Rudi’s View: US Equities, CSL, Macquarie Technology, Xero & More

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This story features CSL LIMITED, and other companies.
For more info SHARE ANALYSIS: CSL
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

In today's update:

-US Equities not over-valued (!?)
-Question received about CSL
-Question received about Macquarie Technology
-Question whether expansion into the US is a graveyard for corporate Australia

By Rudi Filapek-Vandyck, Editor

US Equities not over-valued (!?)

US equity indices keep setting new all-time record highs in 2025 despite economic growth decelerating.

The outlook for next year might be better, but it’s still looking more like a subdued pace of growth rather than a strong recovery at this stage.

Are current valuations unjustifiable? Should investors worry about a significant correction ahead?

This week T Rowe Price joined the public debate through Tim Murray, Capital Markets Strategist, Multi-Asset Division.

Murray is a lot less worried than your average doom and gloom forecaster, of which there are plenty on social media and elsewhere (it’s a popular starting point in the mainstream media too).

While nobody is claiming US equities are “cheaply” priced, Murray would argue what your average scarecrow is missing are the many billions in spending on AI and AI infrastructure, which is providing a big boon for corporate America.

Let me rephrase that last part: AI is underpinning strong growth and ongoing strong growth projections for those segments of corporate America that are beneficiaries, which is not every company.

“Companies servicing the AI buildout—such as semiconductor producers and cloud computing, data center, and networking equipment providers—have enjoyed exceptional earnings growth.”

Murray argues the part that benefits from AI is larger than the part that is interest rates sensitive or is taking blows from tariffs, hence why US indices can soar to fresh all-time highs, while economic growth seems in contrast.

Conclusion: yes, markets are not cheap, but fundamentals and growth are supported by AI. Investors should keep an eye on those underlying fundamentals. If they were to deteriorate, that could change and reverse the current trend.

T Rowe Price is sticking with a Neutral allocation to US equities, while keeping a close eye on said fundamentals.

US-based The Leuthold Group has even better news for investors, pointing out 2025 has not been a great year for those who decided to ‘Sell in May’ as all four months of May, June, July and August have seen US equities posting positive returns.

This has only occurred 14 times prior over the past 100 years, but with a few exceptions only (think 1987 and 2018) this has been the harbinger of more positive returns into year-end.

In only two cases –1987 again and 2021– this has not been followed up by more positive returns throughout the following calendar year (see table below).

Meanwhile, UK-based Ninety One reminds investors the US dollar is now most definitely in a longer-term bear market, implying any upside remains limited and the reserve currency’s gradual erosion will become a factor that cannot be ignored by investors, including here in Australia.

For starters, it means any exposure to US assets will have to work harder if the plan is to repatriate funds back to Australia, for example.

But Ninety One sees much broader implications in that foreign investors generally might start questioning whether it still makes sense to retain an Overweight asset allocation to US assets.

From the moment that answer turns negative, the implications will be profound, the global investment manager warns.

Questions From Subscribers

This week I received a number of questions from FNArena subscribers. I decided to share my responses in today’s update.

Question received about CSL ((CSL)):

How do I reconcile the discrepancies about CSL that exist on the FNArena website? In today’s Rudi’s view he writes “CSL’s disappointment last month was larger and more impactful than anything witnessed from this company in a very long time. Unsurprisingly, a number of strategists and analysts have expressed significant loss of confidence in the aftermath.” Yet, [five] out of the seven expert brokers rate CSL as a Buy or an Outperform. Two have it as a Hold. Intelligent Investor has CSL as a hold. Come on, can someone give me a consistent story?

Dear Allan,

As is so often the case, the devil is truly hiding in the details.

Let’s start with CSL’s financial result in August. It was genuinely a let down. Not because the numbers missed forecasts by a few dots here and there, but because management pulled the rug from underneath the share price by canceling previous guidance on margin recovery.

Up until that moment, CSL had widespread support from those in the investment community who were prepared to look through shorter-term headwinds and tribulations on the promise that whatever had gone lost during and after the covid pandemic in the group-wide profit margin would be clawed back in due time.

Prior to August, I had been interviewed about my thoughts about CSL and my response had been along the lines of: if management reads the room, they know one thing they should not do is abandon their promise on the margin recovery. (See link to that interview below).

Yet, that’s exactly what they did in August.

I don’t want to sound too dramatic about this, but that was essentially a huge slap in the face for those investors (including myself) who’d given management the benefit of the doubt.

Of course, management would not have done it if they saw a better option available, so one of the conclusions that stands out from August is that operational struggles have genuinely turned into a real challenge.

Whether this is because of the Trump administration’s erratic policy changes, US import tariffs, Robert J Kennedy Jr’s war on vaccines, a bear market for the US dollar, inefficiencies creeping into the CSL organisation, competitors closing the gap, or all factors combined, we will never genuinely know.

But the picture that stands post August is one of a former quality success story that all of a sudden looks like a straggler in trouble. The decision to spin-off the vaccines business equally doesn’t exude confidence from a management team that is clearly struggling to convince the investment community of the merits of its strategy switch.

The share price has well and truly been punished for it, but I have little doubt that if this were not CSL but a lesser-known, smaller-sized wannabe, those losses would have been many times over much larger.

And there I’ve said it: this is still CSL. Inside that former shadow of itself, there operates one of the world’s best and largest plasma collectors, which, all else remaining equal, should pretty much guarantee at least high single digit growth year-in, year-out, occasional calamities not included.

One argument that can be put forward is that all of the above is by now well and truly in the share price. CSL shares haven’t looked this “cheap” for a long time. If someone had told me five years ago, the average PE for the ASX200 and CSL’s forward multiple would be on par by now, I probably would have laughed.

Yet, that is the case today with both multiples around 20x. Never say never, that’s one lesson that shall truly remain on my mind.

So do CSL shares look “cheap”? Yes, they do. But this by no means automatically implies the only way is up from here.

Look at the examples provided by Ramsay Health Care ((RHC)), or by Healius ((HLS)), or by Sonic Healthcare ((SHL)) in the same healthcare sector. I could also refer to Aurizon Holdings ((AZJ)), IPH Ltd ((IPH)), Lend Lease ((LLC)) and Domino’s Pizza ((DMP)) outside of the sector.

Simply looking “cheap” by no means implies share prices cannot get any cheap-er (or expensive again while falling in case forecasts continue to be downgraded).

The one key problem after all of the above is that the risk for more negative news hasn’t disappeared. The Trump administration still has 3.5 more years to run. And that’s just one eye-catching, easy-to-identify factor.

But let’s get back to base, this is still CSL. Even the likes of Microsoft, Apple, et cetera have had their years of headwinds, doubts and mishaps (something most investors easily forget during the good times).

Based on historical performances and ongoing positive dynamics for plasma collection and related products, one has to assume management will pull this company back on the right track. And when that happens today’s share price will look like a bargain. No doubt about it.

But nobody knows when and how that might happen. So how does one respond to this?

Most analysts FNArena monitors focus on the ‘cheap’ valuation, which means they stick with their Buy (or equivalent) rating, but all also include a hedge in their commentary.

CSL is undervalued in a status-quo operating environment, says UBS. Morgan Stanley states the investment case rests heavily on Behring delivering growth. Macquarie has kept its Outperform rating with a positive longer-term view.

Others, as you already pointed out, feel safer with a Neutral/Hold rating.

None will deny the conclusions and observations I have just shared with you.

As per always, the decision to buy, hold on or to sell and move elsewhere is a personal choice. You might be aware the FNArena-Vested Equities All-Weather Model Portfolio has included CSL shares since its beginning in early 2015.

CSL has been a wonderful contributor in the first five years of that time, only to derate into a big disappointment more recently. It’s no longer the largest position in the portfolio and that’s because I don’t believe in the narrative that a cheaper share price takes care of all ailments and risks.

For the first time in ten years I have been contemplating whether it is worth owning the shares. That process is still ongoing.

Maybe the company’s Capital Market Day, scheduled for November 5th, might assist with answering some questions.

My interview pre-August result release: https://fnarena.com/index.php/2025/08/13/rudi-interviewed-is-august-too-early/

Question about my thoughts about Macquarie Technology ((MAQ)) post August results (and share price weakness).

The investment thesis for Macquarie Technology has dimmed somewhat (shorter-term) given the company surprised negatively in August.

But the underlying thesis remains the same: by late next year the company should have its next data centre expansion up and running. The megatrend in demand for data centres is very much alive and kicking.

Assuming execution goes well, and the market doesn’t go all bearish on the sector again (the opposite is happening in early September), that’s your investment thesis right there.

On Thursday morning analysts at Petra Capital (Buy) released their latest update on the company which sees this broker lifting its price target to $104.01 from $87.33.

The suggested sharp uplift in future valuation is build on the back of IC3SW (the next data centre expansion) coming online and signing up customers similar to what is already happening at NextDC ((NXT)).

Here’s the key quote from that report: “MAQ is developing long-term valuable DC infrastructure which is not being reflected in the share price. We believe infrastructure investors understand this dynamic but others are seeking an immediate near-term catalyst.”

But… equally worth mentioning… Goodman Group ((GMG)) and NextDC remain the highest quality, best exposures to invest in this theme.

Another option is Infratil ((IFT)), as explained in FNArena’s story this week: https://fnarena.com/index.php/2025/09/10/infratils-growing-undervalued-digital-exposure/

Earlier this year, I wrote a dedicated story about Macquarie Technology: https://fnarena.com/index.php/2025/06/18/rudis-view-macquarie-technology-stock-in-focus/

Question about whether expansion into the US is a graveyard for corporate Australia and what this means for the likes of WiseTech Global ((WTC)) and Xero (XRO)), with both Reece ((REH)) and James Hardie ((JHX)) cited as recent examples of US-inspired disappointments.

I think you have to be careful to not fall for the wrong narratives. At times, a story is simply too good not to become popular, irrespective of the facts. The other factor to highlight is details matter.

While it is true Australian companies are on average not very successful when expanding overseas, the contravening truth is this has never been a problem for the quality companies.

From Computershare ((CPU)) to Westfield, to ResMed ((RMD)), Car Group ((CAR)), Cochlear ((COH)), Macquarie Group ((MQG)), Aristocrat Leisure ((ALL)), CSL ((CSL)), et cetera; all these companies have not become global sector leaders simply by being lucky.

Admittedly, the list of failures is many times over much larger, but this is because most companies are not of high quality.

I have often in the past referred to successful expansions overseas as the ultimate litmus test whether an ASX-listed company deserves the label of High Quality, so let’s include one of my all-time personal favourites; TechnologyOne ((TNE)).

TechOne is not active in the US, but management is making steady progress in conquering the UK. Tick. High Quality. It’s simply more confirmation of the label this company truly deserves.

Secondly, I’d argue Reece and James Hardie have equally been successful in conquering the American market, but both are cyclical companies. Cyclicals need the cycle to work in their favour.

This has nothing to do with having operations in the US as there’s a cycle elsewhere around the world as well.

WiseTech Global has had a tumultuous year, but it is still on a pathway to become the global leader in its field. This was never going to be a straight line exercise. Not even Pro Medicus ((PME)) –extremely successful in the US– will achieve that.

Xero’s fortune is now tied-in with the latest acquisition. Is success priced in? I’d argue not. But if management fails there will be selling. It’s simply how this game works.

Anyway, I think you touched upon an interesting subject, and I intend to address this in a more in-depth fashion in one of my upcoming writings.

(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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