Rudi's View | 4:45 PM
Stock picks and sector favourites in October. In this week's update:
- Small Caps Under The Pump
- Contractor Favourites
- Ord Minnett's Analysts' Conviction List
- Fund Managers, Iron Ore, Lithium & Gold
- A-REITs Opportunities
By Rudi Filapek-Vandyck, Editor
Small Caps Under The Pump
Expectations of further rate rises and a weakening property market have pushed many Australian small and micro caps well below their fundamental value, reports Jack Briggs, portfolio manager of the Ellerston Capital Emerging Leaders Fund.
Unsurprisingly, Briggs sees favourable conditions for active stock pickers.
This week's press release highlights Wagners Holding Co ((WGN)), Eureka Group ((EGH)) and Bravura Solutions ((BVS)).
With many businesses having been unfairly punished by the broader macroeconomic backdrop, Ellerston predicts only a little positivity is required for share prices to return to their intrinsic value.
Contractor Favourites
Consider this a reminder: most contractors and engineering firms are enjoying boom conditions as construction, energy, mining, defence, infrastructure, data centres and the upcoming Brisbane Olympics are all vying for their services.
Recent ABS engineering construction data indicated the total value of work done, excluding oil, gas, coal and minerals, reached a new record, driven particularly by water and electricity projects.
But then you see shares in Worley ((WOR)) approaching their pre-covid low, and it makes you immediately realise this is not an homogenous sector. Differences in operational focus, specialities, regional presence, service quality, staff experience and management execution all create idiosyncratic pros and cons.
The new sector analyst at CLSA, Ollie Burston, has resumed coverage, nominating Downer EDI ((DOW)) —shares are still down some -14% year-to-date following a recent recovery— as his most preferred sector exposure.
CLSA covers two other companies it categorises as "asset maintenance contractors": Service Stream ((SSM)) and Ventia Services ((VNT)). Both are also rated Outperform.
The sector overall is rated Overweight, signalling a generally positive view of the years ahead.
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