Rudi’s View: Woodside, Webjet, Lendlease, Goodman Group & The Lottery Corp

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 | Jun 09 2022

In this week's Weekly Insights:

-Recession? The Other Type
-Here Endeth The Housing Bull Market
-Dividends For Mum?
-Conviction Calls
-FNArena Talks
-Behind The Curve On Climate


By Rudi Filapek-Vandyck, Editor FNArena

Recession? The Other Type

Market strategists at Morgan Stanley remain of the view that equities in the US will end up at lower levels before investors can comfortably assume a bottom has been established in this cycle of unwinding and de-rating after years of central bank largesse and exceptionally low bond yields.

And while lots of debates are being held about whether economies in the US, China and elsewhere might be heading towards an economic recession, Morgan Stanley makes the point there is that other type of recession -in corporate earnings- that might prove more important for equity markets in the weeks/months ahead.

"...we need to distinguish a potential profits recession from an economic one. Regarding the former, odds are growing that sequential profit growth has peaked and will turn negative at least for a few quarters, as inventory levels normalize and costs stabilize from all-time high margins".

Viewed from an Australian point of view, I certainly sympathise with that approach. Unless we are now underestimating the true pain among Australian households, and what is yet to come through on the back of RBA tightening, the Australian economy should not face an economic recession this year or next.

But corporate earnings are what ultimately decides which stocks are cheap and which ones are still expensive, and that cycle is definitely turning in 2022. See also 'more to read' further below.

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Recent research by JP Morgan focused on the ability of corporate Australia to maintain margins throughout a time of cost pressures and rising funding costs. One of the conclusions drawn is the key grocery names on the ASX -- Coles ((COL)), Metcash ((MTS)) and Woolworths ((WOW)) -- should be able to maintain the margins enjoyed during the pandemic era.

But there are several companies that enjoyed a margin windfall that is now coming under closer scrutiny. Question marks are rising for Ansell ((ANN)), Carsales ((CAR)), Premier Investments ((PMV)) and Super Retail ((SUL)).

On a more positive note, JP Morgan's analysis also suggests multiple so-called covid-winners should be able to at least maintain their margin, if not increase margin post-pandemic.

These companies include CSL ((CSL)), Healius ((HLS)), JB Hi-Fi ((JBH)), James Hardie ((JHX)), Nine Entertainment ((NEC)), Steadfast Group ((SDF)), and Seek ((SEK)).

And when it comes to identifying covid-losers who should see a margin recovery, the research points at Corporate Travel Management ((CTD)), Crown Resorts ((CWN)), Flight Centre ((FLT)), Monadelphous ((MND)), and Qantas Airways ((QAN)).

Back to Morgan Stanley where positive expectations are warming up for the final quarter of the running calendar year (don't say all is lost too early!):

"We sense not only are we passing “peak Fed” but that more positive catalysts will arrive by the fourth quarter as inflation decelerates, China stimulus accelerates and the US midterm election campaigns heat up."



More Reading:

-Quo Vadis, Corporate Profits? https://www.fnarena.com/index.php/2022/06/02/rudis-view-quo-vadis-corporate-profits/

-Don't Fight The Fed: https://www.fnarena.com/index.php/2022/05/26/rudis-view-dont-fight-the-fed/

-Trend Is Turning For Corporate Profits: https://www.fnarena.com/index.php/2022/05/12/trend-is-turning-for-corporate-profits/

-A Bear Market Anomaly That Confuses: https://www.fnarena.com/index.php/2022/05/05/rudis-view-a-bear-market-anomaly-that-confuses/

-Peter's Portfolio Reviewed: https://www.fnarena.com/index.php/2022/04/13/rudis-view-peters-portfolio-reviewed/

-2022, The Big Adjustment: https://www.fnarena.com/index.php/2022/02/17/rudis-view-2022-the-big-adjustment/


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