In Brief: House Prices, Employee Unrest & Best Stock Ideas

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Weekly Broker Wrap, In Brief: House prices; employee unrest; fund managers preferred stocks broker’s best ideas.

– The outlook for house prices 
– Employee dissatisfaction 
– Fund managers preferred stocks
– Morgans best stocks
– Morningstar’s best stocks
 

By Mark Woodruff

The outlook for house prices

Jarden downgrades its 2022 forecast for house price growth to 5% from 7%. This comes as November dwelling price growth rose 1.3% month-on-month, down from the prior months reading of 1.5% growth.

This slowing of housing growth has potentially negative implications for the banking sector. The broker previously had an above-consensus housing credit forecast though some offset is provided by increased confidence around business credit.

Willingness to borrow may fall after major banks have hiked fixed home loan rates by 50-70 basis points since September, explains Jarden. While the RBA doesn’t expect to hike rates before 2024, it’s thought lending and house prices may moderate if households begin to expect higher rates. 

Already, the analyst points to cracks starting to appear in the housing recovery, with affordability, sentiment and concerns around higher rates all weighing on the market. 

Jarden expects rate hikes from May 2023 and a likely low single digits softening in house prices. The key risks for the housing market remain higher rates and more aggressive macroprudential tightening from APRA. The latter risk would be somewhat tempered by moderating price growth, explains the broker.

Employee dissatisfaction 

A survey of more than 500 small to medium enterprises (SMEs) has found one in four are already experiencing a higher than usual staff turnover in the wake of covid.

The new data from financial services firm Findex shows 53% of SMEs are concerned about their ability to retain staff over the next twelve months, while one third have noticed a drop in employee satisfaction.

Maybe this employee dissatisfaction stems from a general lack of consultation. 

According to Jane Betts, Chief People Officer at Findex, “managers and leaders need to tap into what their employees want, as it’s clear there’s a big disconnect”. 

The disconnect is highlighted by survey figures revealing 50% of businesses have no plans to discuss with their teams a preferred working-from-home-model. Moreover, around two thirds want staff to return to the office for most of the working week, while at the same time acknowledging only about one third of staff want a return to pre-covid working conditions.

Having come so far in the digital transformation, it seems small businesses still envisage a return to pre-pandemic times and regard any business model changes as temporary. Around one third of respondents to the survey said they would have a modified business model, while only 2% said they would have an entirely new business model adapted during the pandemic.

Fund managers preferred stocks

JP Morgan has reviewed favoured holding of shares by fund managers in October, which the broker terms the Love Index. 

With the aim of getting a read on consensus positioning, the broker collects data from 41 funds which together represent a meaningful proportion of assets under management in Australia.

As a general statement, JP Morgans points to a swing away from Cyclical  exposures toward Defensives over the last few months. Most of the flows have been directed towards Communication Services. 

This trend continued in October. Despite a drop in both Healthcare and Utilities exposures, an uplift in Communication Services drove up overall holdings of Defensives. While Telstra ((TLS)) had a slight fall back in holdings during the month, the company has experienced a large upweight since late last year, according to JP Morgan.

Meanwhile, Cyclicals continued a slide in October. This was demonstrated in part by the reduced proportion of both Brambles (BXB) and Qantas Airways ((QAN)) appearing in the top holdings of fund managers.

In a boost for Discretionary holdings overall, five funds added Aristocrat Leisure ((AlLL)) to their portfolios in October. The Discretionary category now comprises 10% of all stocks disclosed by fund managers.

Finally, two funds added Newcrest Mining ((NCM)) to their top holdings in October, and as a result, the company moved into the “well held” category of the Love Index. However, the manager universe scaled-back holdings in both BHP Group ((BHP))  and Rio Tinto ((RIO)), placing the companies at two-year lows in terms of proportion of top holdings held by the fund managers.
 

Morgans Best Ideas

Market strategists at Morgans have amended their Best Ideas list, which is based on the highest expected risk-adjusted returns over a 12-month timeframe, while also supported by an above-average level of confidence.

Additions include Technology One ((TNE)), Namoi Cotton ((NAM)), HealthCo Healthcare & Wellness REIT ((HCW)) and People Infrastructure ((PPE)), while Beacon Lighting ((BLX)), GrainCorp ((GNC)) and Kina Securities ((KSL)) have been omitted.

The entire list comprises 46 ASX-listed companies is as follows:

Acrow Formwork and Construction Services ((ACF))

Alliance Aviation Services ((AQZ))

Ansell ((ANN))

Atlas Arteria ((ALX))

BHP Group 

Booktopia Group ((BKG))

Corporate Travel Management ((CTD))

Dalrymple Bay Infrastructure ((DBI))

Dexus Convenience Retail REIT ((DXC))

Eagers Automotive ((APE))

Endeavour Group ((EDV))

Frontier Digital Ventures ((FDV))

HealthCo Healthcare & Wellness REIT 

HomeCo Daily Needs REIT ((HDN))

Hotel Property Investments ((HPI))

HUB24 ((HUB))

Incitec Pivot ((IPL))

Karoon Energy ((KAR))

Lovisa Holdings ((LOV))

Mach7 Technologies ((M7T))

Macquarie Group ((MQG))

MoneyMe ((MME))

Namoi Cotton 

NextDC ((NXT))

Nufarm ((NUF))

Panoramic Resources ((PAN))

People Infrastructure 

PTB Group ((PTB))

QBE Insurance Group ((QBE))

Ramelius Resources ((RMS))

Reliance Worldwide Corp ((RWC))

ResMed Inc ((RMD))

Santos ((STO))

Sonic Healthcare ((SHL))

Tabcorp Holdings ((TAH))

Technology One 

TPG Telecom Ltd ((TPG))

Transurban Group ((TCL))

Treasury Wine Estates ((TWE))

Tyro Payments ((TYR))

Universal Store Holdings ((UNI))

Volpara Health Technologies ((VHT))

Waypoint REIT ((WPR))

Whitehaven Coal ((WHC))

Woodside Petroleum ((WPL))

Morningstar’s best ideas

Since last month, Morningstar has added Westpac ((WBC)) and removed APA Group ((APA)) from its list of Best Stock Ideas.

The aim of the Best Stock Ideas is to highlight high-quality Australian and New Zealand companies, which are currently trading at discounts to Morningstar’s assessed fair values.

Morningstar likes Westpac for funding cost advantages that should allow the bank to reprice loans and generate better margins as the cash rate is increased.  On the other hand, APA Group was removed from the Best Stock Ideas after the price rallied back to fair value in November on signs that management would no longer pursue an acquisition of AusNet Services ((AST)).

The list of 16 companies from Morningstar, narrowed down from a coverage of nearly 200 stocks, is as follows:

The a2 Milk Co ((A2M))

AGL Energy ((AGL))

AUB Group ((AUB))

Aurizon Holdings ((AZJ))

Brambles 

Cimic Group ((CIM))

G8 Education ((GEM))

InvoCare ((IVC))

Lendlease Group ((LLC))

Link Administration Holdings ((LNK))

Magellan Financial Group ((MFG))

Southern Cross Media Group ((SXL))

Viva Energy Group ((VEA))

Westpac Bank

Whitehaven Coal ((WHC))

Woodside Petroleum 

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