Rudi's View | Aug 14 2025

In today's edition:

-FNArena's August Results Monitor
-What The Experts Are Saying
-Review All-Weather Model Portfolio
-Best Buys & Conviction Calls

By Rudi Filapek-Vandyck

FNArena's August Results Monitor

The Australian corporate results season has officially started but, as per unofficial tradition, the pace of corporate releases remains rather glacial this early in the month.

By this time next week, the numbers will be a lot larger, as the bulk for local seasons is reserved for the final two weeks of the month.

FNArena is keeping a close watch daily: https://fnarena.com/index.php/reporting_season/

What The Experts Are Saying

An observation  from UBS:

"After a multi-year period of underperformance, gold equities (GDX Index) have outperformed the gold price by >40% YTD.

"In particular, the last three months have been very strong for equities, despite a largely rangebound gold price. However, this has largely been an international phenomenon, with Australian gold stocks lagging quite materially.

"Gold miners have had a poor track record in recent years resulting in valuation de-rating; but recent results were a net positive for the global gold miners, with the stocks generally delivering record Free Cash Flow, 2025 production/ cost guidance generally maintained (despite higher royalties), management teams demonstrating discipline with limited increases in capex & increasing cash returns."

UBS's preferred sector exposures are Barrick Mining, Endeavour, Kinross, AngloGold, & Franco-Nevada. None are listed locally.

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This month's update on Morningstar's Best Stock Ideas in Australia has seen the removal oif IGO Ltd ((IGO)) from the list and the inclusion of Pilbara Minerals ((PLS)).

Among the many discussions whether the return of positive momentum for lithium prices and share prices of linked exposures might prove justified, and sustainable, or not, Morningstar simply sees the market taking a more optimistic stance.

Lithium demand is expected to triple by 2023 from levels registered in 2023 and Pilbara has mine reserves spanning twenty years, and more.

IGO Ltd also has exposure to lithium, of course, but the preference has been switched to Pilbara.

Morningstar's selection of Best Stock Ideas (Conviction Buy Calls by any other name, mostly chosen because of under-valuation):

-Auckland International Airport ((AIA))
-ASX Ltd ((ASX))
-Aurizon Holdings ((AZJ))
-Bapcor ((BAP))
-Dexus ((DXS))
-Domino's Pizza Enterprises ((DMP))
-Endeavour Group ((EDV))
-Fineos Corp ((FCL))
-IDP Education ((IEL))
-Pilbara Minerals
-Ramsay Health Care ((RHC))
-SiteMinder ((SDR))
-Spark New Zealand ((SPK))
-Woodside Energy ((WDS))

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Equally noteworthy: we couldn't help but noticing the Conviction Buy list at Goldman Sachs specifically for ASX-listed exposures is now down to three and with Unibail-Rodamco-Westfield ((URW)) about to disappear from the local bourse, will that be two remnants only by month's end?

-Goodman Group ((GMG))
-ResMed ((RMD))
-Unibail-Rodamco-Westfield

Rudi's View | Aug 13 2025

It has become the 'unofficial' tradition in recent years: an interview with Livewire Markets ahead of yet another corporate reporting season in Australia.

This a sub-edited transcript from the pre-August results season interview that took place on August 5. 

By Rudi Filapek-Vandyck

It has become the 'unofficial' tradition in recent years: an interview with Livewire Markets ahead of yet another corporate reporting season in Australia.

Below is a sub-edited transcript from the pre-August results season interview that took place on August 5. The video is available on Livewire and on YouTube.

James Marley: Welcome to the Rules of Investing, Podcast that gets inside the minds of leading investors, economists and industry experts, brought to you by Livewire.

My name is James Marley. I'm going to be your host today. With reporting season on the ASX about to kick into full swing, my guest today is someone that has crunched the data on more results and the reactions from the market than just about anyone else.

Rudi Filapek-Vandyck, Editor of research website FNArena and popular contributor to Livewire, is with me to help you get match fit and in the zone for the upcoming reporting season.

From the big picture on current valuations, the impacts of AI and the stocks to watch in August, this is going to be a cracking session.

Now, remember, if you're not subscribed to the Rules of Investment podcast, you can find it in all the major podcasting platforms, or you can sign up to Livewire Markets.

It's free. It's easy to register, and we'd love to have you on board. Now with that, I'd like to extend a very warm welcome to Rudi for our regular reporting season preview.

Rudi, great to have you online, and thanks so much for your time.

Rudi Filapek-Vandyck: My pleasure. The sound you're hearing is the rain coming down in Sydney on the moment this interview starts.

They're saying in investing timing is important. Apparently, with recording, it's equally as important.

James: I thought it was a sign that we're about to get rained down with a deluge of information on reporting season, and you're going to be our little safe harbour to help us get through it?

Rudi: I will definitely do my best, but after such an intro, half my work has already been done!

Valuations Are High, What Gives?

James: Well, we were having a chat about what will we talk about today? And you sent through a few points. One starting point are valuations. Are they high? Are they stretched? It's topical for investors. Difficult one to answer.

I'm going to draw attention to an article that my colleague Kerry Sun put together recently, which effectively told people to stop calling markets expensive. They're at all-time highs but the crux of the article is, drawing from UBS research, the market has evolved. Companies have gotten better.

Therefore, we need to think about market valuations in a different light. So Rudi, does that mean we need to get used to paying higher multiples, should we be more comfortable with higher valuations?

Rudi: I think the answer is yes, under certain circumstances, not always, but we definitely need to stop calling the market overvalued simply because the valuation multiples are higher than what we are used to.

It is being said that generals always fight the last war. I've come to the conclusion that most investors invest in yesterday's market, and they need to invest in tomorrow's market, of course, because it's all about looking forward.

 I can't emphasise enough how happy and how glad I am that stories like that and analyses like that are being published, not just by me, but by others as well.

Because I do think a whole change still needs to take place in the psyche of investors. Australia being a typical value-oriented market for such a long time, investors are constantly thinking that something trading on a PE of six or nine is, by default, a better long-term investment than something that's trading on 96 times.

We clearly saw over the past 15 years or so that's no longer true. In addition to all the arguments mentioned --and I completely subscribe to those arguments-- I do think there's also a very simple, easier way to understand the metrics for today's market.

We still reason in averages. We judge the market by the average PE ratio for the ASX200 and we judge the environment for corporate Australia by the average EPS growth forecast.

In both cases, the market is so polarised these days, and it has been for such a long time. The market has at least been polarised ever since covid hit. That's 2020, five years ago now.

On my analysis, the polarisation is quite extreme in today's market. What that means also is those averages we are used to watch, the PE ratios and the average EPS forecast, you can't take them at face value anymore.

A big part of the reason why the PE ratio looks this high for the Australian market is because we have 11% --Commbank ((CBA))-- of the index probably trading at the highest valuation any of us has seen in our lifetime.

At 11% of the index, of course, it's going to have a big influence on the average PE ratio, and that's one of the reasons why the PE ratio is that high.

The bigger question, I think, is should the market sell off because CBA is trading at an all-time high?

I know sentiment is important, but I would argue it doesn't need to. The other element is resources remain a very important input in Australia.

They are the second biggest index weight, and they too have an outsized impact on all the averages we can calculate for the index.

So I would often smile when the next person is calling for the bubble to burst.

I don't think there's a bubble. I think it's way too early to say there's a bubble. Are valuations high? Yes, they are, but there are particular reasons why that potentially can be justified.

 I'm sure we'll talk about it over the next however long this interview takes.

Why Is Corporate Australia Not Growing Earnings?

James: One of the things you mentioned there was earnings. And we get told, as investors, over time, where earnings go so too will share prices.

Same note from UBS, or a more recent note perhaps, pointed out we're about to get the second consecutive year of negative earnings growth for the ASX.

Now, to your point, that's on average, but we've got all-time highs being hit at the time when earnings are weak. So, what gives?

Rudi: Again, yes, you're right at face value. We are at an all-time high, with a PE ratio we very seldom see, on average, and August will mark the third consecutive year of negative EPS growth on average for the local market.

So you would think it's all about multiple expansion; there's no earnings growth here.

But that's not true when you look below the surface. Below the surface, the two largest components of the index locally, banks and resources, are weighing negatively on the average.

The banks are positive for this year, but it's not much, and the resources --again-- negative, both the mining companies and energy companies.

If you strip those out, you see the growth forecast for corporate Australia outside of those two sectors, is actually not that bad at all.

It's more in the mid to high single digits EPS growth. Long term the average in Australia is 5% EPS growth per year.

If the forecast now is six or seven or eight, that means there are large parts of the Australian economy that are performing above average.

Coming back to the polarisation that I touched upon earlier, what you will find in sectors is that one company has performed and the other one hasn't. If you want to drill down to it, it's usually that one company has performed operationally and the other one hasn't.

So, earnings do count, not only in August, but also for the in between seasons.

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August Too Early?

James: Banks, it's going to be hard for them to meaningfully move their earnings. They're flat-ish type businesses and have been for a long time. Resources, highly cyclical. Can you see a turnaround story in that earnings outlook? People have been waiting for that broader earnings picture to move into positive territory again. Are we going to see it this August?

Rudi: Its going to be interesting. My view in advance, I think the question that will come to the fore for August is: is it not too early still?

That will be the question that will be asked for a lot of things. We've now had at least three years of large caps on average outperforming small caps. Is that going to reverse?

I think the question will be: is it not too early for that?

We have subdued consumer spending. We have profit warnings from consumer spending-related companies in Australia. Is that going to turn around in August?

I think the question will be: isn't it too early yet for that?

I also think the whole revival of the resources sector is most likely too early.

Are we going to see a big improvement in earnings forecasts? I think it's too early in August; the RBA has been very reluctant in helping out, Trump tariffs, it hasn't all helped.

I think maybe a more logical time will be February next year, instead of August this year, which clearly will pose some challenges for investors.

You can also expand that to other sectors and to other themes. Are we going to see a broadening out of the advantages, the benefits, the applications of AI across corporate Australia?

Probably a little bit too early to see concrete results of that. If you take the broad view this whole AI theme at some stage will stumble and at least have a pause, but that too, I think, will be too early for August. I think that will continue.

So, I think the challenges are lining up, and I know the usual reflex of investors is trying to figure out which companies haven't performed yet -- they might perform in August.

I think the danger is they will say goodbye too early to companies that have performed and that still have a lot of firepower to continue performing.

If you look, for example, at the three corporate results just prior to this interview, Champion Iron ((CIA)) and Rio Tinto ((RIO)), two commodities companies, two iron ore producers, two disappointments.

Both share prices went down. Both share prices have not performed over the year past.

We also had ResMed ((RMD)) reaching an all-time high, and it comes out with a result better than expected. Share price up.

I think there's a lesson here for investors. Don't say too early to companies that have performed that this is the end of the road, and don't think too easily that those who are lagging that their time has come to perform now.

August might just be too early for that.

Rudi's View | Aug 07 2025

In today's edition:

-August Updates Are A-Comin'
-The Era Of Polarisation
-Morgan Stanley's Hot Favourites For August
-Attention Returns To AI Infrastructure
-FNArena Talks
-Review All-Weather Model Portfolio
-Best Buys & Conviction Calls

By Rudi Filapek-Vandyck

August Updates Are A-Comin'

The Australian corporate results season has officially started but, as per unofficial tradition, the pace of corporate releases remains rather glacial this early in the month.

By week's end FNArena's Corporate Results Monitor will only list some 18 companies, not more than a drop in the ocean given that number will be around 385 or so by early September, but that's just how this cookie crumbles in Australia nowadays.

Are there any conclusions that could possibly be drawn this early?

Nah. But we do note the REITs have been a positive contributor thus far, as anticipated by analysts covering the sector.

Plus all of ResMed ((RMD)), News Corp ((NWS)) and Credit Corp ((CCP)) managed to outperform forecasts while updates from REA Group ((REA)), AMP Ltd ((AMP)) and Pinnacle Investment Management ((PNI)) contained enough good news to keep the share price well-supported.

One might say the season has begun on a relative positive note, but let's not get overly excited just yet. There's literally a deluge in releases awaiting us over the coming three weeks (plus a bit).

By this time next week, the numbers will be a lot larger, but the bulk is reserved for the final two weeks of the month.

FNArena is keeping a close watch daily: https://fnarena.com/index.php/reporting_season/

The Era Of Polarisation

A timely reminder entered the inbox this week: it's not just share markets that are heavily polarised nowadays, the same observation applies to the economies underneath.

Economists at Oxford Economics shared the following observations about the US economy:

"The economy has slowed and is growing below its short-run potential, but this hasn’t altered the bifurcated nature of the consumer, business environment, and labor market. This leaves the economy more vulnerable and masks some of the fissures beneath the aggregate economic data.

"High-income consumers are doing well while lower-income households are struggling. Trade and fiscal policy will reinforce the bifurcated consumer. The net impact of tariffs and fiscal policy will reduce the lowest-income quintiles' real disposable income by 2.5%-3% while boosting the highest incomes by the same amount.

"As large businesses can weather tariffs better, they outperform small ones, reinforcing recent labor market weakness. Employment among small businesses, the backbone of the labor market, has barely budged and fundamentals remain unfavorable.

"It’s also a tale of two labor markets. It’s a good labor market for those with a job, but a challenging one for those who are unemployed or not in the labor force but want a job. The bifurcated labor market can change quickly if layoffs increase, a significant risk to the forecasts."

Rudi's View | Jul 23 2025

Ask FNArena

Tuesday, the 29th of July at 4.30pm.

Put it in your agenda to participate in FNArena's online Zoom meeting, featuring your Editor ready to answer your questions.

We welcome questions in advance though there will be opportunity to ask on the day and during the session, of course.

Keep an eye out for follow ups in Weekly Insights and Rudi's View stories.

Yes, there will be a video recording to view and listen afterwards.

Send your questions to Editor@fnarena.com

Extreme Bifurcation Ahead Of August

There was a time when 13.80% total return for the financial year would be welcomed by all and sundry as a pleasant outcome, but not so in mid-2025 when the strong rally in CommBank ((CBA)) shares has been responsible for 38% of those returns.

Prospects for CommBank and the broader bank sector in general have improved throughout the year, but only slightly so. As the share price rallied and kept on rising (up 22% in the June quarter alone) pushing the implied forward-looking dividend yield to a paltry 2.8%, many domestic shareholders have been selling their exposure.

The rise and rise of CommBank relative to the rest of the ASX200 (now weighing 12% of the index) has triggered lively debates among Australian investors, and still does.

Some investors have sold exposure and recycled the proceeds into other, cheaper-priced  major bank shares, but UBS for one doesn't think this will prove the best protection against CBA's coming back to earth - something that surely must happen at some point?

Whatever will pull back the CommBank share price is likely going to be a sector-wide impact, UBS suggested a few weeks ago. Meaning: it'll impact the rest of the sector too, in all likelihood.

Indeed, share prices in financials broadly, and in banks specifically, have performed well in FY25 with three major banks ending up in the Top Five of highest contributions for the index since mid last year.

CommBank shares simply outclassed everyone and everything with a total return of... wait for it... 49.8%, adding more than three times more to index gains than number two, Westpac ((WBC)).

As to whom is responsible, the second half of last year featured steady buying orders from superannuation funds while in 2025 large US institutions seeking shelter from potential US tariff impacts have compensated for local sellers.

For more background, investors might revisit some of FNArena's recent background stories and explanations:

https://fnarena.com/index.php/2025/07/18/in-brief-sks-technologies-banks-qpm-energy/

https://fnarena.com/index.php/2025/06/10/geopolitical-hedging-a-boon-for-commbank/

Rudi's View | Jul 17 2025

We was wrong.

It's the kind of phrase protagonists say in American movies and that makes viewers like myself squirm, but then again, apparently 'dove' instead of 'dived' is also permitted in the land of Kaiser Donald J.

Macquarie's latest strategy update on Australian equities, released earlier today on Thursday morning wouldn't use American colloquialisms, of course, but the strategists might have just as well, because that is the key over-riding message expressed to their clientele.

Up until today, Macquarie strategists have been warning about too much exuberance in equities, advocating a cautious and defensive portfolio set-up while expecting this year's runaway stock market train to come unstuck.

But it hasn't happened.

Today's mea culpa suggests the focus has been too much on PE expansion and the RBA holding out on rate cuts. Outside of Australia, central banks have been cutting rates at a pace nearly never witnessed outside of economic recession, and it is translating into growth resilience and momentum picking up.

Add a just as rare technology boom and this year's cocktail suggests the world is trending towards a better place, not one-way into malaise and struggles.

Better times ahead means the Model Portfolio was too defensively positioned. Macquarie strategists have responded by adding more exposure to Technology and AI, and less to bond proxies (bond yields might not weaken as much as earlier thought).

The following stocks have been added to the Model Portfolio:

-NextDC ((NXT))
-Seek ((SEK))
-Paladin Energy ((PDN))

These additions compliment the likes of Xero ((XRO)), Megaport ((MP1)) and Goodman Group ((GMG)).

For more cyclical exposure, the Portfolio now also owns Lovisa Holdings ((LOV)) and Web Travel Group ((WEB)). Also added has been Challenger ((CGF)) on anticipation of a more limited fall in bond yields.

Exposures that have been reduced: Transurban ((TCL)), GPT Group ((G:PT)) and James Hardie ((JHX)).

On the strategists' own assessment, if their revised outlook proves correct, Australian companies should see earnings upgrades in FY26.

That will be the logical litmus test, both for Macquarie's about-face and for current elevated PE ratios.

Global equity strategists at UBS remain on the lookout for downgrades to current growth forecasts, and for decelerating economic indicators while the Federal Reserve will only be ready to deliver its next rate cut in September.

UBS thus suggests equity markets might find the going a little more challenging, with the extra comment that any pullback larger than -5% would come as a surprise.

Weakness should still be treated as an opportunity to buy more shares, in UBS's view (being relatively relaxed about potential impacts from tariffs).

Investors have rightly learned to buy the dip, say the strategists, with US corporate profits still expected to grow (albeit more slowly), the AI theme still booming and USD weakness supporting nearly 25% of S&P500 revenues that are generated internationally.
 

Rudi's View | Jul 16 2025

Four and a half years after the final covid-driven societal lockdowns ended in NSW and Victoria, unforeseen consequences and impacts are still depressing share prices and forcing companies to temper expectations or --heaven forbid!-- issue a profit warning.

Companies still impacted today include Ansell ((ANN)), CSL ((CSL)), Dexus ((DXS)), and Sonic Healthcare ((SHL)).

Investors will be keeping a close watch during the upcoming August results season for any signals the era of covid shackles has definitively (and finally) passed for impacted sectors and companies.

The Recreational Boom

One company that has almost literally seen hell and heaven post 2020 is New Zealand-headquartered Tourism Holdings Rentals ((THL)).

With a market capitalisation of only $400m-plus, this company is a small cap, thus not on every investors' radar, but that hasn't stopped management at the wheel from building the world's largest rental business for campervans and other recreational vehicles.

At first, closing borders and locking down societies threatened its corporate survival only to see an outbreak in sales occurring once countries re-opened, but the past two years have yet again put the share price under pressure as sales have plateaued.

In more recent times, management had been forced to issue a profit warning for the running financial year, which pushed the share price to a post-covid low, but shareholders might be relieved a consortium of BGH Capital (private equity) and the Trouchet family (founders of Apollo Motorhome Holidays) is interested in acquiring the company in full.

One of the seemingly lasting effects from the covid pandemic is a greater desire to travel and holiday locally, surrounded by Mother Nature. Sales for recreational vehicles are still booming, but so forceful was the initial jump in post-lockdown sales that growth in the subsequent years has been rather tepid in percentage terms.

For management at New Zealand's largest tourism operator this has proved too much of a challenge to overcome. On current forecasts, earnings per share next year (FY26) will still not match the company's all-time record booked in FY23.

And that is a problem for a share market looking for growth during a time when smaller cap companies are not exactly in high demand.

Changes In People's Priorities

Recent surveys into changing consumer habits around the world are revealing a glaring discrepancy between consumer sentiment, which tends to be more cautious if not negative, and household spending, which is holding up amidst numerous challenges.

Consumers are looking for bargains and trading down, but only for selected non-priorities. They can be seen splurging elsewhere on luxury, holidays and personal experiences.

In Australia, despite the RBA lowering the cash rate twice already this year, and signalling there will likely be more cuts forthcoming (just not this month), consumer spending remains the weakest link for the domestic economy.

Investors would have noticed through subdued and expectations tempering market updates from retailers such as Accent Group ((AX1)), KMD Brands ((KMD)), Myer ((MYR)), and Super Retail ((SUL)).

There's also anecdotal evidence those with a mortgage prefer to keep paying their financial institution rather than use rate relief for expenses elsewhere. Have populations become more risk-conscious? Or are we reading too much into this during a time when inflation spiked and caused havoc for many a household budget?

Rudi's View | Jul 10 2025

(See also FNArena Talks and Ask FNArena further below).

By Rudi Filapek-Vandyck, Editor

Market strategists at Goldman Sachs are preparing their clientele for a different cycle ahead. Don't worry, if their research is correct, investors still have circa two years to amend current strategy and portfolio composition.

The next economic cycle, on Goldman Sachs' assessment, will be characterised by higher inflation, elevated interest rates and heightened macroeconomic volatility, driven by six key factors which are captured through the acronym of 'Change'.

Change stands for Climate transition, High level of debt, Ageing demographics, New finance, Global fragmentation, andEvolving technology.

Shorter term, it is the strategists' view high valuations, trade uncertainty and geopolitical concerns warrant a more cautious asset allocation until year end. Goldman Sachs is neutral on equities, underweight credit and overweight rates (bonds) for the time being.

Given heightened policy risk in the US, the forecast is for continued outperformance of Developed Markets ex-US equities. The US dollar is expected to weaken. Small caps globally (outside of the US) are in focus.

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One place where expectations for a revival of the global mining sector remains alive and kicking is at RBC Capital Markets, headquartered in Canada, itself one of the world's commodity power houses, albeit with more of an energy skew than is the case for Australia.

Mining analysts at RBC are keeping an Overweight portfolio allocation for base metals, precious metals and uranium, and a Market Weight allocation for diversifieds and bulk miners, as well as for fertilisers.

Their selection of Global Mining Best Ideas also includes several ASX-listed stocks:

-Bellevue Gold ((BGL))
-Capstone Copper ((CSC))
-Champion Iron Ore ((CIA))
-Firefly Metals ((FFM))
-NextGen Energy ((NXG))
-Pilbara Minerals ((PLS))
-South32 ((S32))
-Westgold Resources ((WGX))

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Zooming in on the local gold sector, Bell Potter's latest sector update suggests the best value opportunities are with developers and explorers, with the report specifically highlighting Santana Minerals ((SMI)) and Minerals 260 ((MI6)).

Chalice Mining ((CHN)) is equally Buy-rated by the broker.