Rudi’s View: Small Cap Favourites, AI & More

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Freshly updated stock picked sector favourites, Best Buys and Conviction Calls in Australia.

By Rudi Filapek-Vandyck, Editor

Remember Charlie Aitken?

There have been times when his daily market commentary, written from the institutional desk at Bell Potter, was treated as gospel by just about everyone inside and outside the local investment community.

I am exaggerating, but not by much. The only equivalent that comes to mind is Richard Coppleson’s The Coppo Report, nowadays also produced at Bell Potter.

Charlie’s first attempt to monetise his widespread fan base involved starting an investment newsletter, but not enough subscribers signed up, so the project was quickly kiboshed.

Charlie turned himself into a fund manager next, but ultimately had to concede that life as a commentator on the sidelines is many times easier.

There would have been plenty of schadenfreude across the industry when that project, too, was foiled.

There was a lot of upheaval in Charlie’s personal life as well, but I’ll leave those details to the gossip columns in the mainstream media.

Eventually, Icarus was welcomed back to Bell Potter, but Charlie has since relocated to Regal Partners, where, as Group Investment Director, he is back to sharing investment ideas and market observations.

His endeavours, and life generally, might not have played out as planned, but with more than three decades of share market experience under his belt, Charlie still provides valuable insights for the average investor.

This week, his focus turned to the local share market, a source of persistent agony for so many investors (evidence: my daily feed on X).

I thought it worthwhile to share the core of Charlie’s advice:

“The hardest part of equity asset class investing is holding your conviction when short-term price action is against you.

“In a world where equities trade like ‘confetti’ on a daily basis due to market structure changes and high levels of retail investor (trader) participation, alongside unprecedented leverage being used by the major hedge fund platforms (traders), it’s not easy to hold your nerve when the consensus narrative is against you.

“However, when literally everyone is a ‘trader’, you have to be an ‘investor’.

“In 33 years of doing this, I can’t remember a ‘non-crisis’ period of single-stock volatility as extreme as what we are witnessing today.

“It is absolutely extraordinary, but that must mean there is genuine investment opportunity amongst this volatility for anyone with more than a one-day view.”

Charlie notes that current market dynamics have opened up a wide gap between large caps and smaller caps on the ASX, raising questions about the value of the relative safety ascribed to the top end of the index while the rest of the bourse is left languishing.

Not only is the smaller end of the ASX far cheaper, but its growth outlook also appears considerably more attractive, particularly, Charlie writes, among companies with a high percentage of global revenue.

Australian large caps, on the other hand, are currently seen as offering neither value nor growth, while a key risk is that they hit “air pockets” due to the high level of passive ownership.

Charlie’s conclusion:

“This is certainly not an easy period, but in my experience the seeds of future returns are planted in periods of high volatility, uncertainty and weak sentiment.

“That is right now in Australian small companies.”

Best Buys & Conviction Calls

Citi has a negative view on retailers, with the Fair Work Commission’s recent decision to increase FY27 retail store wages by 4.75% further depressing its forecasts for the sector.

Citi’s top pick for the sector remains JB Hi-Fi ((JBH)), with the fine print suggesting the company is least at risk of disappointing in August.

Citi retains a preference for Coles Group ((COL)) among supermarket operators, though a potential acquisition of Greencross is seen as a negative.

Over at Macquarie, the preference remains with Sigma Healthcare ((SIG)) and, for long-term upside, JB Hi-Fi ((JBH)).

Macquarie continues to see downside risk for Endeavour Group ((EDV)) and Inghams Group ((ING)) heading into the August results season.

The broker also prefers Coles over Woolworths and sees Greencross as a key risk for the Coles share price. Within staples, Macquarie’s favourite is Bega Cheese ((BGA)).

At RBC Capital, the three sector favourites are Coles Group, Super Retail ((SUL)) and Guzman y Gomez ((GYG)).

Media and technology analysts at UBS have attempted to create a framework for assessing ASX-listed technology companies against the threat of AI disruption.

Their efforts have identified Gentrack ((GTK)), TechnologyOne ((TNE)), WiseTech Global ((WTC)) and Xero ((XRO)) as having stronger regulatory moats around their businesses. They operate in heavily regulated industries and complex regulatory environments, require 100% accuracy, and expose end customers to liability, including regulatory fines, if workloads or filings are submitted incorrectly.

Against the threat of newly emerging competition, TechnologyOne, Gentrack and Vista Group ((VGL)) screen as the most defensive. The travel industry, in particular, appears vulnerable.

Switching costs for customers are considered highest at Gentrack and WiseTech Global, and lowest at SiteMinder ((SDR)) and Xero.

The greatest opportunities for AI-driven margin expansion are seen at Serko ((SKO)) and Vista Group.

All in all, after combining multiple angles and inputs, UBS has identified TechnologyOne as the top-ranked company for AI defensiveness and potential upside. However, this is also seen as reflected in the stock’s 40% PEG premium.

Next in line are Gentrack and WiseTech Global.

A general re-rating for the sector is not expected until AI revenues become material and bend the revenue growth curve. UBS suggests that will take time to arrive, if it arrives at all.

A separate Australian strategy report suggests investors should think of the global AI boom in terms of a value chain.

First order:

• Memory chips: Weebit Nano ((WBT))
• Developers and operators: Goodman Group ((GMG)), NextDC ((NXT)), DigiCo Infrastructure REIT ((DGT)), Macquarie Technology ((MAQ)), Infratil ((IFT))
• AI cloud: Megaport ((MP1)), Centuria Capital Group ((CNI))

Second order:

• E-waste recycling: Sims ((SGM))
• Minerals: Lynas Rare Earths ((LYC)), BHP Group ((BHP)), Capstone Copper ((CSC))
• Data centre servicing: Tasmea ((TEA)), Shape Australia ((SHA)), SKS Technologies ((SKS)), NRW Holdings ((NWH)), Southern Cross Electrical Engineering ((SXE))
• Utilities and energy: AGL Energy ((AGL)), Origin Energy ((ORG)), Paladin Energy ((PDN))
• Networking: Superloop ((SLC)), Aussie Broadband ((ABB)), Telstra Group ((TLS))

Third order:

• Financials: Macquarie Group ((MQG))
• Industrial services: ALS Ltd ((ALQ)), Downer EDI ((DOW)), Ventia Services ((VNT))

As far as market observations go, the following most definitely stands out:

“Within sectors, the companies our stock analysts identify as being most ‘AI-ready’ trade at a 10-point PE premium and 80% relative ROE premium versus the stocks judged as being ‘less favourably’ exposed to AI.”

UBS’ research has identified the following 11 stocks as potential beneficiaries of AI that are currently trading at an intrinsic discount:

• AGL Energy ((AGL))
• Computershare ((CPU))
• Endeavour Group ((EDV))
• JB Hi-Fi ((JBH))
• Qantas Airways ((QAN))
• QBE Insurance ((QBE))
• Rio Tinto ((RIO))
• Sims ((SGM))
• Sonic Healthcare ((SHL))
• WiseTech Global ((WTC))
• Worley ((WOR))

Local healthcare stocks remain, generally speaking, in the doghouse, and Citi’s latest sector update shows very little enthusiasm, with both Cochlear ((COH)) and Ramsay Health Care ((RHC)) singled out as potentially delivering negative surprises in August.

Citi’s top pick is Telix Pharmaceuticals ((TLX)), and the analysts have opened a positive 30-day catalyst watch to underpin their conviction that the upcoming Q2 market update will surprise on the upside.

Second in line is Pro Medicus ((PME)).

Citi also believes Ebos Group’s ((EBO)) FY27 guidance, to be communicated alongside the FY26 financial result, might well beat consensus.

The report also highlights the US Section 232 investigation into the medtech industry as a risk for the likes of ResMed and Cochlear.

Cochlear is currently Citi’s only Sell-rated stock in the sector.

RBC Capital’s preview of the August results for infrastructure stocks nominates Transurban ((TCL)) and Dalrymple Bay Infrastructure ((DBI)) as the two sector favourites.

Both Aurizon Holdings ((AZJ)) and Auckland International Airport ((AIA)) are expected to report financial results in line with expectations, though the latter is seen as riskier given that domestic and international carriers continue to manage capacity through the airport in response to higher jet fuel prices.

The analysts are cautious on Atlas Arteria ((ALX)), concerned that liquidity might dry up and that the risk of a cut to the supportive distribution is increasing.

Among local energy stocks, the preference lies with Woodside Energy ((WDS)), Santos ((STO)) and Karoon Energy ((KAR)), and among refiners with Ampol ((ALD)).

Both Qantas Airways ((QAN)) and Virgin Australia ((VGN)) are considered well placed irrespective of the ongoing uncertainty in the Middle East.

Macquarie strategists advise investors looking to top up their exposure to ASX-listed small- and mid-cap companies to focus on quality and fundamental value.

The in-house framework used to identify such opportunities has generated the following best picks:

• a2 Milk ((A2M))
• AUB Group ((AUB))
• Breville Group ((BRG))
• Capricorn Metals ((CMM))
• Codan ((CDA))
• Fisher & Paykel Healthcare ((FPH))
• Lovisa Holdings ((LOV))
• Megaport ((MP1))
• Netwealth Group ((NWL))
• NRW Holdings ((NWH))
• Neuren ((NEU))
• Pinnacle Investment Management ((PNI))
• Qualitas ((QAL))
• Service Stream ((SSM))
• Super Retail ((SUL))
• Universal Store Group ((UNI))
• Ventia Services ((VNT))
• Zip Co ((ZIP))

A special mention goes to the following quality compounder stocks that did not make it onto the strategists’ best-picks shortlist:

• Data#3 ((DTL))
• McMillan Shakespeare ((MMS))
• nib Holdings ((NHF))
• REA Group ((REA))
• TechnologyOne ((TNE))

Macquarie’s most preferred A-REITs:

• Goodman Group ((GMG))
• Mirvac Group ((MGR))
• DigiCo Infrastructure REIT ((DGT))
• Arena REIT ((ARF))

Preferred sector picks at stockbroker Morgans:

Automobiles:

• Eagers Automotive ((APE))
• ARB Corp ((ARB))
• Motorcycle Holdings ((MTO))

Copper:

• Core holdings: BHP Group ((BHP)) and Rio Tinto ((RIO)), both currently seen as trading near fair value
• Capstone Copper ((CSC))
• Sandfire Resources ((SFR))

Technology:

• Infratil ((IFT))
• Megaport ((MP1))
• Atturra ((ATA))

Telecommunications:

• TPG Telecom ((TPG))

Gaming:

• Light & Wonder ((LNW))

Ahead of the August results season — not long now — UBS strategists have selected their top picks among emerging companies, meaning small- and mid-cap up-and-comers:

• Kelsian Group ((KLS))
• Megaport ((MP1))
• NextDC ((NXT))
• NRW Holdings ((NWH))
• SiteMinder ((SDR))
• Superloop ((SLC))
• Service Stream ((SSM))
• Web Travel Group ((WEB))

Honourable mentions:

• Flight Centre ((FLT))
• PWR Holdings ((PWH))

UBS is cautious on:

• Eagers Automotive ((APE))

The following have been identified as carrying double-positive risk across both result and outlook:

• Megaport ((MP1))
• NRW Holdings ((NWH))
• SiteMinder ((SDR))
• Superloop ((SLC))
• Service Stream ((SSM))

The following have been identified as carrying double-negative risk across both result and outlook:

• Amotiv ((AOV))
• ARB Corp ((ARB))
• G8 Education ((GEM))
• IDP Education ((IEL))
• Tourism Holdings ((THL))

See also:

https://fnarena.com/index.php/2026/07/09/rudis-view-julys-stock-pickers-favourites/

https://fnarena.com/index.php/2026/07/02/rudis-view-best-buys-conviction-calls-in-july/

(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.)  

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P.S. II – If you are reading this story through a third party distribution channel and you cannot see charts included, we apologise, but technical limitations are to blame.

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