Rudi’s View: How To Benefit From EOFY Selling

This story features LIONTOWN RESOURCES LIMITED, and other companies. For more info SHARE ANALYSIS: LTR

By Rudi Filapek-Vandyck, Editor

News flash: the end of financial year is approaching. Only four more weeks (approx) and FY24 tax preparations are back on the menu.

Us humans being ourselves, we do remain creatures of set habits, the above also means many among us will be having another look at our portfolio and decide it's time for a necessary clean-out.

Usually there are at least a few disappointments in there that our accountant tells us to sell, so he (she?) can lawfully reduce our tax bill for the year. And isn't it time to get rid of those mental blemishes anyway?

Quant analysts at Macquarie have tried to put a little bit of extra science behind trading patterns in the coming weeks so that, maybe, investors (and traders) can use the input to their short-term advantage.

It has been documented, and observed, on multiple occasions in the past that certain stocks will inevitably (predictably?) weaken in June, only to rally quite noticeably in July. Sometimes the difference in trend is made up by only a few days on each side of the June-July demarcation line.

So, assuming we'd like to play the end-of-financial-year schemozzle, what should investors be on the look-out for?

Macquarie's research has identified two types of stocks that are most likely to fall victim to EOFY-selling:

-stocks with low momentum that haven't worked out (those are relatively easy to recognise)
-high-risk, low quality stocks

While the first category is often pointed at, given a general portfolio clean-out usually involves the disappointments of the year past, the second category comes a bit as a surprise. Macquarie explains there tends to be a difference in general risk appetite among investors on each side of the June-July divide.

Leading into the FY24 finish line, investors tend to become more risk-averse as they draw conclusions for yet another year about to end, but come July our general focus, apparently, all-of-a-sudden stretches further out, and we are more willing, yet again, to take a longer-term view, and take on board more risk.

The fact those non-performing, higher-risk stocks are now trading at a cheaper price might also have something to do with it, maybe?

Long story short, Macquarie's effort is only the latest in a long conga line of research analysts who've identified an obvious, short-term trading opportunity for those keen to exploit fairly predictable buying and selling in the coming eight weeks or so.

Stocks that should, on Macquarie's assessment, experience selling pressure in June, include:

-Liontown Resources ((LTR))
-IGO Ltd ((IGO))
-Domino's Pizza Enterprises ((DMP))
-Pilbara Minerals ((PLS))
-Iluka Resources ((ILU))
-IDP Education ((IEL))
-Evolution Mining ((EVN))
-Block Inc ((SQ2))
-Lynas Rare Earths ((LYC))
-Mineral Resources ((MIN))
-TPG Telecom ((TPG))
-Nickel Industries ((NIC))
-South32 ((S32))
-ResMed ((RMD))
-Ramsay Health Care ((RHC))

Personally, I am surprised to see Block Inc and ResMed being included, but then Quant analysts do not necessarily look at the share market with the same fundamental eyes as I do.

Readers should note: Macquarie's analysis has been limited to ASX200 companies with a market cap of at least $3bn. The seasonal impact on share prices of small and micro cap stocks can be much, much greater, in particular when daily trading volumes shrink to near nothing and the end of financial year decision to sell can simply no longer be postponed.

For those investors who generally like to increase exposure to the local share market, Macquarie advises it's better to wait until July. That's what history suggests.

Model Portfolios, Best Ideas & Conviction Calls

Goldman Sachs's selection of High Conviction calls for the Asia-Pacific region currently consists of 27 companies, of which three are listed on the ASX:

-Lynas Rare Earths ((LYC))
-Woolworths Group ((WOW))
-Xero ((XRO))

Others included are Hitachi, Samsung Electronics, Hyundai Motor Co, and Renesas Electronics.

Equally noteworthy, over in the USA, the selection of 22 American stocks still includes Nvidia (now there's a discussion point), alongside the likes of Amazon, Royal Caribbean Cruises, Simon Property Group, Citigroup, First Solar, and Target Corp.

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Morningstar's Best Equity Ideas for ASX-listed stocks currently contains 14 inclusions. Morningstar's approach is traditionally centred around 'cheap value':

-TPG Telecom ((TPG))
-Domino's Pizza ((DMP))
-Bapcor ((BAP))
-a2 Milk Co ((A2M))
-Santos ((STO))
-AUB Group ((AUB))
-ASX Ltd ((ASX))
-Aurizon Holdings ((AZJ))
-Ventia Services ((VNT))
-Lendlease Group ((LLC))
-Pexa Group ((PXA))

As well as Fineos Corp ((FCL)), ResMed ((RMD)) and Newmont Corp ((NEM)) among international ideas.

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Morgan Stanley's Australia Macro+ Focus List contains the following 10 stocks:

-Aristocrat Leisure ((ALL))
-Car Group ((CAR))
-CSL ((CSL))
-Macquarie Group ((MQG))
-Origin Energy ((ORG))
-Paladin Energy ((PDN))
-QBE Insurance ((QBE))
-Suncorp Group ((SUN))
-Treasury Wine Estates ((TWE))
-Woodside Energy ((WDS))

****

Morgan Stanley's Macro+ Model Portfolio consists of the following 32 constituents:

-ANZ Bank ((ANZ))
-CommBank ((CBA))
-National Australia Bank ((NAB))
-Westpac Bank ((WBC))
-Macquarie Group ((MQG))
-QBE Insurance ((QBE))
-Suncorp Group ((SUN))
-Goodman Group ((GMG))
-Scentre Group ((SCG))
-Stockland ((SGP)
-Aristocrat Leisure
-Car Group ((CAR))
-Domino's Pizza ((DMP))
-The Lottery Corp ((TLC))
-Wesfarmers ((WES))
-James Hardie ((JHX))
-Orica ((ORI))
-Coles Group ((COL))
-Treasury Wine Estates ((TWE))
-CSL
-ResMed ((RMD))
-AGL Energy ((AGL))
-Origin Energy
-Telstra ((TLS))
-Transurban Group ((TCL))
-BHP Group ((BHP))
-Newmont Corp 
-Rio Tinto ((RIO))
-South32 ((S32))
-Paladin Energy ((PDN))
-Santos ((STO))
-Woodside Energy

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Wilsons' list of Highest Conviction Investment Ideas has seen the allocation increase to Woodside Energy, Xero ((XRO)) and Netwealth Group (NWL)).

Other Most Preferred Ideas are Aristocrat Leisure and Collins Foods ((CKF)).

More ideas come with "long term growth" profiles:

-Ridley Corp ((RIC))
-TechnologyOne ((TNE))
-Universal Stores ((UNI))
-ARB Corp ((ARB))
-Neuren Pharmaceuticals ((NEU))
-Pinnacle Investment Management ((PNI))

Among Resources stocks, there are two favoured ideas:

-Beach Energy ((BPT))
-Liontown Resources ((LTR))

And there's a Speculative basket too:

-Immutep ((IMM))
-Clarity Pharmaceuticals ((CU6))

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Wilsons' Focus Portfolio's largest overweight remains towards growth companies, including a large overweight to the healthcare sector. The largest underweight allocation remains for local banks. The Portfolio also holds a slight overweight allocation to resources, but this is due to "active positioning" in green metals and energy (underweight iron ore).

In terms of individual stocks, the Focus Portfolio encompasses the following:

Consumer Discretionary
Aristocrat Leisure, IDP Education ((IEL)), Lottery Corp ((TLC)), Collins Foods, Breville Group ((BRG)), Webjet ((WEB))

Energy
-Woodside Energy

Financials
-ANZ Bank, National Australia Bank, Westpac, Macquarie Group, Insurance Australia Group ((IAG)), Netwealth Group, Steadfast Group ((SDF))

Healthcare
-CSL, ResMed, Telix Pharmaceuticals ((TLX))

Industrials
-Worley ((WOR))

Information Technology
-Xero

Materials
-BHP Group ((BHP)), Amcor ((AMC)), Evolution Mining ((EVN)), Mineral Resources ((MIN)), Arcadium Lithium ((LTM)), Sandfire Resources ((SFR)), South32 ((S32))

Real Estate
-Goodman Group, HealthCo Healthcare & Wellness REIT ((HCW))

****

Macquarie Wealth's recommended Growth Portfolio currently includes the following stocks:

-Goodman Group
-Seek ((SEK))
-Aristocrat leisure
-Northern Star ((NST))
-CSL
-Computershare ((CPU))
-NextDC ((NXT))
-The Lottery Corp
-Flight Centre ((FLT))
-Mineral Resources
-Cleanaway Waste Management ((CWY))
-Steadfast Group
-Arcadium Lithium
-ResMed
-Pexa Group
-Treasury Wine Estates
-Viva Energy ((VEA))

Macquarie Wealth's recommended Income Portfolio currently has the following composition:

-Suncorp Group
-Telstra
-National Australia Bank
-Westpac Bank
-ANZ Bank
-BHP Group
-CommBank
-Premier Investments ((PMV))
-Coles Group ((COL))
-Viva Energy ((VEA))
-Atlas Arteria ((ALX))
-Aurizon Holdings
-APA Group ((APA))
-GPT Group ((GPT))
-Deterra Royalties ((DRR))
-Metcash ((MTS))
-GUD Holdings ((GUD))
-Charter Hall Retail REIT ((CQR))
-Amcor

****

Shaw and Partners Research Monitor for the June quarter shows the broker's ASX100 Large Caps Model Portfolio consists of the following ten members:

-Aristocrat Leisure
-Domino's Pizza
-Evolution Mining ((EVN))
-James Hardie Industries ((JHX))
-Pilbara Minerals ((PLS))
-Qantas Airways ((QAN))
-ResMed
-Suncorp Group
-Treasury Wine Estates
-Xero

Preferred exposures among 'emerging companies' (smaller caps) are:

-Abacus Storage King ((ASK))
-Bannerman Energy ((BMN))
-Black Cat Syndicate ((BC8))
-Global Lithium Resources ((GL1))
-Helloworld ((HLO))
-Metro Mining ((MMI))
-Retail Food Group ((RFG))
-Vista Group ((VGL))
-Tyro Payments ((TYR))
-Webjet

****

Back in December, Bell Potter analysts released their stock picks for 2024, ranked by themes and market segments:

-For Listed Investment Companies (LICs); Australian Foundation Investment Company ((AFI)), Plato Income Maximiser ((PL8)), and MFF Capital Investments ((MFF))

-Agriculture & Fast Moving Consumer Goods; Bega Cheese ((BGA)), Rural Funds Group ((RFF)), and Elders ((ELD))

-Technology; Life360 ((360)), WiseTech Global, and Task Group ((TSK))

-Diversified Financials; Perpetual ((PPT)), Regal Partners ((RPL)), and PSC Insurance ((PSI))

-Real Estate; HMC Capital ((HMC)), Dexus Convenience Retail REIT ((DXC)), HealthCo Healthcare & Wellness REIT ((HCW))

-Retailers; Cettire ((CTT)), Propel Funeral Partners ((PFP)), and Accent Group ((AX1))

-Industrials; DroneShield ((DRO)), Austal ((ASB)), Corporate Travel Management ((CTD)), IDP Education, IPD Group ((IPG)), and The Environment Group ((EGL))

-Healthcare; Telix Pharmaceuticals, Cyclopharm ((CYC)), Clarity Pharmaceuticals ((CU6)), Clinuvel Pharmaceuticals ((CUV)), and Immutep ((IMM))

-Gold sector; Regis Resources ((RRL)), and Santana Minerals ((SMI))

-Base Metals; Aeris Resources ((AIS)), Nickel Industries ((NIC)), Mineral Resources, and IGO Ltd ((IGO))

-Strategic Minerals; Lynas Rare Earths ((LYC)), Talga Group ((TLG)), Liontown Resources ((LTR)), and Alpha HPA ((A4N))

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

-Mining services providers; Chrysos Corp ((C79)), Matrix Composites & Engineering ((MCE)), and GenusPlus Group ((GNP))

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Also in December, Shaw and Partners released its 10 Best Ideas to benefit from the anticipated small caps' revival in 2024.

The selected ten:

-AIC Mines ((A1M))
-Austin Engineering ((ANG))
-FireFly Metals ((FFM)), previously AuTeco (AUT)
-Chrysos
-Gentrack Group ((GTK))
-Metro Mining ((MMI))
-MMA Offshore ((MRM))
-Peninsula Energy ((PEN))
-ReadyTech Holdings ((RDY))
-Silex Energy ((SLX))

****

Jarden's best ideas among ASX-listed smaller cap companies ("Emerging Companies").

Jarden's Top Pick remains Temple & Webster ((TPW)), regardless of the shares having rallied already.

Other Key Picks are:

-Lovisa Holdings ((LOV))
-Siteminder ((SDR))
-Nick Scali ((NCK))
-Universal Store Holdings ((UNI))

In extension, specific sector analysts have highlighted their specific convictions for:

-Inghams Group ((ING))
-Light & Wonder ((LNW))
-NRW Holdings ((NWH))
-Telix Pharmaceuticals
-Regis Healthcare ((REG))
-National Storage ((NSR))
-Ingenia Communities Group ((INA))
-Karoon Energy ((KAR))
-Capricorn Metals ((CMM))
-Domain Holdings Australia ((DHG))
-Pepper Money ((PPM))

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Macquarie's ASX Quality Compounders

The highest quality 'compounders' as identified by Macquarie quant research inside the ASX300:

-James Hardie
-Cochlear ((COH))
-REA Group
-TechnologyOne
-ResMed
-Data#3 ((DTL))
-Pro Medicus ((PME))
-Jumbo Interactive ((JIN))
-PWR Holdings ((PWH))
-Netwealth Group ((NWL))
-Aristocrat Leisure
-Spark New Zealand ((SPK))
-Codan ((CDA))
-Clinuvel Pharmacauticals ((CUV))
-Redox ((RDX))

Given Macquarie's research strong leaning on the past five years, with high barriers to match, the following 11 companies fell just outside the above list:

-Fisher & Paykel Healthcare ((FPH))
-Medibank Private ((MPL))
-Coles Group
-The Lottery Corp
-Lovisa Holdings ((LOV))
-CSL 
-IDP Education
-Pinnacle Investment Management ((PIN))
-ARB Corp ((ARB))
-Breville Group ((BRG))
-Johns Lyng ((JLG))

My research and All-Weather stock selections are 24/7 available for paying subscribers: https://fnarena.com/index.php/analysis-data/all-weather-stocks/

Weekly Insights this week: https://fnarena.com/index.php/2024/05/29/rudis-view-its-special-vs-cheap-but-whos-most-at-risk/

(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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