Rudi’s View: Aristocrat, BHP, Qantas & Westpac

This story features WOOLWORTHS GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: WOW

By Rudi Filapek-Vandyck, Editor FNArena

In the seemingly never-ending public debate, the world around, investment strategists at Canaccord Genuity are resolute in their assessment: equities might have proven more resilient than most expected, they remain in a bear market, and another period of weakness should be prepared for.

To illustrate the importance of making preparatory adjustments to portfolios and asset allocation, the strategists quote late US businessman, investor and diplomat Shelby Davis who's believed responsible for the adage that you make most of your money in bear markets; you just don't realise it at the time.

What Davis was alluding to specifically, explain the strategists, is that if you protect your capital in a difficult market, there is more left afterwards to compound into the future.

With this credo in mind, Canaccord Genuity has once again moved its Model Portfolio into Underweight equities alongside an Overweight allocation to fixed income.

As far as the portfolio's equities exposure is concerned, the emphasis had already been on "stable earnings" through holdings in the likes of Woolworths ((WOW)), The Lottery Corp ((TLC)) and CSL ((CSL)), combined with beneficiaries of the post-pandemic recovery such as Qantas Airways ((QAN)) and Computershare ((CPU)), while also keeping some exposure to the recovery in China through BHP Group ((BHP)) and Rio Tinto ((RIO)).

Some changes have been made with both Qantas and Computershare now replaced with Sonic Healthcare ((SHL)) and Wesfarmers ((WES)). The overall position in Resources has been scaled back to Neutral from Overweight, even though South32 ((S32)) was added to replace OZ Minerals, now part of BHP.

The Portfolio remains Underweight Australian banks.

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The reluctance to embrace equity markets' resilience thus far also dominates sentiment at Evans and Partners, where Portfolio Strategist Max Casey and Chief Investment Officer Tim Rocks have downgraded their allocation to the local share market to -2% Underweight, while shifting allocation to interest rate securities to 2% Overweight.

"We continue to advocate for clients to build positions within the fixed income asset class given attractive yields, reasonably priced valuations, and, in the case of floating rate instruments, embedded inflation protection."

Evans and Partners notes earnings forecasts are "negligible" out to 2025, with risks pointing to the downside, in particular for financials (banks) and, on a stalling China recovery, the materials sector. Both sectors make up some 52% of the local index, the strategists add.

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Adjustments were equally made to Morgan Stanley's Asia Pacific Ex-Japan Focus List. We spotted three Australian inclusions:

-Aristocrat Leisure ((ALL))
-CSL
-Evolution Mining ((EVN))

Some of the others include Alibaba Group, Bank Negara Indonesia, Kia Corp and Samsung Electronics.

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Over at Macquarie, strategists have been preaching defensive portfolio positioning for quite a long while. In their recent update, Macquarie strategists state an inverted yield curve and the conference board leading indicator have both a good track record of predicting economic recession for the US.

Now that we can add tightening credit, Macquarie's call for defensive positioning has simply gained (even) more resolve.

Bigger picture, Macquarie finds Australian equities look expensive with Price-Earnings (PE) ratios already reflecting a large fall in real yields, while the EPS growth outlook is flat and risks are pointing to the downside.

For the most recent Model Portfolio adjustments we have to go back to April when allocation to the local healthcare sector was increased, while exposures to late cycle cyclicals and "expensive defensives" were scaled back.

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In a separate research exercise, Macquarie analysts identify a number of ASX-listed companies that can be categorised as: High Quality stocks, cheaply priced, with low distress risk.

The list contains a dozen names:

-BHP Group
-CSR ((CSR))
-Ansell ((ANN))
-Woolworths
-Metcash ((MTS))
-Sonic Healthcare
-Insurance Australia Group ((IAG))
-JB Hi-Fi ((JBH))
-Orora ((ORA))
-Medibank Private ((MPL))
-Deterra Royalties ((DRR))
-The Lottery Corp

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Those responsible for the Conviction Buy List at Goldman Sachs have made no changes since April when, on two separate occasions, Macquarie Telecom ((MAQ)) and Aristocrat Leisure had been added to the list.

Since those adjustments were made, the list consists of 15 Buy-rated (with High Conviction) nominations. The other 13 are:

-Fisher & Paykel Healthcare ((FPH))
-Iluka Resources ((ILU))
-Lifestyle Communities ((LIC))
-Omni Bridgeway ((OBL))
-Qantas Airways
-Qualitas ((QAL))
-REA Group ((REA))
-Rio Tinto
-Temple & Webster Group ((TPW))
-Webjet ((WEB))
-Westpac ((WBC))
-Xero ((XRO))

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Morningstar's Best Stock Ideas now includes a2 Milk ((A2M)) with the May update of the selection also containing the following 12 New Zealand and Australian companies:

-AGL Energy ((AGL))
-Aurizon Holdings ((AZJ))
-Fineos Corp ((FCL))
-InvoCare ((IVC))
-Kogan.com ((KGN))
-Lendlease Group ((LLC))
-Newcrest Mining ((NCM))
-Santos ((STO))
-TPG Telecom ((TPG))
-Ventia Services Group ((VNT))
-Westpac
-WiseTech Global ((WTC))

Recent Updates On Conviction Calls and Best Ideas:

-https://www.fnarena.com/index.php/2023/04/19/rudis-view-bond-market-says-regime-change-is-upon-us/

–https://www.fnarena.com/index.php/2023/04/12/rudis-view-wesfarmers-wisetech-worley/

–https://www.fnarena.com/index.php/2023/03/17/rudis-view-dominos-pizza-newcrest-qantas/

–https://www.fnarena.com/index.php/2023/02/10/rudis-view-aub-group-endeavour-lottery-corp-suncorp/

–https://www.fnarena.com/index.php/2023/02/03/rudis-view-csl-mineral-resources-ridley-readytech/

(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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