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In Brief: House Prices, Employee Unrest & Best Stock Ideas

Weekly Reports | Dec 03 2021

This story features TELSTRA CORPORATION LIMITED, and other companies. For more info SHARE ANALYSIS: TLS

Weekly Broker Wrap, In Brief: House prices; employee unrest; fund managers preferred stocks broker’s best ideas.

– The outlook for house prices 
– Employee dissatisfaction 
– Fund managers preferred stocks
– Morgans best stocks
– Morningstar’s best stocks
 

By Mark Woodruff

The outlook for house prices

Jarden downgrades its 2022 forecast for house price growth to 5% from 7%. This comes as November dwelling price growth rose 1.3% month-on-month, down from the prior months reading of 1.5% growth.

This slowing of housing growth has potentially negative implications for the banking sector. The broker previously had an above-consensus housing credit forecast though some offset is provided by increased confidence around business credit.

Willingness to borrow may fall after major banks have hiked fixed home loan rates by 50-70 basis points since September, explains Jarden. While the RBA doesn’t expect to hike rates before 2024, it’s thought lending and house prices may moderate if households begin to expect higher rates. 

Already, the analyst points to cracks starting to appear in the housing recovery, with affordability, sentiment and concerns around higher rates all weighing on the market. 

Jarden expects rate hikes from May 2023 and a likely low single digits softening in house prices. The key risks for the housing market remain higher rates and more aggressive macroprudential tightening from APRA. The latter risk would be somewhat tempered by moderating price growth, explains the broker.

Employee dissatisfaction 

A survey of more than 500 small to medium enterprises (SMEs) has found one in four are already experiencing a higher than usual staff turnover in the wake of covid.

The new data from financial services firm Findex shows 53% of SMEs are concerned about their ability to retain staff over the next twelve months, while one third have noticed a drop in employee satisfaction.

Maybe this employee dissatisfaction stems from a general lack of consultation. 

According to Jane Betts, Chief People Officer at Findex, “managers and leaders need to tap into what their employees want, as it’s clear there’s a big disconnect”. 

The disconnect is highlighted by survey figures revealing 50% of businesses have no plans to discuss with their teams a preferred working-from-home-model. Moreover, around two thirds want staff to return to the office for most of the working week, while at the same time acknowledging only about one third of staff want a return to pre-covid working conditions.

Having come so far in the digital transformation, it seems small businesses still envisage a return to pre-pandemic times and regard any business model changes as temporary. Around one third of respondents to the survey said they would have a modified business model, while only 2% said they would have an entirely new business model adapted during the pandemic.

Fund managers preferred stocks

JP Morgan has reviewed favoured holding of shares by fund managers in October, which the broker terms the Love Index. 

With the aim of getting a read on consensus positioning, the broker collects data from 41 funds which together represent a meaningful proportion of assets under management in Australia.

As a general statement, JP Morgans points to a swing away from Cyclical  exposures toward Defensives over the last few months. Most of the flows have been directed towards Communication Services. 

This trend continued in October. Despite a drop in both Healthcare and Utilities exposures, an uplift in Communication Services drove up overall holdings of Defensives. While Telstra ((TLS)) had a slight fall back in holdings during the month, the company has experienced a large upweight since late last year, according to JP Morgan.

Meanwhile, Cyclicals continued a slide in October. This was demonstrated in part by the reduced proportion of both Brambles (BXB) and Qantas Airways ((QAN)) appearing in the top holdings of fund managers.

In a boost for Discretionary holdings overall, five funds added Aristocrat Leisure ((AlLL)) to their portfolios in October. The Discretionary category now comprises 10% of all stocks disclosed by fund managers.

Finally, two funds added Newcrest Mining ((NCM)) to their top holdings in October, and as a result, the company moved into the “well held” category of the Love Index. However, the manager universe scaled-back holdings in both BHP Group ((BHP))  and Rio Tinto ((RIO)), placing the companies at two-year lows in terms of proportion of top holdings held by the fund managers.
 

Morgans Best Ideas

Market strategists at Morgans have amended their Best Ideas list, which is based on the highest expected risk-adjusted returns over a 12-month timeframe, while also supported by an above-average level of confidence.

Additions include Technology One ((TNE)), Namoi Cotton ((NAM)), HealthCo Healthcare & Wellness REIT ((HCW)) and People Infrastructure ((PPE)), while Beacon Lighting ((BLX)), GrainCorp ((GNC)) and Kina Securities ((KSL)) have been omitted.

The entire list comprises 46 ASX-listed companies is as follows:

Acrow Formwork and Construction Services ((ACF))

Alliance Aviation Services ((AQZ))

Ansell ((ANN))

Atlas Arteria ((ALX))

BHP Group 

Booktopia Group ((BKG))

Corporate Travel Management ((CTD))

Dalrymple Bay Infrastructure ((DBI))

Dexus Convenience Retail REIT ((DXC))

Eagers Automotive ((APE))

Endeavour Group ((EDV))

Frontier Digital Ventures ((FDV))

HealthCo Healthcare & Wellness REIT 

HomeCo Daily Needs REIT ((HDN))

Hotel Property Investments ((HPI))

HUB24 ((HUB))

Incitec Pivot ((IPL))

Karoon Energy ((KAR))

Lovisa Holdings ((LOV))

Mach7 Technologies ((M7T))

Macquarie Group ((MQG))

MoneyMe ((MME))

Namoi Cotton 

NextDC ((NXT))

Nufarm ((NUF))

Panoramic Resources ((PAN))

People Infrastructure 

PTB Group ((PTB))

QBE Insurance Group ((QBE))

Ramelius Resources ((RMS))

Reliance Worldwide Corp ((RWC))

ResMed Inc ((RMD))

Santos ((STO))

Sonic Healthcare ((SHL))

Tabcorp Holdings ((TAH))

Technology One 

TPG Telecom Ltd ((TPG))

Transurban Group ((TCL))

Treasury Wine Estates ((TWE))

Tyro Payments ((TYR))

Universal Store Holdings ((UNI))

Volpara Health Technologies ((VHT))

Waypoint REIT ((WPR))

Whitehaven Coal ((WHC))

Woodside Petroleum ((WPL))

Morningstar’s best ideas

Since last month, Morningstar has added Westpac ((WBC)) and removed APA Group ((APA)) from its list of Best Stock Ideas.

The aim of the Best Stock Ideas is to highlight high-quality Australian and New Zealand companies, which are currently trading at discounts to Morningstar’s assessed fair values.

Morningstar likes Westpac for funding cost advantages that should allow the bank to reprice loans and generate better margins as the cash rate is increased.  On the other hand, APA Group was removed from the Best Stock Ideas after the price rallied back to fair value in November on signs that management would no longer pursue an acquisition of AusNet Services ((AST)).

The list of 16 companies from Morningstar, narrowed down from a coverage of nearly 200 stocks, is as follows:

The a2 Milk Co ((A2M))

AGL Energy ((AGL))

AUB Group ((AUB))

Aurizon Holdings ((AZJ))

Brambles 

Cimic Group ((CIM))

G8 Education ((GEM))

InvoCare ((IVC))

Lendlease Group ((LLC))

Link Administration Holdings ((LNK))

Magellan Financial Group ((MFG))

Southern Cross Media Group ((SXL))

Viva Energy Group ((VEA))

Westpac Bank

Whitehaven Coal ((WHC))

Woodside Petroleum 

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CHARTS

A2M ACF AGL ALX ANN APA APE AQZ AST AUB AZJ BHP BKG BLX CIM CTD DBI DXC EDV FDV GEM GNC HCW HDN HPI HUB IPL IVC KAR KSL LLC LNK LOV M7T MFG MME MQG NAM NCM NUF NXT PAN PPE PTB QAN QBE RIO RMD RMS RWC SHL STO SXL TAH TCL TLS TNE TPG TWE TYR UNI VEA VHT WBC WHC WPR

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

For more info SHARE ANALYSIS: AGL - AGL ENERGY LIMITED

For more info SHARE ANALYSIS: ALX - ATLAS ARTERIA

For more info SHARE ANALYSIS: ANN - ANSELL LIMITED

For more info SHARE ANALYSIS: APA - APA GROUP

For more info SHARE ANALYSIS: APE - EAGERS AUTOMOTIVE LIMITED

For more info SHARE ANALYSIS: AQZ - ALLIANCE AVIATION SERVICES LIMITED

For more info SHARE ANALYSIS: AST - AUSNET SERVICES LIMITED

For more info SHARE ANALYSIS: AUB - AUB GROUP LIMITED

For more info SHARE ANALYSIS: AZJ - AURIZON HOLDINGS LIMITED

For more info SHARE ANALYSIS: BHP - BHP GROUP LIMITED

For more info SHARE ANALYSIS: BKG - BOOKTOPIA GROUP LIMITED

For more info SHARE ANALYSIS: BLX - BEACON LIGHTING GROUP LIMITED

For more info SHARE ANALYSIS: CIM - CIMIC GROUP LIMITED

For more info SHARE ANALYSIS: CTD - CORPORATE TRAVEL MANAGEMENT LIMITED

For more info SHARE ANALYSIS: DBI - DALRYMPLE BAY INFRASTRUCTURE LIMITED

For more info SHARE ANALYSIS: DXC - DEXUS CONVENIENCE RETAIL REIT

For more info SHARE ANALYSIS: EDV - ENDEAVOUR GROUP LIMITED

For more info SHARE ANALYSIS: FDV - FRONTIER DIGITAL VENTURES LIMITED

For more info SHARE ANALYSIS: GEM - G8 EDUCATION LIMITED

For more info SHARE ANALYSIS: GNC - GRAINCORP LIMITED

For more info SHARE ANALYSIS: HCW - HEALTHCO HEALTHCARE & WELLNESS REIT

For more info SHARE ANALYSIS: HDN - HOMECO DAILY NEEDS REIT

For more info SHARE ANALYSIS: HPI - HOTEL PROPERTY INVESTMENTS LIMITED

For more info SHARE ANALYSIS: HUB - HUB24 LIMITED

For more info SHARE ANALYSIS: IPL - INCITEC PIVOT LIMITED

For more info SHARE ANALYSIS: IVC - INVOCARE LIMITED

For more info SHARE ANALYSIS: KAR - KAROON ENERGY LIMITED

For more info SHARE ANALYSIS: KSL - KINA SECURITIES LIMITED

For more info SHARE ANALYSIS: LLC - LENDLEASE GROUP

For more info SHARE ANALYSIS: LNK - LINK ADMINISTRATION HOLDINGS LIMITED

For more info SHARE ANALYSIS: LOV - LOVISA HOLDINGS LIMITED

For more info SHARE ANALYSIS: M7T - MACH7 TECHNOLOGIES LIMITED

For more info SHARE ANALYSIS: MFG - MAGELLAN FINANCIAL GROUP LIMITED

For more info SHARE ANALYSIS: MME - MONEYME LIMITED

For more info SHARE ANALYSIS: MQG - MACQUARIE GROUP LIMITED

For more info SHARE ANALYSIS: NAM - NAMOI COTTON LIMITED

For more info SHARE ANALYSIS: NCM - NEWCREST MINING LIMITED

For more info SHARE ANALYSIS: NUF - NUFARM LIMITED

For more info SHARE ANALYSIS: NXT - NEXTDC LIMITED

For more info SHARE ANALYSIS: PAN - PANORAMIC RESOURCES LIMITED

For more info SHARE ANALYSIS: PPE - PEOPLEIN LIMITED

For more info SHARE ANALYSIS: PTB - PTB GROUP LIMITED

For more info SHARE ANALYSIS: QAN - QANTAS AIRWAYS LIMITED

For more info SHARE ANALYSIS: QBE - QBE INSURANCE GROUP LIMITED

For more info SHARE ANALYSIS: RIO - RIO TINTO LIMITED

For more info SHARE ANALYSIS: RMD - RESMED INC

For more info SHARE ANALYSIS: RMS - RAMELIUS RESOURCES LIMITED

For more info SHARE ANALYSIS: RWC - RELIANCE WORLDWIDE CORP. LIMITED

For more info SHARE ANALYSIS: SHL - SONIC HEALTHCARE LIMITED

For more info SHARE ANALYSIS: STO - SANTOS LIMITED

For more info SHARE ANALYSIS: SXL - SOUTHERN CROSS MEDIA GROUP LIMITED

For more info SHARE ANALYSIS: TAH - TABCORP HOLDINGS LIMITED

For more info SHARE ANALYSIS: TCL - TRANSURBAN GROUP LIMITED

For more info SHARE ANALYSIS: TLS - TELSTRA CORPORATION LIMITED

For more info SHARE ANALYSIS: TNE - TECHNOLOGY ONE LIMITED

For more info SHARE ANALYSIS: TPG - TPG TELECOM LIMITED

For more info SHARE ANALYSIS: TWE - TREASURY WINE ESTATES LIMITED

For more info SHARE ANALYSIS: TYR - TYRO PAYMENTS LIMITED

For more info SHARE ANALYSIS: UNI - UNIVERSAL STORE HOLDINGS LIMITED

For more info SHARE ANALYSIS: VEA - VIVA ENERGY GROUP LIMITED

For more info SHARE ANALYSIS: VHT - VOLPARA HEALTH TECHNOLOGIES LIMITED

For more info SHARE ANALYSIS: WBC - WESTPAC BANKING CORPORATION

For more info SHARE ANALYSIS: WHC - WHITEHAVEN COAL LIMITED

For more info SHARE ANALYSIS: WPR - WAYPOINT REIT LIMITED