Rudi’s View: Don’t Fight The Fed, Inflation, Gold, Copper & More

Array
(
    [0] => Array
        (
            [0] => ((WES))
            [1] => ((JBH))
            [2] => ((CKF))
            [3] => ((ASG))
            [4] => ((UNI))
            [5] => ((SIG))
            [6] => ((HVN))
            [7] => ((FLT))
            [8] => ((EDV))
            [9] => ((DMP))
            [10] => ((KGN))
            [11] => ((GYG))
            [12] => ((BHP))
            [13] => ((RIO))
            [14] => ((A1M))
            [15] => ((AMI))
            [16] => ((STM))
            [17] => ((SFR))
            [18] => ((CSC))
            [19] => ((29M))
            [20] => ((AIS))
            [21] => ((HGO))
            [22] => ((HCH))
            [23] => ((CVV))
            [24] => ((HAV))
            [25] => ((FFM))
            [26] => ((AW1))
            [27] => ((PEX))
            [28] => ((EVN))
            [29] => ((GGP))
            [30] => ((RRL))
            [31] => ((PRU))
            [32] => ((GMD))
            [33] => ((VAU))
            [34] => ((RRL))
            [35] => ((CSL))
            [36] => ((RMD))
            [37] => ((TLX))
            [38] => ((PME))
            [39] => ((ALL))
            [40] => ((LNW))
        )

    [1] => Array
        (
            [0] => WES
            [1] => JBH
            [2] => CKF
            [3] => ASG
            [4] => UNI
            [5] => SIG
            [6] => HVN
            [7] => FLT
            [8] => EDV
            [9] => DMP
            [10] => KGN
            [11] => GYG
            [12] => BHP
            [13] => RIO
            [14] => A1M
            [15] => AMI
            [16] => STM
            [17] => SFR
            [18] => CSC
            [19] => 29M
            [20] => AIS
            [21] => HGO
            [22] => HCH
            [23] => CVV
            [24] => HAV
            [25] => FFM
            [26] => AW1
            [27] => PEX
            [28] => EVN
            [29] => GGP
            [30] => RRL
            [31] => PRU
            [32] => GMD
            [33] => VAU
            [34] => RRL
            [35] => CSL
            [36] => RMD
            [37] => TLX
            [38] => PME
            [39] => ALL
            [40] => LNW
        )

)

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

In today's edition:

-Inflation A Problem, Yet Again
-Don't Fight The Fed
-Shaw's Favourite Copper Exposures
-Golden favourites
-Citi's healthcare favourites
-Gaming stocks; details matter
-Interviewed By Peter Switzer

By Rudi Filapek-Vandyck, Editor

Inflation A Problem, Yet Again

The big news of the week was, of course, not that unhinged speech in front of global leaders at the United Nations general assembly or the return of late night host Jimmy Kimmel on American television, but the nasty inflation surprise domestically.

It pretty much cemented ongoing under-performance for the local share market vis a vis offshore peers as economists and bond traders removed the prospect of RBA rate cuts for the foreseeable future.

UBS still thinks the November meeting might see another -25bp cut, but the likes of National Australia Bank have now postponed that move to May next year. Citi is toying with the idea there may not follow any more rate cuts at all.

Without doubt, the renewed public debate puts the recovery and valuations for retailers and companies linked to consumer spending generally under the microscope.

What if the RBA will now sit on its hands for months on end? What will the recovery in consumer sentiment/spending and in property prices and construction look like?

The question is not trivial. As pointed out previously, both consumer-related companies and those leveraged to domestic building activity had been among the eye-catching winners in August and many an analyst report with positive projections in August mentioned the prospect for further RBA rate cuts to underpin those projections.

But what now?

Portfolio strategists at Wilsons weighed in on the debate this week by highlighting Wesfarmers ((WES)) and JB Hi-Fi ((JBH)) as two companies whose valuation seems bloated in the face of a recovery that might well be considered with a few extra question marks for the time being.

For this specific reason, Wilsons’ Focus Portfolio has no exposure to either of the two. But there are still opportunities in the sector, the strategists assure.

Wilsons’ favourites are Collins Foods ((CKF)), Autosports Group ((ASG)), and Universal Store ((UNI)). Only Collins Foods is currently included in the portfolio.

Prior to this week’s CPI disappointment, analysts at Jarden had built a case centred around their thesis that the outlook for consumer spending in Austalia has never looked as favourable since covid.

That assessment involved the lagging impact from rate cuts already delivered.

Stated Jarden: “We believe the pressure is now on retailers to deliver the right product, at the right time, and at the right price, while engaging customers effectively”.

If Jarden’s assessment proves correct, the upcoming AGM season should deliver confirmation through trading updates.

ASX favourites include Sigma Healthcare ((SIG)) for defensive growth, Harvey Norman ((HVN)) for home goods, and Flight Centre ((FLT)) “the laggard that could materially outperform”.

Jarden is least keen on Endeavour Group ((EDV)), Domino’s Pizza ((DMP)), Kogan ((KGN)), and Guzman Y Gomez ((GYG)).

Don’t Fight The Fed

Investors worried about valuations, investor exuberance or what might possibly be decided next at the White House should take a leaf from history, analysis by the Franklin Templeton Institute suggested this week.

That analysis suggests whenever the Federal Reserve resumes cutting interest rates, those who stay invested will be rewarded, even though shorter-term volatility should be expected.

The one statement from the report that summarises it nicely: Equities thrive on easing financial conditions and have historically moved in line with them.

Apart from Don’t fight the Fed, the report also adds buy the dip remains one key lesson for investors.

Shaw’s Favourite Copper Exposures

The price of copper has almost literally taken the elevator higher over the past number of weeks and with production problems emerging at one of the world’s largest sources of supply (Indonesia’s Grasberg) there could be a whole lot more enthusiasm awaiting for mining companies offering exposure.

Both BHP Group ((BHP)) and Rio Tinto ((RIO)) are major players in the sector, but any upside is diluted through other assets mining iron ore, bauxite, or mineral sands.

Shaw and Partners has been promoting its most favoured pure play copper exposures pretty much throughout the whole week:

-AIC Mines ((A1M))
-Aurelia Metals ((AMI))
-Sunstone Metals ((STM))

The ASX offers more opportunities to jump on the red metal’s bandwagon through the likes of Sandfire Resources ((SFR)), Capstone Copper ((CSC)), 29Metals ((29M)), Aeris Resources ((AIS)), and Hillgrove Resources ((HGO)), as well as through developers including Hot Chili ((HCH)), Caravel Minerals ((CVV)), Havilah Resources ((HAV)), FireFly Metals ((FFM)), American West Metals ((AW1)), and Peel Mining ((PEX)).

Golden favourites

With everyone, including mining sector analysts at Citi, expecting the current bull market in gold to last a whole lot longer, in trend terms, the team at Citi has re-iterated its ASX preference for Evolution Mining ((EVN)).

Outside the ASX100, the broker’s favoured nominee is Greatland Resources ((GGP)).

Looking into the finer details, Evolution is currently rated Neutral, while Greatland carries a Buy rating. It’s the only Buy-rated gold exposure currently under Citi’s coverage.

Regis Resources ((RRL)) is the only one rated Sell.

Over at UBS, Buy ratings are reserved for Perseus Mining ((PRU)), Genesis Minerals ((GMD)), and Vault Minerals ((VAU)).

Both Evolution Mining and Regis Resources ((RRL)) are rated Sell.

Citi’s healthcare favourites

Citi’s team of healthcare analysts covers ten ASX-listed companies. Four are currently rated Buy.

-CSL ((CSL))
-ResMed ((RMD))
-Telix Pharmaceuticals ((TLX))
-Pro Medicus ((PME))

No Sell ratings and Telix Pharma has the added High Risk tag.

Gaming stocks; details matter

Operating momentum for sector leading Aristocrat Leisure ((ALL)) remains superior to that of smaller-sized Light & Wonder ((LNW)), analysts at Bell Potter acknowledged this week.

Bell Potter has a Buy rating for both, but prefers Light & Wonder because of the much cheaper valuation.

While risk shorter-term is seen as greater for Light & Wonder, also because the pending Nasdaq de-listing could exert downward pressure on the share price.

But Bell Potter also thinks a sole listing on the ASX could well turn into the catalyst that bridges the current valuation gap between the two.

Interviewed By Peter Switzer

Switzer TV has launched a new podcast/video series titled Diary of a successful investor.

In the absence of the late Charlie Munger or his surviving buddy Warren Buffett, Peter Switzer (allegedly) decided to start off this new initiative with interviewing yours truly.

The interview can be watched via YouTube: https://www.youtube.com/watch?v=75HCuFqCFbc

(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.)  

P.S. I – All paying members at FNArena are being reminded they can set an email alert for my Rudi’s View stories. Go to My Alerts (top bar of the website) and tick the box in front of ‘Rudi’s View’. You will receive an email alert every time a new Rudi’s View story has been published on the website. 

P.S. II – If you are reading this story through a third party distribution channel and you cannot see charts included, we apologise, but technical limitations are to blame.

FNArena Subscription

A subscription to FNArena (6 or 12 months) comes with an archive of Special Reports (20 since 2006); examples below.

Find out why FNArena subscribers like the service so much: “Your Feedback (Thank You)” – Warning this story contains unashamedly positive feedback on the service provided.

FNArena is proud about its track record and past achievements: Ten Years On

Click to view our Glossary of Financial Terms