Rudi’s View: CSL, ResMed, Domino’s Pizza, Helloworld, Iress and Liontown

This story features CSL LIMITED, and other companies. For more info SHARE ANALYSIS: CSL

In this week's Weekly Insights:

-Best Ideas & Conviction Calls
-ResMed Talks
-Predicting The Next Index Rebalances

By Rudi Filapek-Vandyck, Editor

Alas, on Monday unforeseen circumstances limited my time available and I had to restrict this week's Weekly Insights to a Round Up of Best Ideas and Conviction Calls.

Despite the Middle East turning into open warfare yet again, the underlying outlook for riskier assets depends on how far the bear market in global bonds will stretch itself.

More specifically: how much farther will/can bond yields rise before we see casualties rising?

What is ready to "pop" this time? Chinese property? Unlisted REITs in Europe? Commercial property in the US? Which economy will be the first to crack?

No need to panic, we can rest assured central banks around the world are all too aware of the growing pains, but in the same vein it's probably best not to ignore the pressures that are building either.

More next week, hopefully. Meanwhile: staying nimble and having some cash on the sideline seems but a sensible position to be in.

Best Ideas & Conviction Calls

One way of using market volatility to one's benefit, short term or otherwise, is through specific events that can act as a catalyst for share prices that aren't necessarily moving in 2023.

Stockbroker Morgans identified no less than 31 ASX-listed companies that might just fit the bill. Included are possibly "material upcoming catalysts" in names already present in Morgans' list of Best Ideas or in one of the broker's Model Portfolios; CSL ((CSL)), ResMed ((RMD)), Corporate Travel Management ((CTD)), Helloworld Travel ((HLO)), Aristocrat Leisure ((ALL)), Domino's Pizza ((DMP)), and Hub24 ((HUB)).

Morgans also sees opportunity potential in case the next event causes a sell-off in shares of Iress ((IRE)), Cromwell Property Group ((CMW)), Whitehaven Coal ((WHC)), and Liontown Resources ((LTR)).

Most of the (potential) catalysts on the horizon for the weeks ahead revolve around AGMs (with operational updates and/or forward guidance), quarterly trading updates, investor days and M&A.

The lionshare of events are identified as potentially positive, such as the inaugural capital markets day on October 16 organised by CSL, and the quarterly trading update by ResMed. Tyro Payments ((TYR)) is another company in an upgrade cycle, according to the broker, that is organising an investor day on October 18.

The travel and tourism industry is still enjoying strong momentum so all of Tourism Holdings ((THL)), Helloworld, Corporate Travel, Webjet ((WEB)), and Flight Centre ((FLT)) are listed for a positive event, possibly.

The negative watchlist is much smaller, nominating Origin Energy ((ORG)) because ACCC uncertainty remains regarding its proposed acquisition, while JB Hi-Fi's ((JBH)) AGM address might disappoint, as well as Cromwell's (sale of Polish assets?). The broker is sceptical about Xero's ((XRO)) progress in the US market, and thus suggests the upcoming interim report might turn into a negative event for the shares.

All of Iress, Whitehaven Coal and Liontown Resources are equally on negative watch. Iress because of potential for more disappointment from Xplan, Whitehaven because buying BHP assets can shrink dividends available for shareholders, and Albemarle can still decide not to proceed with its takeover of Liontown, now that Gina Rinehart's Hancock Prospecting has built up a blocking stake in the target.

FNArena's calender will keep you updated for those catalysts, and more: https://www.fnarena.com/index.php/financial-news/calendar/

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Morningstar's selection of Best Stock Ideas no longer includes Bapcor ((BAP)), still considered undervalued but the stockpickers see more compelling opportunities elsewhere. One of such is Domino's Pizza ((DMP)) which has been added to the list instead.

The other 12 Best Ideas are ASX ((ASX)), a2 Milk ((A2M)), Aurizon Holdings ((AZJ)), Fineos Corp ((FCL)), Kogan ((KGN)), Lendlease Group ((LLC)), Newcrest Mining ((NCM)), ResMed, Santos ((STO)), TPG Telecom ((TPG)), Ventia Services Group ((VNT)), and Westpac Banking ((WBC)).

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Morgan Stanley analysts of Emerging Companies in Australia (small caps) have now communicated all their favourite picks post August results. The six nominations are:

-Lovisa Holdings ((LOV))
-IPH Ltd ((IPH))
-Life360 ((360))
-Propel Funeral Partners ((PFP))
-Dicker Data ((DDR))
-Eagers Automotive ((APE))

The half a dozen has been complemented with two "honourable mentions' in The Reject Shop ((TRS)) and Tuas Ltd ((TUA)).

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Assuming higher-for-longer is now the all-important, dominant theme for bond markets, and will remain in place for longer, UBS strategists have lined up their sector preferences.

Among Financials, UBS sees positive momentum for ANZ Bank ((ANZ)), QBE Insurance ((QBE)) and Computershare ((CPU)) while the likes of National Australia Bank ((NAB)) and Perpetual ((PPT)) might find themselves among the sector victims.

In TMT (tech, media and telecom) UBS's preference lays with Wisetech Global ((WTC)) and Xero, but not with Dicker Data, Domain Holdings Australia ((DHG)) or TPG Telecom.

Real Estate winners have been identified as Goodman Group ((GMG)) and Mirvac Group ((MGR)) while negative implications rule over the likes of Charter Hall ((CHC)) and Charter Hall Long WALE REIT ((CLW)).

Among Industrials, UBS's preference goes to Cleanaway Waste Management ((CWY)), James Hardie ((JHX)), and Orica ((ORI)) with potential negative implications for Adbri ((ABC)), CSR ((CSR)), and Downer EDI ((DOW)).

For Consumer stocks and retailers, Coles Group ((COL)) and Woolworths Group ((WOW)) are most preferred, with Domino's Pizza and Harvey Norman ((HVN)) on the opposite side of the ledger.

In Infrastructure: only one preference; Transurban ((TCL)) while higher bond yields should be a net negative for APA Group ((APA)).

In Resources, only one preference; Coronado Global Resources ((CRN)) and two victims; De Grey Mining ((DEG)) and Regis Resources ((RRL)) – both gold producers, go figure!

The Food & Agriculture sector offers three potential winners; Inghams Group ((ING)), GrainCorp ((GNC)), and Ridley Corp ((RIC)). Two potential victims are Bega Cheese ((BGA)) and Select Harvests ((SHV)).

The local Transport sector generates one idea on each side: Kelsian Group ((KLS)) for a potential winner and Qantas Airways ((QAN)) as likely loser with travel spending to suffer under a higher-for-longer interest burden for consumers.

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A reminder: the aforementioned stockbroker Morgans regularly lines up its Best ideas on the ASX and that basket currently consists of 35 companies, mostly large caps a la CommBank ((CBA)), Macquarie Group ((MQG)), Wesfarmers ((WES)), Mineral Resources ((MIN)), Pilbara Minerals ((PLS)), and South32 ((S32)).

Only a small group of mid-cappers makes the list: GQG Partners ((GQG)), WH Soul Pattinson ((SOL)), NextDC ((NXT)), and a2 Milk.

The number of small cap names is relatively large: Accent Group ((AX1)), Acrow Formwork and Construction Services ((ACF)), Dalrymple Bay Infrastructure ((DBI)), Karoon Energy ((KAR)), Lovisa Holdings, Tyro Payments, Mach7 Technologies ((M7T)), Tourism Holdings, Objective Corp ((OCL)), Inghams Group, Corporate Travel Management, Flight Centre, Helloworld, Dexus Industria REIT ((DXI)), and HomeCo Daily Needs REIT ((HDN)).

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Model Portfolio managers at Macquarie have decided to add more risk as being overly defensive has only led to relative underperformance over the year past.

Macquarie is now of the view the arrival of economic recession might take a while yet, though the best of risk-on positioning is probably equally in the past.

One thing that hasn't changed is the Portfolio's preference for healthcare stocks. Macquarie has decided to increase exposure to CSL, while adding ResMed and sell out of Ramsay Health Care ((RHC)) and Healius ((HLS)).

Other stocks added are AUB Group ((AUB)), Pexa Group, and Bapcor. The Portfolio sold out of Ramsay Health Care, Steadfast Group, and Healius.

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Wilsons' Focus Portfolio increased its exposure to Collins Foods ((CKF)) in September, with lighter holdings in James Hardie and Telstra ((TLS)) facilitating the change.

In general terms, the Portfolio continues to like resilient businesses that do not suffer from weakening economic momentum, which is also why cyclicals remain underweighted, but mining is kept on Overweight as leverage to a potential China surprise.

Consumer Services, Healthcare and Battery Materials are the Porfolio's three largest sector weightings. Staples, Iron Ore and Consumer Goods are the three largest underweights. Banks are underweighted.

ResMed Talks

Q1 financial reports are traditionally nothing special for dual-listed ResMed, while the numbers inside the market release are virtually never representative for what should be expected from the rest of the financial year.

But 2023 is not shaping up as anything "normal" for the global number one medical device manufacturer aimed at tackling sleep apnoea.

Beyond the Q1 release, scheduled for Friday October 27th, Australian time, shareholders can also sign up to a live webcast of the AGM on Friday, November 17.

www.virtualshareholdermeeting.com/RMD2023

Predicting The Next Index Rebalances

Friday December 1st will see Standard & Poor's announce the next set of index changes in Australia, to be implemented on Friday the 15th, after the close of trading.

It's early days still, but analysts at Wilsons have already communicated their predictions.

As things stand, the ASX200 is likely to lose ("strong removal candidates") Cromwell Property, Growthpoint Properties Australia ((GOZ)) and Link Administration ((LNK)). In addition, five other names may well disappear before then through M&A.

Assuming Newcrest Mining ((NCM)) will be gobbled up by Newmont, Wilsons sees Pro Medicus ((PME)) as the logical candidate to join the local Top100, while Wisetech Global should join the ASX50, and QBE Insurance might be the candidate for a replacement in the ASX20.

Ten stocks considered in the running to join the ASX200 are:

-Boss Energy ((BOE))
-Emerald Resources ((EMR))
-Codan ((CDA))
-Helia Group ((HLI))
-Smartgroup Corp ((SIQ))
-APM Human Services International ((APM))
-Strike Energy ((STX))
-McMillan Shakespeare ((MMS))
-Light & Wonder ((LNW))

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(This story was written on Monday, 9th October, 2023. It was published on the day in the form of an email to paying subscribers, and again on Wednesday as a story on the website).

(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. All views are mine and not by association FNArena's – see disclaimer on the website.

In addition, since FNArena runs a Model Portfolio based upon my research on All-Weather Performers it is more than likely that stocks mentioned are included in this Model Portfolio. For all questions about this: contact us via the direct messaging system on the website).

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