Rudi’s View: Earnings, Best Ideas & Favourite Stock Picks

Rudi's View | Oct 24 2024

By Rudi Filapek-Vandyck, Editor

Quote of the week comes from Wilsons' strategy update for the Australian equities market:

"The Australian equity market currently has an unattractive earnings growth outlook, with both the ASX 200 and ASX All Industrials indices offering EPS growth of only ~3% over the next 12 months while the resources sector is expected to deliver negative -8% EPS growth over this period."

Understanding the implications and broader context behind that conclusion makes it a lot easier to understand why Wilsons remains a big fan of fast-growing, quality technology stocks on the ASX. These companies might trade on much higher valuation multiples than most ASX-listed stocks, they also offer much higher growth and for longer than just the next six or twelve months.

Wilsons spells out the contrast: 'Growth' (IT, Media & Healthcare) is projected to deliver 15%-plus EPS growth on average.

Conclusion: "Due to the scarcity of growth elsewhere in the market, the areas of the ASX that are offering attractive earnings growth are justifiably being afforded a valuation premium in the current environment."

Wilsons' Focus Portfolio has three such exposures, expected to outperform yet again over the year ahead:

-Xero ((XRO))
-TechnologyOne ((TNE))
-Hub24 ((HUB))

While shorter-term PE ratios might look pricey and act as a deterrent to own these stocks, Wilsons advice to investors is to take a 3-5 years view and focus on where respective PE ratios will be on continued double-digit percentage growth per annum, and where that should take respective share prices.

The added confidence booster is these companies' growth trajectories are not dependent on what happens with economies and interest rates over that period, though no company is fully immune from what happens in the world, of course.