Rudi’s View: Domino’s Pizza, Newcrest & Qantas

This story features WOODSIDE ENERGY GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: WDS

A roundup on Model Portfolio changes, investment strategies, Best Ideas and favourite equity exposures.

By Rudi Filapek-Vandyck, Editor

Model Portfolios at stockbroker Morgans have been making slight adjustments as the February reporting season drew to an end.

Exposure to Woodside Petroleum ((WDS)) inside the Core Model Portfolio was scaled back in favour of more shares in Santos ((STO)). More shares were bought in Sonic Healthcare ((SHL)) and in HomeCo Daily Needs REIT ((HDN)).

Worth mentioning: Morgans thought Computershare's ((CPU)) interim result last month disappointing, in particular the underlying core business. The Core Model Portfolio has solely kept its exposure as a quasi-insurance against a longer than anticipated rate hiking cycle, but is now actively on the look-out for better ideas for which the shares will act as a funding source.

Morgans' Growth Model Portfolio has copied the rebalancing between Woodside and Santos, while adding shares in Ventia Services Group ((VNT)) and reducing exposure to Eagers Automotive ((APE)) and Domino's Pizza ((DMP)). The latter action had been taken prior to the release of disappointing financials. The broker's commentary post H1 result is that "faith has been shaken".

Morgans main conclusion from the February results season is that the outlook for discretionary retailers in Australia won't be as bad as the more bearish forecasts expressed elsewhere, with the top three sector favourites consisting of Lovisa Holdings ((LOV)), Super Retail Group ((SUL)) and Universal Store Holdings ((UNI)).

****

The All-Cap Model Portfolio at Credit Suisse has decided to reduce exposure to GUD Holdings ((GUD)) and lift exposure to Rio Tinto ((RIO)).

This Model Portfolio likes its key holdings of defensives through shares in Coles Group ((COL)), Telstra ((TLS)), CSL ((CSL)) and Blackmores ((BKL)) which Credit Suisse believes all share similar correlation characteristics. More defensive characteristics are seen in gold companies Perseus Mining ((PRU)) and Regis Resources ((RRL)), plus some long-duration assets via Transurban Group ((TCL)) and APA Group ((APA)).

All in all, Credit Suisse's strategy is built around a solid core of defensives complemented with opportunistic growth plays, which also includes increased exposure to metals and mining.

Key contributors to the portfolio outperforming in February included Hub24 ((HUB)), Fortescue Metals ((FMG)), Seven Group Holdings ((SVW)), Aristocrat Leisure ((ALL)), and Brambles ((BXB)).

****

Judging from the latest strategy update by Morgan Stanley, released while the world is fearing more negative news from banks globally, this team of equity portfolio strategists is preferring a more cautious approach.

Morgan Stanley does advocate an Overweight positioning towards Resources, together with Overweight exposures to healthcare and A-REITs. Underweight positions are reserved for Australian banks, consumer-related stocks, and companies linked to the housing sector.

Here the best performing exposures year-to-date are Newcrest Mining ((NCM)), The Lottery Corp ((TLC)), James Hardie ((JHX)) and Goodman Group ((GMG)). Having an Underweight exposure to CommBank ((CBA)) has been beneficial too.

Exposures that have dragged on the portfolio's performance to date include Domino's Pizza, Sonic Healthcare and Treasury Wine Estates ((TWE)).

Both Morgan Stanley and Credit Suisse found the February results season rather disappointing. Both are anticipating market forecasts remain too high and thus more cuts should be expected. Exposure to Resources is predominantly based on China generating positive momentum for the sector.

It is the link to China that has kept Evans and Partners on a slight Overweight allocation to Australian shares, but this broker declared this week its confidence had been eroded by a particularly weak results season in February.

Within this context, I note UBS's core forecast remains for the S&P500 EPS to retreat by -10% in 2023, and for the index to end the calendar year near 3900 as the EPS is projected to improve from this year's US$198 to US$215 in 2024.

****

Ahead of the latest bank sector inspired market conniptions, strategists at Wilsons tended to be relatively confident in a positive trajectory for equity markets throughout 2023. It remains to be seen whether they might pare back some of that confidence; we suspect not.

Wilsons' best ideas among ASX-listed equities are Mineral Resources ((MIN)), ResMed ((RMD)), Netwealth Group ((NWL)), IDP Education ((IEL)), and Goodman Group.

The strategists also highlight one speculative idea: Immutep ((IMM)).

****

Macquarie's team of TMT analysts (that's Technology, Media and Telecommunication in case you missed the Y2K period of the late 1990s) remains of the view it is still too early to jump on companies with a cyclical bend. The preference thus remains with defensive earnings and structural growth (think megatrends).

Macquarie's TMT favourites currently are Telstra, IDP Education, Carsales ((CAR)) and NextDC ((NXT)).

****

Post February, portfolio recommendations at Evans and Partners have seen a number of changes, mostly because inhouse strategists were anticipating better entry points lay ahead. That probably has proved the correct assumption, and a lot quicker than what was likely envisaged.

Disappeared from the recommended list: Woolworths ((WOW)), Treasury Wine, and Waypoint REIT ((WPR)).

Evans and Partners' base case forecast is for the domestic economy to narrowly avoid a recession, but the earnings environment will become (a lot) more challenging for Australian companies.

For Quality companies, investors are now guided towards: Brambles, CSL, Macquarie Group ((MQG)) and Rio Tinto.

Favourite Growth companies are: Carsales, NextDC, and Xero ((XRO)).

Most preferred Yield opportunities: APA Group, HomeCo Daily Needs REIT, Telstra, and Wesfarmers ((WES)).

Recommended tactical opportunities remain in Flight Centre ((FLT)), Qantas Airways ((QAN)), and Woodside Energy.

****

Still interested in jumping on the gold bandwagon?

Canaccord Genuity's favourites among producers are Capricorn Metals ((CMM)), Northern Star ((NST)), Perseus Mining, and Resolute Mining ((RSG)). Among developers, the broker highlights Bellevue Gold ((BLG)), De Grey Mining ((DEG)), Orecorp ((ORR)), and Predictive Discovery ((PDI)).

Peers at UBS prefer Gold Road Resources ((GOR)), SSR Mining ((SSR)), and Northern Star ((NST)).

Analysts at Morgan Stanley have selected Evolution Mining ((EVN)) and Newcrest Mining; they remain cautious on Regis Resources ((RRL)) due to potential disappointment from DNO.

****

From T Rowe Price's latest strategy update:

"The combination of a weak earning outlook and fair valuation support a neutral view. While a China rebound could soften the expected economic slowdown, the housing market and domestic consumption are poised to negative surprises in the coming months."

Three negative thoughts post February:

-Consumer spending is at risk of mortgages being reset throughout 2023
-Latest earning results highlight concerns on margins going forward
-The RBA is more hawkish than what the health of the economy may be able to handle

T Rowe Price is Overweight cash and Underweight both equities (Neutral in Australia) and bonds.

Post February Favourites & Duds

Analysts at Goldman Sachs are more positive on a number of ASX-listed companies than is market consensus post the February reporting season.

If Goldman Sachs is correct, each of those is offering opportunity for investors, in particular since share prices in general are in decline in March, inspired by general risk-off rather than company-specific triggers.

Stocks identified are:

-REA Group ((REA))
-Qantas Airways
-Lifestyle Communities ((LIC))
-ReadyTech Holdings ((RDY))
-Jumbo Interactive ((JIN))
-Universal Store Holdings
-Judo Capital Holdings ((JDO))
-James Hardie

Goldman Sachs is more negative than consensus on the outlook for:

-a2 Milk ((A2M))
-Bega Cheese ((BGA))

****

Analysts at Morgan Stanley have equally started to highlight their favourites (with conviction!) post the February season. Morgan Stanley prefers the daily drip method, whereby one opportunity is highlighted each day.

Up until today five companies have been highlighted:

-Eclipx Group ((ECX))
-Tuas ((TUA))
-Propel Funeral Partners ((PFP))
-Data#3 ((DTL))
-Corporate Travel Management ((CTD))

****

Worth mentioning: the two companies most severely hit and included in FNArena's Monitor for the February results season are upcoming software and hardware developer Atomos ((AMS)) and services provider to the wealth management industry, Bravura Solutions ((BVS)).

Atomos was forced to call in the administrators, having suffered larger-than-expected losses, while Bravura's beacon was saved through a highly dilutive capital raising. In both cases, the operational performance was much worse than market forecasts.

Regarding Bravura, Goldman Sachs ceased coverage post cap raising, while Jarden questions the realistic prospects for earnings recovery and has downgraded to Neutral from Buy while slashing its price target to 35c from a prior $1.01. EPS forecasts have been reduced by -100% and -70% respectively for FY23 and FY24.

(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.)  

P.S. I – All paying members at FNArena are being reminded they can set an email alert for my Rudi's View stories. Go to My Alerts (top bar of the website) and tick the box in front of 'Rudi's View'. You will receive an email alert every time a new Rudi's View story has been published on the website. 

P.S. II – If you are reading this story through a third party distribution channel and you cannot see charts included, we apologise, but technical limitations are to blame.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.

FNArena is proud about its track record and past achievements: Ten Years On

Click to view our Glossary of Financial Terms