Rudi’s View: Ansell, Mach7, Nitro Software, ResMed And Santos

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 | Nov 18 2021

In this week's Weekly Insights:

-Managing Risk In Earnings
-All-Weather Model Portfolio
-Conviction Calls
-Research To Download


By Rudi Filapek-Vandyck, Editor FNArena

Managing Risk In Earnings

If you thought global supply chain bottlenecks remain on investors' radar because the outlook for inflation depends on it, you'd be half correct.

One of the market narratives that has grown popular recently is that many of those bottlenecks are finding relief, which not only means inflation pressures should start to subside, but bond markets will have to retreat from their uber-aggressive pricing of central bank rate hikes, which can only be good news for share markets.

Relief from bottlenecks also means corporate margins might not come as much under pressure as feared, so that makes for a double positive.

Enter the strong rally we have been witnessing in US equities since late September (apparently also supported through short-covering by those who had positioned themselves for a bigger fall previously).

The upshot is most experts and commentators have seemingly resigned to the fact this bull market continues to showcase its ability to surprise positively.

On my observation, most on the cautious side of the market who have been preparing for a much greater fall for equities are now prepared to accept any share market correction might not arrive until next year.

Regardless, those experts say, headwinds are building on the back of ongoing severe energy shortages across Europe, repeated set-backs in adjustments to life with covid, decelerating growth in China, and ongoing inflation challenges in the US (eating into household spending).

As the end-of-year holidays are just around the corner, many companies will likely still be struggling to get products on the shelves, meaning consumers are faced with limited supply and higher prices.

And so, it seems, the calendar year of 2021 will come to an end while holding a basket of numerous contradictory narratives, and with markets showing a penchant for positive surprise.



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In Australia, the risk is very much concentrated in corporate market updates and financial results.

As I reported last week, forecast EPS growth for the year ahead for the ASX200 has halved to some 6.5%, but one can make the argument the bulk of the decline in expectations over the past 2.5 months is due to the fall in the price of iron ore, and various other commodities, plus a non-exciting reporting season from the banks.

If we take guidance from the financial reporting season post-September, on Monday the FNArena Corporate Results Monitor shows of all reporting companies, 54.2% have beaten expectations, with both "meets" and "misses" in balance for the remaining 55.8%.

Admittedly, the tally stands at 35 companies only, and most of the disappointments recently have come through AGM addresses and quarterly market updates.

Also, those numbers hide the fact that analysts have actually been very busy making major amendments to their forecasts as the likes of Orica ((ORI)), GrainCorp ((GNC)), Megaport ((MP1)) and 29Metals ((29M)) surprised to the upside, but with the likes of Xero ((XRO)), Tyro Payments ((TYR)), James Hardie ((JHX)), Ramsay Health Care ((RHC)) and Ansell ((ANN)) triggering downgrades.

See also FNArena's weekly update (available every Monday morning): https://www.fnarena.com/index.php/2021/11/15/weekly-ratings-targets-forecast-changes-12-11-21/

In recent editions of Weekly Insights, I singled out the risk of individual corporate profit disappointment as one of the key risks for the Australian share market. However, for those among us who run a diversified portfolio, it is not easy to protect against such risk.

Should we abandon the small-cap, loss-making technology disruptor trading on elevated multiples or is it the cheaply valued covid-victim that nobody pays any attention to that has now become the riskiest holding?

What about all companies in between?


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