Rudi’s View: Telix, Telstra, Treasury Wine & More

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By Rudi Filapek-Vandyck

Less than two weeks out from February, when most companies listed on the local exchange will release financial results, analysts and market strategists have updated their conviction ideas for the year ahead. Below are some of the recent updates.

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UBS's recent strategy update carries the title From Stagflation to Disinflation. UBS strategists believe successful investing in 2023 will centre around identifying which companies can still grow when economies are decelerating or temporarily suffer from negative growth.

UBS has lifted its year-end price target for the ASX200 to 7500. While this is up from a prior 7250, as the index is trading close to 7400 already the upgraded target still suggests not much is on offer in terms of sustainable net gains, at least not at the index level.

UBS strategists' focus has therefore shifted to companies that can lift their dividends through the cycle. Three characteristics to look out for are: consistent revenue growth, lack of cyclicality, and a competitive advantage. Not surprising, also, UBS has reduced exposure to cyclical companies on the ASX.

On the broker's analysis, Infrastructure, Utility and Financial stocks have been most consistent in lifting annual dividend payments over the last 20 years. UBS has upgraded Infrastructure and utilities sectors to Overweight, joined by insurance, while mining companies have been downgraded to Neutral. Property-linked sectors remain key underweights. Energy remains an Overweight, as is Technology.

UBS is of the view that rising bond yields have had their impact throughout 2022. This impact is now running thin in 2023. Hence why so-called long duration companies are back on the menu. This also explains the Overweight for Tech stocks. UBS is still not a fan of healthcare or building materials.

When it comes to dividend growth reliability in Australia, the banks only come third on the broker's analysis, beaten by infrastructure and utilities, with packaging (thanks to Amcor ((AMC)), no doubt) the most reliable sector. Staples retailers and insurers are sectors four and five, respectively, on the dividend-growing reliability ladder.

At the other end, there is one sector that historically has proven even worse than chemicals, energy and mining companies; old media.

At the individual stock level, BHP Group ((BHP)) has been removed (downgrade to Sell) and replaced with South32 ((S32)) because of the former spin-off's more defensive commodity mix. Suncorp ((SUN)) has been added, while recent outperformance by Super Retail ((SUL)) now sees that stock removed.

Putting it all together, the broker's list of Most Preferred stocks on the ASX now comprises of:

Among resources:
-IGO ((IGO))
-Orica ((ORI))
-Santos ((STO))
-South32

Among financials:
-ANZ Bank ((ANZ))
-Netwealth Group ((NWL))
-QBE Insurance ((QBE))
-Steadfast Group ((SDF))
-Suncorp

Among industrials:
-Aristocrat Leisure ((ALL))
-Amcor
-IDP Education ((IEL))
-Qantas Airways
-Seek ((SEK))
-Seven Group ((SVW))
-Telstra ((TLS))
-Transurban ((TCL))
-Treasury Wine Estates ((TWE))
-Wesfarmers ((WES))
-Worley ((WOR))

UBS's selection of Least Preferred exposures (best to avoid) currently consists of:

-Bega Cheese ((BGA))
-Endeavour Group ((EDV))
-InvoCare ((IVC))
-National Australia Bank ((NAB))
-Pilbara Minerals ((PLS))
-Pinnacle Investment Management ((PNI))
-Vicinity Centres ((VCX))

Pinnacle and Vicinity Centres have just been added in replacement of Lifestyle Communities ((LIC)) and Magellan Financial ((MFG)) which are no longer included.

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Morgan Stanley's Australia Macro+ Focus List hasn't changed in composition since September last year when four of the ten inclusions were added.

Those four are: Domino's Pizza ((DMP)), IDP Education, Northern Star Resources ((NST)) and Treasury Wine Estates.

The other six consist of Aristocrat Leisure, CSL ((CSL)), Goodman Group ((GMG)), Macquarie Group ((MQG)), Telstra and Woodside Energy ((WDS)).

The average holding period is circa 8 months. Telstra is currently the longest held, having been added in May 2021.

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Over at Goldman Sachs, the Australia & New Zealand Conviction List has zero overlap with conviction calls at Morgan Stanley.

The ten ASX-listed stocks selected by Goldman Sachs are Elders ((ELD)), Fisher & Paykel Healthcare ((FPH)), Iluka Resources ((ILU)), Lifestyle Communities, NextDC ((NXT)), Omni Bridgeway ((OBL)), Qantas Airways ((QAN)), REA Group ((REA)), Webjet ((WEB)), Westpac ((WBC)) and Woolworths ((WOW)).

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Shaw and Partners is now also in the business of publishing selections for its Model Portfolio, including eight large cap (ASX100) favourites; James Hardie ((JHX)), Metcash ((MTS)), Qantas Airways, ResMed ((RMD)), Santos ((STO)), Telstra, Worley ((WOR)) and Xero ((XRO)).

Among smaller cap propositions ("emerging companies") Shaw has selected Audinate Group ((AD8)), Black Cat Syndicate ((BC8)), Boab Metals ((BML)), Calix ((CXL)), Catapult Group International ((CAT)), Hub24 ((HUB)) and Regal Partners ((RPL)).

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With the February local reporting season approaching, analysts are starting to look forward to what may or may not show up through market forecasts and financial results next month.

For Shaw and Partners this has been an opportunity to reiterate its positive view on Premier Investments ((PMV)) -"one of our top picks and re-iterate high conviction"- while Morgan Stanley analysts identified their number one stock to avoid: car parts distributor Bapcor ((BAP)).

Morgan Stanley anticipates FY23 for Bapcor will have a larger-than-usual skew to H2, which increases the risk for disappointment, but the analysts are equally cautious on management's transformation project and with market consensus assuming too many remaining tailwinds from covid lockdowns.

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Wilsons is not yet in full operational mode so its clientele has been receiving strategy updates originally put together in December. In it, Wilsons strategists express their caution on corporate earnings this year, while being optimistic on stock valuations.

Wilsons' favourite sector for the year ahead is healthcare (take that, UBS). Wilsons' Focus Portfolio has no less than 14% exposure to the sector through CSL, ResMed and Telix Pharmaceuticals ((TLX)).

This broker's top seven stocks for 2023 are:

-NextDC
-The Lottery Corp ((TLC))
-CSL
-ResMed
-Allkem ((AKE))
-Mineral Resources ((MIN))
-Lynas Rare Earths ((LYC))

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Bell Potter also released its stock picks for the year ahead in December. As all analysts at the firm get a say in this process, Bell Potter's selection tends to be plentiful:

Among Listed Investment Companies (LICs):
-L1 Long Short Fund ((LSF))
-MFF Capital Investments ((MFF))
-Regal Asian Investments ((RG8))

Agriculture and FMCG:
-Nufarm ((NUF))
-A2 Milk Company ((A2M))
-Synlait Milk ((SM1))

Technology
-Life360 ((360))
-ikeGPS Group ((IKE))
-Frontier Digital Ventures ((FDV))

Diversified Financials
-Perpetual ((PPT))
-Cedar Woods ((CWP))

Industrials
-IPD Group ((IPG))
-The Environmental Group ((EGL))
-DGL Group ((DGL))
-Cluey ((CLU))
-Ai-Media Technologies ((AIM))
-Droneshield ((DRO))

Retail
-Accent Group ((AX1))
-Propel Funeral Partners ((PFP))
-Best & less ((BST))

Healthcare
-Telix Pharmaceuticals
-Clarity Pharmaceuticals ((CU6))
-Mesoblast ((MSB))
-Aroa Biosurgery ((ARX))
-Cogstate ((CGS))
-Polynovo ((PNV))
-Immutep ((IMM))
-Monash IVF ((MVF))

Base Metals & Gold
-Chalice Mining ((CHN))
-De Grey Mining ((DEG))
-Nickel Industries ((NIC))

Energy
-Strike Energy ((STX))
-Boss Energy ((BOE))

Strategic Minerals
-Liontown Resources ((LTR))
-Red Dirt Metals ((RDT))
-Latin Resources ((LRS))
-Green Technology Metals ((GT1))
-Arafura Resources ((ARU))
-Dreadnought Resources ((DRE))
-Alpha HPA ((A4N))

Mining Services
-Mader Group ((MAD))
-DDH1 ((DDH))
Imdex ((IMD))

Best Wishes for the year ahead.

(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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