Rudi's View | Sep 25 2024
In this week's Weekly Insights:
-Growth Is Not A Dirty Word
-FNArena On Tour
By Rudi Filapek-Vandyck, Editor
It was by no means a universal outcome, with some of the smaller cap companies delivering unexpected negative surprises, but the Technology sector crowned itself as the best performing segment on the ASX throughout the August reporting season.
It wasn't just about WiseTech Global ((WTC)), whose share price has been handsomely rewarded this year (40% up post August result), but equally about Car Group ((CAR)), Hub24 ((HUB)), Pro Medicus ((PME)), REA Group ((REA)), ResMed ((RMD)) and smaller cap companies such as Bravura Solutions ((BVS)), Breville Group ((BRG)), Codan ((CDA)), DUG Technology ((DUG)), Electro Optic Systems ((EOS)), Life360 ((360)) and Temple & Webster ((TPW)).
Not all of these names are part of the local Technology Index, but respective core businesses very much revolve around new innovations and keeping up with the latest developments in technological advances and breakthroughs. In extension, we might even include some of the direct beneficiaries of Gen.Ai, Goodman Group ((GMG)) & Co, which are not technology companies in se, but their growth momentum and attraction is very much related to the latest megatrend, which is technology-driven.
For most of these companies, in particular the large caps, August has not been a one-off. Anyone opening up a 10-year historical price chart, or longer, can easily see how strong, consistent and prolonged the rewards for loyal shareholders have been.
Taking into account how both banks and resources tend to go 'missing' for long periods of time, there's but a fair argument to be made achieving positive returns from the local bourse has become a lot easier through Technology in the post-GFC era, which still continues.
As I have observed on multiple occasions over the years past: the local Technology sector offers Nasdaq-alike returns, or better. Yet, your average Australian investor might be forgiven for completely missing that point.
From mainstream media to local newsletters and tip sheets, most reports and commentary revolves around banks and other financials, and about mining companies and energy producers, China, coal, lithium, housing, dividends and franking.
Only occasionally there's time and space left for your typical high-achieving local Technology champion.
Why is this so?
At the recent Livewire Live 2024 conference, Dushko Bajic, head of Australian equities growth at First Sentier Investors, suggested Australian media, and by extension Australian investors, are mis-guided by their perception of what makes an attractive investment.
Most commentary around local Technology companies focuses on the elevated Price-Earnings (PE) ratios these stocks trade on, and that's usually where the attention stops.
Indeed, if a high PE automatically translates into dismal investment returns ahead then the companies mentioned have collectively done an excellent job in proving otherwise.
Bajic also made the point the Australian share market harbours some of the best Technology companies in the world. His number one favourite? WiseTech Global, still.
Others with dedicated interest have throughout the years past expressed similar views, including myself. This does not change the fact your average Australian investor is constantly directed towards 'cheap' looking small cap cyclicals and dividend-paying financials, away from the better performing, 'expensive' looking segment.
To help those who'd like to overcome their natural inhibition against investing in higher-valued, champion performers, let's address some of the issues seldom discussed or explained.
Our starting point is by acknowledging Technology stocks on the ASX do trade on PE multiples that are well above the market average, not to mention banks and resources that usually trade on below-average multiples, making stocks like Pro Medicus or WiseTech Global look extremely expensive.
Equally important, when comparisons are made with international peers, usually in the USA, multiples on the ASX tend to be noticeably higher as well. The usual complaint made is something along the lines of: I can buy Microsoft or Apple while trading on much lower multiples, why would I bother with WiseTech shares or Pro Medicus on such high multiples?
The full story is for FNArena subscribers only. To read the full story plus enjoy a free two-week trial to our service SIGN UP HERE
If you already had your free trial, why not join as a paying subscriber? CLICK HERE