond yields, low inflation, and massive stimulus and liquidity injections from central bankers; all factors supportive of share prices carried by cloud, SaaS, wireless, blockchain and other modern-day adoptions across the masses.

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Without answering any questions about potential implications from the upcoming election in the US, strategists at UBS this week lined up their most favourite themes that should dominate investor strategies and portfolios for the months ahead.

The identified major themes are:

-Defensive growth
-Yield & income
-Housing
-Offshore earners
-Mining services
-China’s recovery
-Specific exposures to NSW and/or Victoria
-demand boosts from covid-19
-demand shock from covid-19
-structurally more demand from covid-19
-structurally less demand from covid-19

I think most labels speak for themselves and none should represent a major surprise.

As plenty of risks and uncertainties continue to lay ahead, the attraction of defensive growth speaks for itself.

Low bond yields and many dividend cuts this year will keep retirees’ focus on finding assets that can be relied upon for income without sudden negative surprises.

And if the US dollar weakens, and the Aussie strengthens accordingly, this will have a soothing impact on the share price potential of gold producers and foreign earners.

Any positive impact on the housing market, both in terms of prices and construction activity, has much farther reach beyond the big four banks.

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Strategists at UBS really put their neck on the chopping block this week by adding favourites, both positive and negative, for each of the identified themes.

-Defensive growth

Positive favourites: CSL ((CSL)), a2 Milk ((A2M)), Nanosonics ((NAN)), and ResMed ((RMD))
Viewed negatively: Ramsay Health Care ((RHC)) and Cochlear ((COH))

-Yield & income

Positive favourites: APA Group ((APA)), Telstra ((TLS)), Tabcorp Holdings ((TAH)), Woolworths ((WOW))
Viewed negatively: AGL Energy ((AGL)), Spark Infrastructure ((SKI)), Coca-Cola Amatil ((CCL)), Atlas Arteria ((ALX)), ASX ((ASX))

-Housing

Positive favourites: James Hardie ((JHX)), Harvey Norman ((HVN)), Bapcor ((BAP))
Viewed negatively: JB Hi-Fi ((JBH))

-Offshore earners

Positive favourites: James Hardie, Sims ((SGM)), CSL, Appen, Aristocrat Leisure ((ALL))
Viewed negatively: BlueScope Steel, Ramsay Health Care, Brambles ((BXB)), Atlas Arteria, Cochlear

-Mining services

Interesting proposition. UBS does not have clear-cut favourites either positive or negative. The following companies are Buy-rated: Perenti Global ((PRN)), NRW Holdings ((NWH)), Orica ((ORI)), Worley ((WOR)), Incitec Pivot ((IPL)) and Downer EDI ((DOW)).

Downer EDI seems to be the least liked among the Buy rated stocks.

-China’s recovery

Positive favourites: Sims, BHP Group ((BHP)), a2 Milk
Viewed negatively: Rio Tinto ((RIO)) and BlueScope Steel

-Specific exposures to NSW

Positive favourites: Harvey Norman, National Australia Bank ((NAB)), Westpac ((WBC))
Viewed negatively: JB Hi-Fi

-Specific exposures to Victoria

Positive favourite: Harvey Norman
Viewed negatively: JB Hi-Fi

-demand boosts from covid-19

Positive favourites: Harvey Norman, Metcash ((MTS)), Woolworths, ResMed
Viewed negatively: Coles ((COL)), JB Hi-Fi

-demand shock from covid-19

Positive favourites: Tabcorp Holdings, Aristocrat Leisure
Viewed negatively: InvoCare ((IVC))

-structurally more demand from covid-19

Positive favourites: Appen, Bapcor
Viewed negatively: none

-structurally less demand from covid-19

Positive favourite: Qantas ((QAN))
Viewed negatively: none

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Strategists at stockbroker Morgans would add to the UBS view above the RBA is now clearly on the path of Quantitative Easing (QE) policy in Australia with ongoing expansions anticipated for the Term Funding Facility (more liquidity for the banks) and with yield on government bonds to be kept low until at least late 2024.

Morgans thinks by mid next year USD/AUD will be at 74c. On the broker's assessment, the largest, best equipped and most reliable performers in the share market will continue to enjoy a relative valuation premium.

Things are expected to become more volatile (and seriously, who can argue with that?).

Morgans also sees opportunities among Listed Investment Trusts (LITs) – think MCP Master Income Trust ((MXT)) and the like.

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Over at Macquarie, market strategists are now even more convinced the global economy has embarked on the next phase of expansion and this means cyclicals and ‘value’ stocks (cheaply priced laggards) are ready to outperform.

Last month, Macquarie strategists declared “it’s now or never” for ‘value’ with an emphasis on value companies (laggards) that are not structurally challenged.

As such, Macquarie still likes:

– the energy sector (favourite exposures Oil Search ((OSH)), Worley and Ampol ((ALD));
-real estate (favourites GPT ((GPT)) and Lendlease ((LLC));
-and banks (most preferred ANZ Bank ((ANZ)) and Westpac;
-plus Seven Group Holdings ((SVW)).

Incidentally, stockbroker Morgans also thinks oil prices cannot remain at current low levels indefinitely, but others see plenty of clouds on the horizon longer-term for the sector.

That update from BP recently has shaken confidence for the structural demand outlook for fossil fuels.

Macquarie also likes resources stocks, with its Model Portfolio overweight BHP Group, Fortescue Metals ((FMG)), Rio Tinto, Worley, Oil Search and Seven Group Holdings.

The strategists also advocate investors start rotating into companies that have been negatively impacted by the pandemic, including GPT, Crown Resorts ((CWN)), Aristocrat Leisure, Sydney Airport ((SYD)), United Malt Group ((UMG)) and Ramsay Health Care.

Conviction Calls

Technology analysts at Credit Suisse have but a few Outperform ratings left for a sector that continues to defy gravity, even though technology stocks underperformed the broader market in September.

The three remaining Outperform ratings, in order of preference, are Infomedia ((IFM)), Xero ((XRO)), and Life360 Inc ((360)).

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Strategists at Wilsons recently added ReadyTech ((RDY)), a leading provider of education and employment software, to their selection of positive conviction calls.

The other seven inclusions remain ARB Corp ((ARB)), Collins Foods ((CKF)), Integral Diagnostics ((IDX)), Telix Pharmaceuticals ((TLX)), ResMed, Whispir ((WSP)), and Appen.

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Peter Quinton and Radhika Singla at Bell Potter recently updated the stockbroker’s list of Champion Stocks for the next three to five years.

Traditionally, Bell Potter’s Champion Stocks have steadfastly carried major overlap with my own research into All-Weather Performers, but this year the two lists have grown a little further apart, or so it seems.

Current Champion stocks, according to Bell Potter, are: Amcor, Transurban ((TCL)), Challenger ((CGF)), Lendlease Group, Goodman Group ((GMG)), Netwealth Group ((NWL)), CSL, Sonic Healthcare ((SHL)), and Brambles.

Paying subscribers, hopefully, by now are aware they have 24/7 access to my research into All-Weather Performers via a dedicated section on the website.

That Dreadful ASX Website

If you listen closely to what the vox populi is talking about this week, it isn’t necessarily about ‘Value’ versus “Growth’ or whether a Biden-Harris victory in the US is now all but certain, no, it’s about the update for the ASX website that came into effect over the weekend.

“Welcome to our new home” reads the central page and the first disappointment is close-by: “ASX announcements are currently not displaying on the ASX website”.

There will be a great number of other reasons as to why retail investors across Australia will be forced to look for alternatives now that their trusted and beloved ASX website is no longer its familiar old self.

Already, FNArena has received responses such as “The new website is a complete train wreck”. The ASX might have its reasons, but many are not appreciating the change.

This is as good a time as any to inform all investors FNArena is about to announce a major new initiative which might compensate, at least a little bit, for the changes implemented by the ASX.

Stay tuned. More news to follow later this week.

(For those who are impatient, scroll down on the FNArena website and look for the new footer, all in black, with quite a few as yet unannounced surprises).

Rudi Talks

One of the recurring complaints at FNArena goes something along the lines of “I used to watch Rudi on TV all the time”.

Apart from participating irregularly on SwitzerTV and Spotee (see Spotee.com.au and tickerTV), I am making weekly appearances on a new, internet-based live financial TV channel, called AusbizTV.

Access to the broadcasts goes through an app on mobile phones or via the website www.ausbiztv.com.au

I usually appear around 11am on Fridays to talk stockbroker ratings and general market sentiment. Every two weeks I appear on The Call, noon-1pm, on Thursday.

Check it out.

(This story was written on Monday 12th October, 2020. It was published on the day in the form of an email to paying subscribers, and again on Thursday as a story on the website).

(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. All views are mine and not by association FNArena's – see disclaimer on the website.

In addition, since FNArena runs a Model Portfolio based upon my research on All-Weather Performers it is more than likely that stocks mentioned are included in this Model Portfolio. For all questions about this: info@fnarena.com or via the direct messaging system on the website).

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BONUS PUBLICATIONS FOR FNARENA SUBSCRIBERS

Paid subscribers to FNArena (6 and 12 mnths) receive several bonus publications, at no extra cost, including:

– The AUD and the Australian Share Market (which stocks benefit from a weaker AUD, and which ones don't?)
– Make Risk Your Friend. Finding All-Weather Performers, January 2013 (The rationale behind investing in stocks that perform irrespective of the overall investment climate)
– Make Risk Your Friend. Finding All-Weather Performers, December 2014 (The follow-up that accounts for an ever changing world and updated stock selection)
– Change. Investing in a Low Growth World. eBook that sells through Amazon and other channels. Tackles the main issues impacting on investment strategies today and the world of tomorrow.
– Who's Afraid Of The Big Bad Bear? eBook and Book (print) available through Amazon and other channels. Your chance to relive 2016, and become a wiser investor along the way.

Subscriptions cost $440 (incl GST) for twelve months or $245 for six and can be purchased here (depending on your status, a subscription to FNArena might be tax deductible): https://www.fnarena.com/index.php/sign-up/

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CHARTS

360 A2M AGL ALD ALL ALU ALX ANZ APA APX ARB ASX BAP BHP BXB CCL CGF CKF COH COL CSL CWN DOW FMG GMG GPT HVN IDX IFM IPL IVC JBH JHX LLC MTS MXT NAB NAN NWH NWL NXT ORI OSH PRN QAN RDY RHC RIO RMD SGM SHL SKI SVW SYD TAH TCL TLS TLX UMG WBC WOR WOW WSP XRO

For more info SHARE ANALYSIS: 360 - LIFE360 INC

For more info SHARE ANALYSIS: A2M - THE A2 MILK COMPANY LIMITED

For more info SHARE ANALYSIS: AGL - AGL ENERGY LIMITED

For more info SHARE ANALYSIS: ALD - AMPOL

For more info SHARE ANALYSIS: ALL - ARISTOCRAT LEISURE LIMITED

For more info SHARE ANALYSIS: ALU - ALTIUM LIMITED

For more info SHARE ANALYSIS: ALX - ATLAS ARTERIA

For more info SHARE ANALYSIS: ANZ - AUSTRALIA & NEW ZEALAND BANKING GROUP

For more info SHARE ANALYSIS: APA - APA GROUP

For more info SHARE ANALYSIS: APX - APPEN LIMITED

For more info SHARE ANALYSIS: ARB - ARB CORPORATION LIMITED

For more info SHARE ANALYSIS: ASX - ASX LIMITED

For more info SHARE ANALYSIS: BAP - BAPCOR LIMITED

For more info SHARE ANALYSIS: BHP - BHP GROUP

For more info SHARE ANALYSIS: BXB - BRAMBLES LIMITED

For more info SHARE ANALYSIS: CCL - COCA-COLA AMATIL LIMITED

For more info SHARE ANALYSIS: CGF - CHALLENGER LIMITED

For more info SHARE ANALYSIS: CKF - COLLINS FOODS LIMITED

For more info SHARE ANALYSIS: COH - COCHLEAR LIMITED

For more info SHARE ANALYSIS: COL - COLES GROUP LIMITED

For more info SHARE ANALYSIS: CSL - CSL LIMITED

For more info SHARE ANALYSIS: CWN - CROWN RESORTS LIMITED

For more info SHARE ANALYSIS: DOW - DOWNER EDI LIMITED

For more info SHARE ANALYSIS: FMG - FORTESCUE METALS GROUP LTD

For more info SHARE ANALYSIS: GMG - GOODMAN GROUP

For more info SHARE ANALYSIS: GPT - GPT GROUP

For more info SHARE ANALYSIS: HVN - HARVEY NORMAN HOLDINGS LIMITED

For more info SHARE ANALYSIS: IDX - INTEGRAL DIAGNOSTICS LIMITED

For more info SHARE ANALYSIS: IFM - INFOMEDIA LTD

For more info SHARE ANALYSIS: IPL - INCITEC PIVOT LIMITED

For more info SHARE ANALYSIS: IVC - INVOCARE LIMITED

For more info SHARE ANALYSIS: JBH - JB HI-FI LIMITED

For more info SHARE ANALYSIS: JHX - JAMES HARDIE INDUSTRIES N.V.

For more info SHARE ANALYSIS: LLC - LENDLEASE GROUP

For more info SHARE ANALYSIS: MTS - METCASH LIMITED

For more info SHARE ANALYSIS: MXT - MCP Master Income Trust

For more info SHARE ANALYSIS: NAB - NATIONAL AUSTRALIA BANK LIMITED

For more info SHARE ANALYSIS: NAN - NANOSONICS LIMITED

For more info SHARE ANALYSIS: NWH - NRW HOLDINGS LIMITED

For more info SHARE ANALYSIS: NWL - NETWEALTH GROUP LIMITED

For more info SHARE ANALYSIS: NXT - NEXTDC LIMITED

For more info SHARE ANALYSIS: ORI - ORICA LIMITED

For more info SHARE ANALYSIS: OSH - OIL SEARCH LIMITED

For more info SHARE ANALYSIS: PRN - PERENTI GLOBAL LIMITED

For more info SHARE ANALYSIS: QAN - QANTAS AIRWAYS LIMITED

For more info SHARE ANALYSIS: RDY - READYTECH HOLDINGS LTD

For more info SHARE ANALYSIS: RHC - RAMSAY HEALTH CARE LIMITED

For more info SHARE ANALYSIS: RIO - RIO TINTO LIMITED

For more info SHARE ANALYSIS: RMD - RESMED INC

For more info SHARE ANALYSIS: SGM - SIMS LIMITED

For more info SHARE ANALYSIS: SHL - SONIC HEALTHCARE LIMITED

For more info SHARE ANALYSIS: SKI - SPARK INFRASTRUCTURE GROUP

For more info SHARE ANALYSIS: SVW - SEVEN GROUP HOLDINGS LIMITED

For more info SHARE ANALYSIS: SYD - SYDNEY AIRPORT HOLDINGS LIMITED

For more info SHARE ANALYSIS: TAH - TABCORP HOLDINGS LIMITED

For more info SHARE ANALYSIS: TCL - TRANSURBAN GROUP

For more info SHARE ANALYSIS: TLS - TELSTRA CORPORATION LIMITED

For more info SHARE ANALYSIS: TLX - TELIX PHARMACEUTICALS LIMITED

For more info SHARE ANALYSIS: UMG - UNITED MALT GROUP LIMITED

For more info SHARE ANALYSIS: WBC - WESTPAC BANKING CORPORATION

For more info SHARE ANALYSIS: WOR - WORLEY LIMITED

For more info SHARE ANALYSIS: WOW - WOOLWORTHS LIMITED

For more info SHARE ANALYSIS: WSP - WHISPIR LIMITED

For more info SHARE ANALYSIS: XRO - XERO LIMITED