Feature Stories | Oct 09 2025
Download related file: FNArena-Reporting-Season-Monitor-August-2025
A compilation of stories relating to the August 2025 corporate reporting season in Australia, including FNArena’s final balance for the season.
Content (in chronological order of publication):
-Navigating Covid Legacies
-Conviction Calls
-Extreme Bifurcation Ahead Of August
-Recent Updates On Expert Views
Taking Stock Ahead Of August
-Conviction Calls
-Five Bellwethers For August
-AI Updates, Hot Favourites & First August Results
-Rudi Interviewed: Is August Too Early?
-What The Experts Are Saying
-Early August Signals & Observations
-A Glass Half-Full Outlook
-Conviction Calls
-August Results; Standouts, Turnarounds, Failures & Misfits
-US Equities not over-valued (!?)
-Conviction Calls
-September, The Gift
-Don’t Fight The Fed, Inflation, Gold, Copper & More
-AI Boom Reveals Our Inner Bias
-All Eyes On Corporate Results
By Rudi Filapek-Vandyck, Editor
Navigating Covid Legacies
Four and a half years after the final covid-driven societal lockdowns ended in NSW and Victoria, unforeseen consequences and impacts are still depressing share prices and forcing companies to temper expectations or –heaven forbid!– issue a profit warning.
Companies still impacted today include Ansell ((ANN)), CSL ((CSL)), Dexus ((DXS)), and Sonic Healthcare ((SHL)).
Investors will be keeping a close watch during the upcoming August results season for any signals the era of covid shackles has definitively (and finally) passed for impacted sectors and companies.
The Recreational Boom
One company that has almost literally seen hell and heaven post 2020 is New Zealand-headquartered Tourism Holdings Rentals ((THL)).
With a market capitalisation of only $400m-plus, this company is a small cap, thus not on every investors’ radar, but that hasn’t stopped management at the wheel from building the world’s largest rental business for campervans and other recreational vehicles.
At first, closing borders and locking down societies threatened its corporate survival only to see an outbreak in sales occurring once countries re-opened, but the past two years have yet again put the share price under pressure as sales have plateaued.
In more recent times, management had been forced to issue a profit warning for the running financial year, which pushed the share price to a post-covid low, but shareholders might be relieved a consortium of BGH Capital (private equity) and the Trouchet family (founders of Apollo Motorhome Holidays) is interested in acquiring the company in full.
One of the seemingly lasting effects from the covid pandemic is a greater desire to travel and holiday locally, surrounded by Mother Nature. Sales for recreational vehicles are still booming, but so forceful was the initial jump in post-lockdown sales that growth in the subsequent years has been rather tepid in percentage terms.
For management at New Zealand’s largest tourism operator this has proved too much of a challenge to overcome. On current forecasts, earnings per share next year (FY26) will still not match the company’s all-time record booked in FY23.
And that is a problem for a share market looking for growth during a time when smaller cap companies are not exactly in high demand.
Changes In People’s Priorities
Recent surveys into changing consumer habits around the world are revealing a glaring discrepancy between consumer sentiment, which tends to be more cautious if not negative, and household spending, which is holding up amidst numerous challenges.
Consumers are looking for bargains and trading down, but only for selected non-priorities. They can be seen splurging elsewhere on luxury, holidays and personal experiences.
In Australia, despite the RBA lowering the cash rate twice already this year, and signalling there will likely be more cuts forthcoming (just not this month), consumer spending remains the weakest link for the domestic economy.
Investors would have noticed through subdued and expectations tempering market updates from retailers such as Accent Group ((AX1)), KMD Brands ((KMD)), Myer ((MYR)), and Super Retail ((SUL)).
There’s also anecdotal evidence those with a mortgage prefer to keep paying their financial institution rather than use rate relief for expenses elsewhere. Have populations become more risk-conscious? Or are we reading too much into this during a time when inflation spiked and caused havoc for many a household budget?
The answer might well lay somewhere in between and become a lot clearer in the year(s) ahead when both interest rates and inflation should be lower than today, though with Trump’s reign in Washington still destined for 3.5 more years, life might not be that straightforward, and neither our collective response.
What hasn’t changed post pandemic is increased attention for wellness, fitness and health. While working from home has seen its peak, it is increasingly becoming apparent society is not reverting back to how it was pre 2020.
Put simply: working from home is here to stay, even if the number of hours spent at home while working for the boss has been on a down-trend since the end of lockdowns.
One look at share prices for Dexus and Centuria Office REIT ((COF)) instantly reveals the number one victim of this newly established phenomenon: offices.
The sector’s landlords have been under the pump relentlessly since covid. While REITs generally have landed back in investors’ favour on the prospect of RBA and other central banks lowering interest rates, Dexus shares are still only half the price achieved in 2019. For the much smaller Centuria Office REIT the decline from early 2020 is still close to two-thirds.
Share price weakness for Cromwell Property Group ((CMW)) has been as savage as for the Centuria pure-play office landlord, as more than half of Cromwell’s international commercial real estate portfolio consists of office assets. Mirvac Group ((MGR)) shares have been impacted too, as well as shares in Abacus Group ((ABG)).
Management at Dexus has responded through a strategy to become more diversified, but the bigger question for all office landlords, both locally and overseas, is when has the downtrend (finally) run its course? The follow-up question then likely would be: how much growth should investors count on post market bottom?
I checked with FNArena’s consensus forecasts (see Stock Analysis) and it appears while some sector analysts, both here and overseas, are prepared to call the bottom is in for offices, there’s no excitement about what is likely to follow next. Current forecasts are for meagre advances only in expected FY26 payouts for loyal shareholders.
Mind you: the likes of Centuria Office REIT are currently offering an above-normal 8.6% yield, which will look attractive to some investors. This might be even more so given recent sector updates suggest most share prices might have rallied too far too quickly, even in the face of ongoing RBA loosening and an anticipation of acceleration in growth ahead for the sector generally.
Macquarie’s sector update on Monday included rating downgrades for nine of 24 REITs under coverage. UBS’s coverage of the sector only shows seven Buy ratings out of 23. Analysts at Morgans explicitly acknowledged the apparent sizeable valuation discounts for REITs owning industrial and/or office assets, but still, this broker is not keen to jump onto them (preferring a Hold rating instead).
Assuming August doesn’t unearth any big surprises, positive or negative, office REITs might well be the prime example of longer-lasting unforeseen changes caused by the 2020 pandemic.
The one silver lining is valuations are at a sizable discount and thus unlikely to weaken significantly further, while income-seeking investors with a longer horizon in mind are able to enjoy oversized payouts.
The Health Recovery For Healthcare
The number one sector that covid transformed from a long-lasting market leader into a persistent laggard is, of course, healthcare.
Who would’ve thunk it? The biggest and most prominent health scare in our lifetime has left companies including Ramsay Health Care ((RHC)) and Sonic Healthcare with too many enduring headwinds to overcome.
If you haven’t particularly paid attention, don’t look up their share prices lest you don’t care about hurting your eyeballs. Consider these companies were many an investor’s portfolio favourite for years on end. In particular Ramsay Health Care had been nominated by many for post-covid catch up, but that simply never eventuated.
Management at the international private hospitals operator is now selling off parts of the business in order to pay down debt and stop the operational downtrend. Sonic Healthcare is reportedly deeply investing in AI to juice up its radiology and pathology operations, but investors have been bitten a number of times and now prefer a wait-and-see approach.
Margins need not to stabilise, they need to expand, and not through babysteps either.
A similar task awaits management at what was not so long ago Australia’s number one index constituent that could do no wrong, but covid has changed all that and more for biotech CSL.
Those investors who only watch share prices might be surprised to read CSL’s revenues, margins and earnings per share have all been put back on a positive growth trajectory over the past years.
The share price, however, is back where it was in 2019 when the company’s horizon seemed cloudless and investor sentiment near indestructable. The pandemic has given birth to vaccine skepticism and nowhere has this become more apparent than in Trump’s USA with Robert Kennedy Jr as the Secretary of Health and Human Services.
There’s also the constant threat of US import tariffs, even if CSL is arguably more American already than it is Australian (ignoring its corporate origin and Melbourne headquarters) with many of its products and services crucial for the US healthcare system.
Similar as with the Office landlords mentioned earlier, vaccination rates in the US, even under Robert Kennedy Jr and the MAGA movement, will stop declining at some point. As I wrote myself in May (link below), the constant decline in vaccinations is predominantly an American phenomenon, which is not replicated elsewhere (not in the same magnitude).
The one key difference is CSL is growing at an above market pace, double digits when the average EPS for corporate Australia in FY25 will be negative on current forecasts. Next year looks poised for continuation (assuming no disappointment in August).
But for now there simply remains too much uncertainty. Will Trump hit the company with import tariffs regardless? What exactly is the status of flu vaccines? Is margin recovery still work-in-progress? Why has management decided to cut into its R&D labour force?
It remains anyone’s guess how much of these questions can and will be resolved in August, not only for CSL but for the local healthcare sector in general. It’s not as if shares in Australian Clinical Labs ((ACL)), Integral Diagnostics ((IDX)), Nanosonics ((NAN)) or even Cochlear ((COH)) have offered shareholders a lot to smile about in recent years.
One of the key questions hanging over the August results season is: is it still too early to jump onto lagging healthcare stocks?
Conviction Calls
We was wrong.
It’s the kind of phrase protagonists say in American movies and that makes viewers like myself squirm, but then again, apparently ‘dove’ instead of ‘dived’ is also permitted in the land of Kaiser Donald J.
Macquarie’s latest strategy update on Australian equities, released earlier today on Thursday morning wouldn’t use American colloquialisms, of course, but the strategists might have just as well, because that is the key over-riding message expressed to their clientele.
Up until today, Macquarie strategists have been warning about too much exuberance in equities, advocating a cautious and defensive portfolio set-up while expecting this year’s runaway stock market train to come unstuck.
But it hasn’t happened.
Today’s mea culpa suggests the focus has been too much on PE expansion and the RBA holding out on rate cuts. Outside of Australia, central banks have been cutting rates at a pace nearly never witnessed outside of economic recession, and it is translating into growth resilience and momentum picking up.
Add a just as rare technology boom and this year’s cocktail suggests the world is trending towards a better place, not one-way into malaise and struggles.
Better times ahead means the Model Portfolio was too defensively positioned. Macquarie strategists have responded by adding more exposure to Technology and AI, and less to bond proxies (bond yields might not weaken as much as earlier thought).
The following stocks have been added to the Model Portfolio:
-NextDC ((NXT))
-Seek ((SEK))
-Paladin Energy ((PDN))
These additions compliment the likes of Xero ((XRO)), Megaport ((MP1)) and Goodman Group ((GMG)).
For more cyclical exposure, the Portfolio now also owns Lovisa Holdings ((LOV)) and Web Travel Group ((WEB)). Also added has been Challenger ((CGF)) on anticipation of a more limited fall in bond yields.
Exposures that have been reduced: Transurban ((TCL)), GPT Group ((G:PT)) and James Hardie ((JHX)).
On the strategists’ own assessment, if their revised outlook proves correct, Australian companies should see earnings upgrades in FY26.
That will be the logical litmus test, both for Macquarie’s about-face and for current elevated PE ratios.
Global equity strategists at UBS remain on the lookout for downgrades to current growth forecasts, and for decelerating economic indicators while the Federal Reserve will only be ready to deliver its next rate cut in September.
UBS thus suggests equity markets might find the going a little more challenging, with the extra comment that any pullback larger than -5% would come as a surprise.
Weakness should still be treated as an opportunity to buy more shares, in UBS’s view (being relatively relaxed about potential impacts from tariffs).
Investors have rightly learned to buy the dip, say the strategists, with US corporate profits still expected to grow (albeit more slowly), the AI theme still booming and USD weakness supporting nearly 25% of S&P500 revenues that are generated internationally.
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Staying with Macquarie, the small caps desk has released its favourites ahead of the August results season. The list of Best Picks consists of:
-Aussie Broadband ((ABB))
-Amotiv ((AOV))
-AUB Group ((AUB))
-Alpha HPA ((A4N))
-Bega Cheese ((BGA))
-Capstone Copper ((CSC))
-Codan ((CDA))
-Genesis Minerals ((GMD))
-Iluka Resources ((ILU))
-Integral Diagnostics ((IDX))
-Harvey Norman ((HVN))
-Jumbo Interactive ((JIN))
-Lovisa Holdings ((LOV))
-Maas Group ((MGH))
-Megaport (( MP1))
-Monadelphous ((MND))
-Neuren ((NEU))
-Nick Scali ((NCK))
-oOh!media ((OML))
-Pinnacle Investment Management ((PNI))
-Qualitas ((QAL))
-Reliance Worldwide ((RWC))
-SiteMinder ((SDR))
-Summit Minerals ((SUM))
-Universal Store Holdings ((UNI))
-Ventia Services ((VNT))
-Web Travel Group ((WEB))
Let me share one personal pleasure: every time I write up these lists, I challenge myself to add full company names, correct spelling and all, to each ASX code to check how up to date my knowledge remains.
Today I am slightly disappointed. I failed on five codes, including for Maas Group! Must have had a temporary blackout.
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One extra update from Macquarie on Thursday morning: the healthcare desk expressed their favouritism for CSL ((CSL)), ResMed ((RMD)), Integral Diagnostics ((IDX)) and Neuren ((NEU)).
Least preferred are Cochlear ((COH)) and Ansell ((ANN)).
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Bell Potter‘s general update on ASX-listed agricultural stocks shows the following Buy-rated preferences:
-Australian Agricultural Company ((AAC))
-Bega Cheese ((BGA))
-Elders ((ELD))
-Noumi Ltd ((NOU))
-Nufarm ((NUF))
-Rural Funds ((RFF))
-Select Harvests ((SHV))
****
Stockbroker Morgans, previewing August results, has High Conviction for positive performances from the following resources companies:
-BHP Group ((BHP))
-Woodside Energy ((WDS))
-Amplitude Energy ((AEL))
-Karoon Gas ((KAR))
Sticking with Morgans, the broker’s favourites in the local Technology sector are WiseTech Global ((WTC)) and Megaport ((MP1)), with Car Group ((CAR)) and Seek ((SEK)) the favourites in Media, Superloop ((SLC)) in Telecom and Light & Wonder ((LNW)) among gaming stocks.
Morgans has also Buy ratings for Xero ((XRO)) and NextDC ((NXT)).
For exposure to non-bank financials, the broker’s favourites are Generation Development ((GDG)), MA Financial ((MAF)), and Tyro Payments ((TYR)).
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Analysts at Morgan Stanley like to identify High-Conviction opportunities both ahead and after reporting seasons.
This time three ideas have been identified throughout the Asian coverage. One of these is ASX-listed: Xero ((XRO)).
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Jarden’s monthly update on Australia’s small caps (“emerging companies”) highlights 18 Best Ideas, including the following Key Picks considered offering the highest potential return, in order of projected total investment reward:
-GQG Partners ((GQG))
-Dicker Data ((DDR))
-Universal Store Holdings ((UNI))
-Qualitas ((QAL))
-EVT Ltd ((EVT))
-Pinnacle Investment Management ((PNI))
-Temple & Webster ((TPW))
-SiteMinder ((SDR))
The other ten stocks selected:
-Aussie Broadband ((ABB))
-Arena REIT ((ARF))
-Genesis Energy ((GNE))
-Harvey Norman ((HVN))
-Integral Diagnostics ((IDX))
-Karoon Energy ((KAR))
-Michael Hill ((MHJ))
-Pepper Money ((PPM))
-Symal Group ((SYL))
-Vault Minerals ((VAU))
Since the prior update in early June, no stocks were removed. Both Aussie Broadband and Pinnacle Investment Management are new inclusions.
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Analysts at Moelis remain positive on ASX-listed gold companies with Buy ratings reserved for:
-Vault Minerals ((VAU))
-Alkane Resources ((ALK))
-Ora Banda Mining ((OBM))
-Pantoro Gold ((PNR))
Over at Stockbroker Morgans the preference lays with Northern Star ((NST)) and Newmont Corp ((NEM)) among larger caps, with Regis Resources ((RRL)) preferred among mid-cap options.
Analysts at Ord Minnett favour Newmont Corp and Vault Minerals.
Other ideas in a largely ‘cheap’ looking resources sector, according to Ord Minnett, include Capstone Copper, Rio Tinto ((RIO)), Paladin Energy ((PDN)) and Lotus Resources ((LOT)), and Whitehaven Coal ((WHC)) as the quality play among coal producers.
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Goldman Sachs‘ selection of local Conviction Buys is now reduced to three:
-Goodman Group ((GMG))
-ResMed ((RMD))
-Worley ((WOR))
Unibail-Rodamco-Westfield ((URW)) is also included for its Paris listing with the local listing about to disappear.
Best Buys & Conviction Calls
Bell Potter’s sector preferences for the financial year ahead.
Listed Investment Companies ((LICs)
-Australian Foundation Investment Company ((AFI))
-Metrics Master Income Trust ((MXT))
-MFF Capital Investments ((MFF))
Agricultural & Fast Moving Consumer Goods (FMCG)
-Bega Cheese ((BGA))
-Rural Funds Group ((RFF))
-Elders ((ELD))
Technology
-WiseTech Global ((WTC))
-Gentrack ((GTK))
-Seek ((SEK))
Diversified Financials
-Cuscal ((CCL))
-Praemium ((PPS))
-Regal Partners ((RPL))
Real Estate
-Aspen Group ((APZ))
-Cedar Woods ((CWP))
-Region Group ((RGN))
Retail
-JB Hi-Fi ((JBH))
-Universal Store Holdings ((UNI))
-Propel Funeral Partners ((PFP))
Industrials
-LGI Ltd ((LGI))
-Environmental Group ((EGL))
Healthcare
-Telix Pharmaceuticals ((TLX))
-Neuren Pharmaceuticals ((NEU))
-Monash IVF ((MVF))
Gold
-Minerals 260 ((MI6))
-Santana Minerals ((SMI))
-Evolution Mining ((EVN))
Base Metals
-Aeris Resources ((AIS))
-Nickel Industries ((NIC))
-AIC Mines ((A1M))
Strategic Minerals & Processing Technologies
-Alpha HPA ((A4N))
-IperionX ((IPX))
Energy
-Boss Energy ((BOE))
Mining & Industrial Services
-Develop Global ((DVP))
-ALS Ltd ((ALQ))
-Duratec ((DUR))
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favourites inside the local small cap retail space (in order of preference) as selected by Retail sector analysts at Citi:
-Universal Store Holdings ((UNI))
-Baby Bunting ((BBY))
-Nick Scali ((NCK))
-Temple & Webster ((TPW))
-Beacon Lighting ((BLX))
-Harvey Norman ((HVN))
-Accent Group ((AX1))
-Super Retail ((SUL))
-Premier Investments ((PMV))
-Bapcor ((BAP))
-Lovisa Holdings ((LOV))
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Crestone’s Best Sector Ideas:
-Ampol ((ALD))
-APA Group ((APA))
-Aristocrat Leisure ((ALL))
-Beach Energy ((BPT))
-Brambles ((BXB))
-Cochlear ((COH))
-CSL ((CSL))
-Goodman Group ((GMG))
-IGO Ltd ((IGO))
-James Hardie Industries ((JHX))
-Lottery Corp ((TLC))
-Macquarie Group ((MQG))
-Metcash ((MTS))
-Monadelphous Group ((MND))
-REA Group ((REA))
-ResMed ((RMD))
-Suncorp Group ((SUN))
-Xero ((XRO))
Crestone’s selection for sustainable income:
-Amcor ((AMC))
-Ampol ((ALD))
-ANZ Bank ((ANZ))
-APA Group ((APA))
-Atlas Arteria ((ALX))
-Beach Energy ((BPT))
-BHP Group ((BHP))
-Car Group ((CAR))
-Coles Group ((COL))
-Dalrymple Bay Infrastructure ((DBI))
-Iress ((IRE))
-Lottery Corp ((TLC))
-Macquarie Group ((MQG))
-Metcash ((MTS))
-Mirvac Group ((MGR))
-Pro Medicus ((PME))
-QBE Insurance ((QBE))
-RAM Essential Services ((REP))
-ResMed ((RMD))
-Suncorp Group ((SUN))
-Tabcorp Holdings ((TAH))
-Telstra Group ((TLS))
****
Morgans‘ selection of Best Ideas consists of the following 29 ASX-listed companies:
Acrow ((ACF))
ALS Ltd ((ALQ))
Amotiv ((AOV))
BHP Group ((BHP))
Collins Foods ((CKF))
Corporate Travel Management ((CTD))
CSL ((CSL))
Dalrymple Bay Infrastructure ((DBI))
Dexus Convenience Retail REIT ((DXC))
DigiCo Infrastructure REIT ((DGT))
EBR Systems ((EBR))
Elders ((ELD))
Goodman Group ((GMG))
Guzman y Gomez ((GYG))
James Hardie Industries ((JHX))
Light & Wonder ((LNW))
Lovisa Holdings ((LOV))
MA Financial Group ((MAF))
Megaport ((MP1))
Orica ((ORI))
Pinnacle Investment Management ((PNI))
ResMed ((RMD))
South32 ((S32))
Treasury Wine Estates ((TWE))
Qualitas ((QAL))
Universal Store Holdings ((UNI))
Whitehaven Coal ((WHC))
WiseTech Global ((WTC))
Woodside Energy ((WDS))
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Morgan Stanley’s six Conviction stock picks that each represent a compelling individual investment case underpinned by idiosyncratic drivers and the ability to deliver earnings upside, believed to be underappreciated by the market.
-WiseTech Global ((WTC))
-Charter Hall Group ((CHC))
-Suncorp Group ((SUN))
-Life360 Inc ((360))
-Generation Development Group ((GDG))
-Data#3 ((DTL))
Morgan Stanley’s Macro+ Focus List in Australia is currently made up of:
-Aristocrat Leisure ((ALL))
-ANZ Bank ((ANZ))
-Car Group ((CAR))
-Goodman Group ((GMG))
-GPT Group ((GPT))
-James Hardie Industries ((JHX))
-Orica ((ORI))
-Santos ((STO))
-Suncorp Group ((SUN))
-Xero ((XRO))
Morgan Stanley’s Australia Macro+ Model Portfolio is currently made up of the following:
-ANZ Bank ((ANZ))
-CommBank ((CBA))
-National Australia Bank ((NAB))
-Westpac ((WBC))
-Macquarie Group ((MQG))
-Suncorp Group ((SUN))
-Goodman Group ((GMG))
-GPT Group ((GPT))
-Scentre Group ((SCG))
-Stockland ((STG))
-Aristocrat Leisure ((ALL))
-Eagers Automotive ((APE))
-CAR Group ((CAR))
-Domino’s Pizza ((DMP))
-The Lottery Corp ((TLC))
-Wesfarmers ((WES))
-WiseTech Global ((WTC))
-Xero ((XRO))
-James Hardie ((JHX))
-Amcor ((AMC))
-Cleanaway Waste Management ((CWY))
-Orica ((ORI))
-Coles Group ((COL))
-AGL Energy ((AGL))
-Telstra ((TLS))
-Transurban ((TCL))
-BHP Group ((BHP))
-Newmont Corp ((NEM))
-Rio Tinto ((RIO))
-South32 ((S32))
-Santos ((STO))
-Woodside Energy ((WDS))
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Morningstar’s Equity Best Ideas (Conviction Buy Calls by any other name, mostly chosen because of under-valuation).
-Auckland International Airport ((AIA))
-ASX Ltd ((ASX))
-Aurizon Holdings ((AZJ))
-Bapcor ((BAP))
-Dexus ((DXS))
-Domino’s Pizza Enterprises ((DMP))
-Endeavour Group ((EDV))
-Fineos Corp ((FCL))
-IDP Education ((IEL))
-IGO Ltd ((IGO))
-Ramsay Health Care ((RHC))
-SiteMinder ((SDR))
-Spark New Zealand ((SPK))
-Woodside Energy ((WDS))
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Ord Minnett’s High Conviction calls (all nominations made by sector analysts on a 12 month horizon):
-Aussie Broadband ((ABB))
-Brazilian Rare Earths ((BRE))
-Bubs Australia ((BUB))
-Cuscal ((CCL))
-Qoria ((QOR))
-Regis Healthcare ((REG))
-SiteMinder ((SDR))
-Vault Minerals ((VAU))
-Waypoint REIT ((WPR))
-Zip Co ((ZIP))
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Shaw and Partners’ Large Caps Model Portfolio:
-ANZ Bank ((ANZ))
-Aristocrat Leisure ((ALL))
-BlueScope Steel ((BSL))
-Brambles ((BXB))
-Dexus ((DXS))
-Macquarie Group ((MQG))
-Newmont Corp ((NEM))
-South32 ((S32))
Shaw and Partners’ emerging companies Top Picks:
-AML3D ((AL3))
-Australian Vanadium ((AVL))
-Bannerman Energy ((BMN))
-Chrysos ((C79))
-Humm Group ((HUM))
-Metro Mining ((MMI))
-Santana Minerals ((SMI))
-Southern Cross Electrical ((SXE))
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UBS’s Most Preferred Stocks in Australia
In Resources segment:
-BHP Group ((BHP))
-BlueScope Steel ((BSL))
-Newmont Corp ((NEM))
-Orica ((ORI))
-Origin Energy ((ORG))
Among Financials & A-REITs:
-Dexus ((DXS))
-Lifestyle Communities ((LIC))
-Mirvac Group ((MGR))
-Medibank Private ((MPL))
-QBE Insurance ((QBE))
-Steadfast Group ((SDF))
Among Industrials:
-Brambles ((BXB))
-Collins Foods ((CKF))
-Cochlear ((COH))
-Coles Group ((COL))
-NextDC ((NXT))
-REA Group ((REA))
-ResMed ((RMD))
-SGH Ltd ((SGH))
-TechnologyOne ((TNE))
-Telstra Corp ((TLS))
-Telix Pharmaceuticals ((TLX))
-WiseTech Global ((WTC))
UBS’s Least Preferred Stocks in Australia
-Aurizon Holdings ((AZJ))
-ASX Ltd ((ASX))
-Bank of Queensland ((BOQ))
-CommBank ((CBA))
-Charter Hall Group ((CHC))
-Computershare ((CPU))
-Evolution Mining ((EVN))
-Temple & Webster ((TPW))
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Wilsons‘ Key Investment Opportunities:
-Goodman Group ((GMG))
-Pinnacle Investment Management ((PNI))
-ResMed ((RMD))
-WiseTech Global ((WTC))
-Woolworths ((WOW))
High conviction investment ideas:
-ARB Corp ((ARB))
-Maas Group ((MGH))
-Nanosonics ((NAN))
-Ridley Corp ((RIC))
-SiteMinder ((SDR))
Speculative idea:
-Clarity Pharmaceuticals ((CU6))
Wilsons’ Focus Portfolio currently contains the following:
-ANZ Bank ((ANZ))
-Aristocrat Leisure ((ALL))
-BHP Group ((BHP))
-Brambles ((BXB))
-Car Group ((CAR))
-Collins Foods ((CKF))
-CSL ((CSL))
-Evolution Mining ((EVN))
-Goodman Group ((GMG))
-HealthCo Healthcare & Wellness REIT ((HCW))
-Hub24 ((HUB))
-James Hardie ((JHX))
-Macquarie Group ((MQG))
-Northern Star Resources ((NST))
-Pinnacle Investment Managers ((PNI))
-ResMed ((RMD))
-Sandfire Resources ((SFR))
-Santos ((STO))
-South32 ((S32))
-TechnologyOne ((TNE))
-Telix Pharmaceuticals ((TLX))
-The Lottery Corp ((TLC))
-Westpac Bank ((WBC))
-WiseTech Global ((WTC))
-Woolworths Group ((WOW))
-Worley ((WOR))
-Xero ((XRO))
Paying subscribers have 24/7 access to my curated lists, including All-Weather Performers at: https://fnarena.com/index.php/analysis-data/all-weather-stocks/
Extreme Bifurcation Ahead Of August
There was a time when 13.80% total return for the financial year would be welcomed by all and sundry as a pleasant outcome, but not so in mid-2025 when the strong rally in CommBank ((CBA)) shares has been responsible for 38% of those returns.
Prospects for CommBank and the broader bank sector in general have improved throughout the year, but only slightly so. As the share price rallied and kept on rising (up 22% in the June quarter alone) pushing the implied forward-looking dividend yield to a paltry 2.8%, many domestic shareholders have been selling their exposure.
The rise and rise of CommBank relative to the rest of the ASX200 (now weighing 12% of the index) has triggered lively debates among Australian investors, and still does.
Some investors have sold exposure and recycled the proceeds into other, cheaper-priced major bank shares, but UBS for one doesn’t think this will prove the best protection against CBA’s coming back to earth – something that surely must happen at some point?
Whatever will pull back the CommBank share price is likely going to be a sector-wide impact, UBS suggested a few weeks ago. Meaning: it’ll impact the rest of the sector too, in all likelihood.
Indeed, share prices in financials broadly, and in banks specifically, have performed well in FY25 with three major banks ending up in the Top Five of highest contributions for the index since mid last year.
CommBank shares simply outclassed everyone and everything with a total return of… wait for it… 49.8%, adding more than three times more to index gains than number two, Westpac ((WBC)).
As to whom is responsible, the second half of last year featured steady buying orders from superannuation funds while in 2025 large US institutions seeking shelter from potential US tariff impacts have compensated for local sellers.
For more background, investors might revisit some of FNArena’s recent background stories and explanations:
https://fnarena.com/index.php/2025/07/18/in-brief-sks-technologies-banks-qpm-energy/
https://fnarena.com/index.php/2025/06/10/geopolitical-hedging-a-boon-for-commbank/
The Local FY25 Top Ten
It is likely more of Australia’s large cap bluechips with similar tariff agnostic characteristic might have enjoyed some of the unexpected international fund inflows as well.
The Top Ten of highest index contributors for the twelve months to June 30th is as follows:
1. CommBank
2. Westpac
3. Wesfarmers ((WES))
4. Telstra ((TLS))
5. National Australia Bank ((NAB))
6. Brambles ((BXB))
7. Macquarie Group ((MQG))
8. QBE Insurance ((QBE))
9. Aristocrat Leisure ((ALL))
10. Evolution Mining ((EVN))
Combined, these ten stocks represent 76.6% of all index returns in FY25.
Equally noteworthy: gold miner Evolution Mining shares needed to rally by 127.7% to make it into the Top Ten, just.
That list, and its importance for the local market, serves as a timely reminder for just how polarised the share market has been, and still is.
While large caps such as BHP Group ((BHP)), CSL ((CSL)) and Woodside Energy ((WDS)) have been prominent laggards throughout the year past, the market segment that has mostly disappointed investors is without any doubt the legion of small cap companies.
The (Ongoing) Small Cap Challenge
This market polarisation in favour of larger cap companies is not new and neither has it been ASX-specific.
A recent US markets update by Jason Zweig at the Wall Street Journal revealed the larger-cap S&P500 has returned on average 13.2% since 2014 while the Russell2000 index of smaller cap companies has lagged severely with an annual return of 7.2% only.
That is one mighty gap between the two opposing ends of the market in terms of company size.
For good measure: in Australia, the technology sector has mimicked its offshore peers by outperforming all other sectors locally, but despite large cap representatives such as Block ((XYZ)), Pro Medicus ((PME)), REA Group ((REA)), WiseTech Global ((WTC)) and Xero ((XRO)) its index relevance remains quite benign still.
Equally worth highlighting is that Australia’s sweet spot –the MidCap50– remains the best performing segment, including a total return of 16.45% in FY25.
Most of the pain/disappointment locally mimicks the US with the Small Ordinaries returning 12.26% in FY25, an annualised 10% for the past three years, on average 7.37% over five years and only 7.64% on average in total return for the decade past.
Australia being one of the world’s commodities centres, some of the small cap underperformance is likely related to the many explorers and developers in mining and energy, but that can only be a partial explanation, at best.
Also worth noting: the relative gap between banks and resources in Australia has blown out to a multi-year high (market weight of 35.2% versus 19.5%).
A deeper dive below the surface of today’s share prices and index level, into FNArena’s proprietary market data, confirms just how polarised the Australian share market is; possibly a lot more than most investors, including myself, realise.
Comparing share prices with price targets set by stockbroking analysts is far from a perfect guide –both can change instantly and dramatically– but for the general purpose of assessing today’s status for the ASX and painting a general picture, it can enlighten and explain a lot that otherwise remains hidden underneath biased opinions and outdated perceptions.
FNArena’s forward-looking data universe currently includes 531 ASX-listed companies, of which only 102 share prices are trading above their consensus target. This number will be smaller post Monday’s general off day.
Ahead of results releases in August, we should be keeping in mind that forecasts will be updated in the weeks ahead, with potential positive impact on valuations and price targets.
If we raise the bar to share prices trading at least 5% above target, that number of elevated looking share prices shrinks to 70.
This is still a sufficiently large selection for investors to pay attention to, and it includes all the usual suspects, including the Top Ten mentioned, as well as Netwealth Group ((NWL)), Megaport ((MP1)), Eagers Automotive ((APE)), Harvey Norman ((HVN)), Origin Energy ((ORG)), and Charter Hall ((CHC)).
Of course, there are also plenty of small and micro cap stocks in this group, including Opthea ((OPT)), Arafura Rare Earths ((ARU)), Alcidion Group ((ALC)), HighCom ((HCL)), and Doctor Care Anywhere ((DOC)). I’m specifically not mentioning those under merger or take-over interest.
Not all of these elevated-looking share prices are doomed for immediate disaster, of course, but 531 stocks minus 102 still leaves us with nearly 80% (429 companies) that cannot be accused of trading on fumes and over-inflated market momentum, not until that implied profit disappointment comes out or analysts downgrade their target (usually in response to operational disappointment).
Obvious question: with such a heavily lopsided market set-up, is it still justified to worry about the index trading on a higher-than-usual valuation?
History suggests the answer is ‘yes’ as lower valued shares might not necessarily hold their ground if/when the popular winners sell off, but it does suggest there’s potential for outsized investment returns if positive earnings and/or market momentum spreads out to larger parts of the local bourse.
For good measure, sustained market momentum for ASX-listed companies splintered into polarised extremes during the global covid pandemic and has to date never recovered from it.
Calls for a decisive catch-up by smaller cap companies to their outperforming larger peers have been made ever so regularly over the past three-four years, both internationally and in Australia, but here we are mid-year 2025 and smaller cap underperformance and market polarisation remain as prominent as ever.
Maybe not getting carried away with too high expectations simply because share prices look under-priced and have lagged sustained market momentum to date might be the best approach at this stage?
The August results season is still expected to see the average earnings per share for the ASX200 retreat for a third successive year, to end up -18% below the peak of FY22.
This suggests there remains plenty of room for disappointments next month, even though forecasts are signalling better times might be ahead and some forecasters believe corporate Australia might –finally– enjoy an upgrade cycle throughout FY26/FY27.
One can but wonder if that is the prerequisite requirement to see momentum for the Australian share market broaden out significantly in the months/years upcoming.
Should we all send Christmas cards to Michele Bullock at the RBA and to federal Treasurer Jim Chalmers?
(Don’t think Trump cares much about what happens in Australia).
Digging Into The 80%
Below are some selective snippets from the 80% of share prices for whom trading at or above broker price targets has remained a bridge too far (a starting point for further research and assessment, maybe?).
In the category of absolute bottom-of-the-barrel, smashed-to-smithereens, seemingly crazily undervalued disappointments, we find the likes of:
-Hastings Technology Metals ((HAS))
-Bowen Coking Coal ((BCB))
-Australian Vanadium ((AVL))
-Cettire ((CTT))
-Playside Studios ((PLY))
-Step One Clothing ((STP))
Stocks trading with suggested upside potential between 50%-100%:
-Mitchell Services ((MSV))
-Macquarie Technology ((MAQ))
-DigiCo Infrastructure REIT ((DGT))
-Vault Minerals ((VAU))
-Bannerman Energy ((BMN))
-Viva Leisure ((VVA))
-PolyNovo ((PNV))
-Cosol ((COS))
-Austin Engineering ((ANG))
-Avita Medical ((AVH))
Stocks trading with suggested upside potential between 30%-50%:
-Regal Partners ((RPL))
-Elders ((ELD))
-Macmahon Holdings ((MAH))
-Worley ((WOR))
-Guzman y Gomez ((GYG))
-SiteMinder ((SDR))
-Southern Cross Electrical Engineering ((SXE))
-Lindsay Australia ((LAU))
-NextDC ((NXT))
-Telix Pharmaceuticals ((TLX))
Stocks trading with suggested upside potential between 10%-30%:
-Car Group ((CAR))
-Virgin Australia ((VGN))
-BlueScope Steel ((BSL))
-Collins Foods ((CKF))
-Paladin Energy ((PDN))
-WiseTech Global ((WTC))
-Seek ((SEK))
-AGL Energy ((AGL))
-Flight Centre ((FLT))
-GQG Partners ((GQG))
Stocks trading at less than -10% from their target:
-Woodside Energy ((WDS))
-Challenger ((CGF))
-Waypoint REIT ((WPR))
-Pinnacle Investment Management ((PNI))
-Iluka Resources ((ILU))
-Orica ((ORI))
-Woolworths Group ((WOW))
-EVT Ltd ((EVT))
-NRW Holdings ((NWH))
-Aristocrat Leisure ((ALL))
More than two decades of experience suggests this kind of information should not be interpreted in a static, set-in-stone manner.
A positive surprise in August can significantly widen upside potential, just as a negative development can work its magic to the downside.
A hefty discount might be the market telling us the risk level is too high and probably skewed to the downside, just as a big premium might signal upgrades are coming.
Post-Covid Is Different
The extreme polarisation in market momentum is equally reflected in stockbroker ratings for individual stocks.
Historically, a share market near an all-time high corresponds with more Neutral/Hold ratings and less Buys, but not in the post-covid era as clearly shown in the graphic below.
(The blue line represents the total Buy ratings).
Trading on a forward-multiple of 18.9x forecast earnings, the ASX200 is trading more than two standard deviations from its historical average of 14.7x.
Even if we limit today’s comparison to the past ten years (accepting that share price averages are higher in more recent times than they have been throughout the preceding decades) the current situation still compares unfavourably with an average multiple of 16.1x.
Possible explanations/justifications include better growth momentum ahead, also on the back of more rate cuts from the RBA, ongoing strong growth momentum for the AI megatrend, and a general broadening of AI benefits to broader sections of the economy (higher margins, more efficiency).
Many of these assumptions will be put to the test in August. Consensus forecasts are currently indicating EPS growth of circa 5% for the year ahead (FY26), followed by another near 8% in FY27.
Investors will be keeping their fingers crossed that outlook will not deteriorate in the same manner as it has done throughout all three years post FY22.
FNArena publishes a monthly update to the Australian Super Stock Report, which facilitates assessments such as the ones mentioned in today’s story. This report is included in paying subscriptions (6 and 12 months) and can be downloaded from the website.
As per tradition, FNArena will keep a close tab on corporate results in August.
For the coming two weeks or so, FNArena’s Results Monitor will still display its overview of results released post February: https://fnarena.com/index.php/reporting_season/
Recent Updates On Expert Views
Share markets have not been equally kind to smaller caps, cyclicals and lower-quality business models since, let’s call it, 2014.
But nothing is necessarily forever, right? Morgan Stanley recently offered the following on this matter:
“(…) we don’t think that American Exceptionalism is necessarily over. But we do think a new investment regime is approaching.
“If American Exceptionalism was premised on tailwinds like negative real interest rates and outsized policy accommodation, we think that’s now being supplanted by an economy facing constraints and radical imbalances.
“Specifically, we’re likely to see a new setup characterized by higher real rates, positive term and risk premiums, greater volatility and a much weaker dollar.
“A new regime likely calls for a new kind of portfolio. For one thing, investors should be thinking about more comprehensive diversification across sectors, asset classes and geographies.
“We’re likely to see relative value outside of the US, with potentially attractive opportunities in countries like India, Japan, Brazil and Mexico.
“Global yield dynamics may also foster opportunities among global financials and other cyclical industries like energy, materials and industrials.”
****
Strategists at Bell Potter offered the following prediction for the local share market:
“An easing monetary policy, along with supportive fiscal policy, is a positive backdrop for Australian equity markets where both growth and value can perform.
“What it does mean, however, is that we remain convicted in our view that the current environment requires a “Micro over Macro” approach.
“This is not a rising tide that lifts all boats market; stock selection will be important in delivering returns.”
And also:
“High-quality businesses will still likely be able to grow earnings in excess of GDP growth. This is particularly true in the Industrials (Ex-Financials) part of the market.”
****
Wilsons’ Model Portfolio has increased its exposure to Sandfire Resources ((SFR)) and downgraded the weighting of Macquarie Group ((MQG)).
****
Macquarie sees an improving outlook for consumer spending on the horizon, but share prices appear to be already priced for it.
Macquarie’s Key Picks among consumer stocks in Australia are Coles Group ((COL)), Harvey Norman ((HVN)) and Bega Cheese ((BGA)).
The broker would buy shares in JB Hi-Fi ((JBH)) and Metcash ((MTS)) following share price weakness.
Best to avoid, according to this broker, are Sigma Healthcare ((SIG)) and Endeavour Group ((EDV)).
****
Citi’s top picks in discretionary retail are JB Hi-Fi ((JBH)), Harvey Norman ((HVN)) and Super Retail ((SUL)).
****
Previewing August results, UBS analysts have nominated their key preferences among A-REITs, all are Buy-rated: Goodman Group ((GMG)), Dexus ((DXS)), Lifestyle Communities ((LIC)), HMC Capital ((HMC)), Centuria Industrial REIT ((CIP)), National Storage ((NSR)) and BWP Trust ((BWP)).
Least preferred are Vicinity Centres ((VCX)) and Charter Hall ((CHC)) –both are Sell-rated– as well as Neutral-rated Centuria Office REIT ((COF)), Centuria Capital Group ((CNI)), Stockland ((SGP)), Mirvac Group ((MGR)) and Region Group ((RGN)).
****
Analysts at RBC Capital are also looking forward to August. Their Top Picks among small cap industrial companies in Australia are Temple & Webster ((TPW)), SiteMinder ((SDR)) and Hub24 ((HUB)).
Only two stocks under their coverage are currently rated Underweight; Cettire ((CTT)) and Lovisa Holdings ((LOV)).
Over at the Technology desk, RBC Capital analysts have selected NextDC ((NXT)) and Macquarie Technology ((MAQ)) as their two Key Picks.
****
Bell Potter‘s update on the REITs sector showed the following Buy ratings:
-Aspen Group ((APZ))
-Centuria Industrial REIT ((CIP))
-Cedar Woods Properties ((CWP))
-Dexus Convenience Retail REIT ((DXC))
-GDI Property Group ((GDI))
-Goodman Group ((GMG)), fresh initiation of coverage
-HealthCo Healthcare and Wellness REIT ((HCW))
-HMC Capital ((HMC))
-Region Group ((RGN))
Best Buys & Conviction Calls
Bell Potter‘s Buy-rated ASX-listed agricultural stocks:
-Australian Agricultural Company ((AAC))
-Bega Cheese ((BGA))
-Elders ((ELD))
-Noumi Ltd ((NOU))
-Nufarm ((NUF))
-Rural Funds ((RFF))
-Select Harvests ((SHV))
Bell Potter’s sector preferences for the financial year ahead.
Listed Investment Companies ((LICs)
-Australian Foundation Investment Company ((AFI))
-Metrics Master Income Trust ((MXT))
-MFF Capital Investments ((MFF))
Agricultural & Fast Moving Consumer Goods (FMCG)
-Bega Cheese ((BGA))
-Rural Funds Group ((RFF))
-Elders ((ELD))
Technology
-WiseTech Global ((WTC))
-Gentrack ((GTK))
-Seek ((SEK))
Diversified Financials
-Cuscal ((CCL))
-Praemium ((PPS))
-Regal Partners ((RPL))
Real Estate
-Aspen Group ((APZ))
-Cedar Woods ((CWP))
-Region Group ((RGN))
Retail
-JB Hi-Fi ((JBH))
-Universal Store Holdings ((UNI))
-Propel Funeral Partners ((PFP))
Industrials
-LGI Ltd ((LGI))
-Environmental Group ((EGL))
Healthcare
-Telix Pharmaceuticals ((TLX))
-Neuren Pharmaceuticals ((NEU))
-Monash IVF ((MVF))
Gold
-Minerals 260 ((MI6))
-Santana Minerals ((SMI))
-Evolution Mining ((EVN))
Base Metals
-Aeris Resources ((AIS))
-Nickel Industries ((NIC))
-AIC Mines ((A1M))
Strategic Minerals & Processing Technologies
-Alpha HPA ((A4N))
-IperionX ((IPX))
Energy
-Boss Energy ((BOE))
Mining & Industrial Services
-Develop Global ((DVP))
-ALS Ltd ((ALQ))
-Duratec ((DUR))
****
favourites inside the local small cap retail space (in order of preference) as selected by Retail sector analysts at Citi:
-Universal Store Holdings ((UNI))
-Baby Bunting ((BBY))
-Nick Scali ((NCK))
-Temple & Webster ((TPW))
-Beacon Lighting ((BLX))
-Harvey Norman ((HVN))
-Accent Group ((AX1))
-Super Retail ((SUL))
-Premier Investments ((PMV))
-Bapcor ((BAP))
-Lovisa Holdings ((LOV))
****
Crestone’s Best Sector Ideas:
-Ampol ((ALD))
-APA Group ((APA))
-Aristocrat Leisure ((ALL))
-Beach Energy ((BPT))
-Brambles ((BXB))
-Cochlear ((COH))
-CSL ((CSL))
-Goodman Group ((GMG))
-IGO Ltd ((IGO))
-James Hardie Industries ((JHX))
-Lottery Corp ((TLC))
-Macquarie Group ((MQG))
-Metcash ((MTS))
-Monadelphous Group ((MND))
-REA Group ((REA))
-ResMed ((RMD))
-Suncorp Group ((SUN))
-Xero ((XRO))
Crestone’s selection for sustainable income:
-Amcor ((AMC))
-Ampol ((ALD))
-ANZ Bank ((ANZ))
-APA Group ((APA))
-Atlas Arteria ((ALX))
-Beach Energy ((BPT))
-BHP Group ((BHP))
-Car Group ((CAR))
-Coles Group ((COL))
-Dalrymple Bay Infrastructure ((DBI))
-Iress ((IRE))
-Lottery Corp ((TLC))
-Macquarie Group ((MQG))
-Metcash ((MTS))
-Mirvac Group ((MGR))
-Pro Medicus ((PME))
-QBE Insurance ((QBE))
-RAM Essential Services ((REP))
-ResMed ((RMD))
-Suncorp Group ((SUN))
-Tabcorp Holdings ((TAH))
-Telstra Group ((TLS))
****
Goldman Sachs‘ selection of local Conviction Buys:
-Goodman Group ((GMG))
-ResMed ((RMD))
-Worley ((WOR))
Unibail-Rodamco-Westfield ((URW)) is also included for its Paris listing with the local listing about to disappear.
****
Jarden’s 18 Best Ideas among Australia’s small caps (“emerging companies”) includes the following Key Picks considered offering the highest potential return, in order of projected total investment reward:
-GQG Partners ((GQG))
-Dicker Data ((DDR))
-Universal Store Holdings ((UNI))
-Qualitas ((QAL))
-EVT Ltd ((EVT))
-Pinnacle Investment Management ((PNI))
-Temple & Webster ((TPW))
-SiteMinder ((SDR))
The other ten stocks selected:
-Aussie Broadband ((ABB))
-Arena REIT ((ARF))
-Genesis Energy ((GNE))
-Harvey Norman ((HVN))
-Integral Diagnostics ((IDX))
-Karoon Energy ((KAR))
-Michael Hill ((MHJ))
-Pepper Money ((PPM))
-Symal Group ((SYL))
-Vault Minerals ((VAU))
****
Macquarie‘s small caps desk nominated its favourites (Best Picks) ahead of the August results season.
-Aussie Broadband ((ABB))
-Amotiv ((AOV))
-AUB Group ((AUB))
-Alpha HPA ((A4N))
-Bega Cheese ((BGA))
-Capstone Copper ((CSC))
-Codan ((CDA))
-Genesis Minerals ((GMD))
-Iluka Resources ((ILU))
-Integral Diagnostics ((IDX))
-Harvey Norman ((HVN))
-Jumbo Interactive ((JIN))
-Lovisa Holdings ((LOV))
-Maas Group ((MGH))
-Megaport (( MP1))
-Monadelphous ((MND))
-Neuren ((NEU))
-Nick Scali ((NCK))
-oOh!media ((OML))
-Pinnacle Investment Management ((PNI))
-Qualitas ((QAL))
-Reliance Worldwide ((RWC))
-SiteMinder ((SDR))
-Summit Minerals ((SUM))
-Universal Store Holdings ((UNI))
-Ventia Services ((VNT))
-Web Travel Group ((WEB))
****
Morgans‘ selection of Best Ideas consists of the following 29 ASX-listed companies:
Acrow ((ACF))
ALS Ltd ((ALQ))
Amotiv ((AOV))
BHP Group ((BHP))
Collins Foods ((CKF))
Corporate Travel Management ((CTD))
CSL ((CSL))
Dalrymple Bay Infrastructure ((DBI))
Dexus Convenience Retail REIT ((DXC))
DigiCo Infrastructure REIT ((DGT))
EBR Systems ((EBR))
Elders ((ELD))
Goodman Group ((GMG))
Guzman y Gomez ((GYG))
James Hardie Industries ((JHX))
Light & Wonder ((LNW))
Lovisa Holdings ((LOV))
MA Financial Group ((MAF))
Megaport ((MP1))
Orica ((ORI))
Pinnacle Investment Management ((PNI))
ResMed ((RMD))
South32 ((S32))
Treasury Wine Estates ((TWE))
Qualitas ((QAL))
Universal Store Holdings ((UNI))
Whitehaven Coal ((WHC))
WiseTech Global ((WTC))
Woodside Energy ((WDS))
****
Morgan Stanley’s six Conviction stock picks that each represent a compelling individual investment case underpinned by idiosyncratic drivers and the ability to deliver earnings upside, believed to be underappreciated by the market.
-WiseTech Global ((WTC))
-Charter Hall Group ((CHC))
-Suncorp Group ((SUN))
-Life360 Inc ((360))
-Generation Development Group ((GDG))
-Data#3 ((DTL))
Morgan Stanley’s Macro+ Focus List in Australia is currently made up of:
-Aristocrat Leisure ((ALL))
-ANZ Bank ((ANZ))
-Car Group ((CAR))
-Goodman Group ((GMG))
-GPT Group ((GPT))
-James Hardie Industries ((JHX))
-Orica ((ORI))
-Santos ((STO))
-Suncorp Group ((SUN))
-Xero ((XRO))
Morgan Stanley’s Australia Macro+ Model Portfolio is currently made up of the following:
-ANZ Bank ((ANZ))
-CommBank ((CBA))
-National Australia Bank ((NAB))
-Westpac ((WBC))
-Macquarie Group ((MQG))
-Suncorp Group ((SUN))
-Goodman Group ((GMG))
-GPT Group ((GPT))
-Scentre Group ((SCG))
-Stockland ((STG))
-Aristocrat Leisure ((ALL))
-Eagers Automotive ((APE))
-CAR Group ((CAR))
-Domino’s Pizza ((DMP))
-The Lottery Corp ((TLC))
-Wesfarmers ((WES))
-WiseTech Global ((WTC))
-Xero ((XRO))
-James Hardie ((JHX))
-Amcor ((AMC))
-Cleanaway Waste Management ((CWY))
-Orica ((ORI))
-Coles Group ((COL))
-AGL Energy ((AGL))
-Telstra ((TLS))
-Transurban ((TCL))
-BHP Group ((BHP))
-Newmont Corp ((NEM))
-Rio Tinto ((RIO))
-South32 ((S32))
-Santos ((STO))
-Woodside Energy ((WDS))
****
Morningstar’s Equity Best Ideas (Conviction Buy Calls by any other name, mostly chosen because of under-valuation).
-Auckland International Airport ((AIA))
-ASX Ltd ((ASX))
-Aurizon Holdings ((AZJ))
-Bapcor ((BAP))
-Dexus ((DXS))
-Domino’s Pizza Enterprises ((DMP))
-Endeavour Group ((EDV))
-Fineos Corp ((FCL))
-IDP Education ((IEL))
-IGO Ltd ((IGO))
-Ramsay Health Care ((RHC))
-SiteMinder ((SDR))
-Spark New Zealand ((SPK))
-Woodside Energy ((WDS))
****
Ord Minnett’s High Conviction calls (all nominations made by sector analysts on a 12 month horizon):
-Aussie Broadband ((ABB))
-Brazilian Rare Earths ((BRE))
-Bubs Australia ((BUB))
-Cuscal ((CCL))
-Qoria ((QOR))
-Regis Healthcare ((REG))
-SiteMinder ((SDR))
-Vault Minerals ((VAU))
-Waypoint REIT ((WPR))
-Zip Co ((ZIP))
****
Shaw and Partners’ Large Caps Model Portfolio:
-ANZ Bank ((ANZ))
-Aristocrat Leisure ((ALL))
-BlueScope Steel ((BSL))
-Brambles ((BXB))
-Dexus ((DXS))
-Macquarie Group ((MQG))
-Newmont Corp ((NEM))
-South32 ((S32))
Shaw and Partners’ emerging companies Top Picks:
-AML3D ((AL3))
-Australian Vanadium ((AVL))
-Bannerman Energy ((BMN))
-Chrysos ((C79))
-Humm Group ((HUM))
-Metro Mining ((MMI))
-Santana Minerals ((SMI))
-Southern Cross Electrical ((SXE))
****
UBS’s Most Preferred Stocks in Australia
In Resources segment:
-BHP Group ((BHP))
-BlueScope Steel ((BSL))
-Newmont Corp ((NEM))
-Orica ((ORI))
-Origin Energy ((ORG))
Among Financials & A-REITs:
-Dexus ((DXS))
-Lifestyle Communities ((LIC))
-Mirvac Group ((MGR))
-Medibank Private ((MPL))
-QBE Insurance ((QBE))
-Steadfast Group ((SDF))
Among Industrials:
-Brambles ((BXB))
-Collins Foods ((CKF))
-Cochlear ((COH))
-Coles Group ((COL))
-NextDC ((NXT))
-REA Group ((REA))
-ResMed ((RMD))
-SGH Ltd ((SGH))
-TechnologyOne ((TNE))
-Telstra Corp ((TLS))
-Telix Pharmaceuticals ((TLX))
-WiseTech Global ((WTC))
UBS’s Least Preferred Stocks in Australia
-Aurizon Holdings ((AZJ))
-ASX Ltd ((ASX))
-Bank of Queensland ((BOQ))
-CommBank ((CBA))
-Charter Hall Group ((CHC))
-Computershare ((CPU))
-Evolution Mining ((EVN))
-Temple & Webster ((TPW))
****
Wilsons‘ Key Investment Opportunities:
-Goodman Group ((GMG))
-Pinnacle Investment Management ((PNI))
-ResMed ((RMD))
-WiseTech Global ((WTC))
-Woolworths ((WOW))
High conviction investment ideas:
-ARB Corp ((ARB))
-Maas Group ((MGH))
-Nanosonics ((NAN))
-Ridley Corp ((RIC))
-SiteMinder ((SDR))
Speculative idea:
-Clarity Pharmaceuticals ((CU6))
Wilsons’ Focus Portfolio currently contains the following:
-ANZ Bank ((ANZ))
-Aristocrat Leisure ((ALL))
-BHP Group ((BHP))
-Brambles ((BXB))
-Car Group ((CAR))
-Collins Foods ((CKF))
-CSL ((CSL))
-Evolution Mining ((EVN))
-Goodman Group ((GMG))
-HealthCo Healthcare & Wellness REIT ((HCW))
-Hub24 ((HUB))
-James Hardie ((JHX))
-Macquarie Group ((MQG))
-Northern Star Resources ((NST))
-Pinnacle Investment Managers ((PNI))
-ResMed ((RMD))
-Sandfire Resources ((SFR))
-Santos ((STO))
-South32 ((S32))
-TechnologyOne ((TNE))
-Telix Pharmaceuticals ((TLX))
-The Lottery Corp ((TLC))
-Westpac Bank ((WBC))
-WiseTech Global ((WTC))
-Woolworths Group ((WOW))
-Worley ((WOR))
-Xero ((XRO))
Paying subscribers have 24/7 access to my curated lists, including All-Weather Performers at: https://fnarena.com/index.php/analysis-data/all-weather-stocks/
Taking Stock Ahead Of August
A warning from Chris Watling, Global Economist & Chief Market Strategist, Longview Economics:
“Signs of froth continue to build in global financial markets (especially in the US).
“As has been widely reported, this has been one of the fastest recoveries by the US stock market from a major drawdown. From the April 8th closing lows, it took 54 trading days to recover the 19% loss during the pullback (i.e. based on closing prices). By way of comparison, post the March 2020 COVID sell-off it took 107 trading days from the March 23rd lows to reclaim the highs (from Feb 2020).
“As that froth has emerged, our SELL-off indicator has continued to build to higher levels. As of yesterdays close it had reached +36 (an unusually high level for this model). At +20, it warns of a high likelihood of a pullback (and signals that global markets are becoming overly exuberant).”
Some sage advice from Jonathan Curtis, Chief Investment Officer Portfolio Manager Franklin Equity Group:
“The market sees AI as a tech story. Smart investors see it as an everything story.”
“In 1995, if you bought the PC leaders, you did well as an investor. But if you bought the smartest companies that built competitive advantage by digitizing their business early using the PC? You probably got rich.
“We believe today’s AI moment is bigger. It’s faster. And it’s hiding in plain sight.”
Taking Stock Ahead Of August
At face value, the local share market hasn’t paid much attention to corporate earnings over the three years past.
As also highlighted last week, corporate earnings in Australia have steadfastly fallen some -18% from their all-time record high achieved in FY22, but three consecutive years of net negative growth have not withheld the ASX200 from returning a net positive 21% over the period.
Net negative earnings in combination with rising share prices can only mean the average valuation has risen markedly, and this remains a sticky point for strategists and market commentators.
Trading on 19x-20x times next financial year’s EPS forecast (forward-looking), and with the RBA hesitant to inject further stimulus into the domestic economy, it seems a lot is riding on positive surprises during the upcoming August results season.
All is not what it seems
While the need for positive market updates probably remains true, things look a lot less ‘bubbly’ underneath the surface.
For starters, resources (mining and energy) have not enjoyed the best of times throughout the period, and I am probably too polite about it. Resources have weighed down on the average EPS achievement.
While BHP Group ((BHP)) is forecast to deliver a net positive EPS growth contribution for FY25, many others including Rio Tinto ((RIO)), Fortescue ((FMG)) and Woodside Energy ((WDS)) are not.
A second important consideration involves the local banks whose notable re-rating has taken place against minuscule growth achievements only, with CommBank ((CBA)) in the unassailable lead. Given this is by far the most important index weight for the local bourse, the outsized impact on the average PE ratio needs no further explanation.
Look beyond CBA and BHP –the two largest index influencers– and their brethren and growth prospects look a lot less negative, with the correlation between share prices and growth in EPS and dividends a lot closer.
Within this context it’s probably worth highlighting the local healthcare sector continues to exhibit some of the strongest growth prospects, leading strategists at Macquarie to suggest money flowing out of the banks will not necessarily find a home among resources with healthcare offering a better looking proposition.
UBS strategists have been making that point for several weeks already.
Dual-listed ResMed ((RMD)) will be the first healthcare company to release Q4 financials this Friday. Its shares are up some 8.5% in less than two weeks ahead of what analysts anticipate should be yet another strong performance.
Shares in CSL ((CSL)) are up by some 12.5%, also helped by reduced threats from US import tariffs on European pharmaceuticals.
Currently, market consensus is only anticipating some 5% EPS growth for corporate Australia next year and, yet again, banks and resources sit below that number. History also suggests EPS growth forecasts tend to weaken as the financial year matures, as has happened throughout FY25 and the years before it.
One big question mark revolves around consumer spending, another one relates to the Australian property market.
In both cases analysts are counting on better times ahead, but with the RBA preferring to walk a cautious pathway to further easing, will August prove too soon to see corporate green shoots and CEO optimism colour next year’s outlook?
Momentum ahead of August
The above are definitely the key ingredients that make up the debates raging among investors in Australia, together with Trump’s tariff impacts, prospects for AI and data centres, and Chinese stimulus.
To minimise the risk for major disappointment in August, Macquarie suggests investors focus on companies currently enjoying positive outlook revisions, which can be read as a leading indicator for ongoing positive share price momentum.
Macquarie has identified the following inside the ASX100:
-Challenger ((CGF))
-Hub24 ((HUB))
-Pinnacle Investment Management ((PNI))
-Metcash ((MTS))
-Telstra ((TLS))
-Ramsay Health Care ((RHC))
-ResMed
-Sonic Healthcare ((SHL))
-Qantas Airways ((QAN))
-Sandfire Resources ((SFR))
-Woodside Energy
Among smaller cap companies:
-Amplitude Energy ((AEL))
-Australian Finance Group ((AFG))
-Spark New Zealand ((SPK))
-McMillan Shakespeare ((MMS))
-Monadelphous Group ((MND))
-Perenti ((PRN))
-Ventia Services ((VNT))
Companies that have been singled out because of the negative trend in analysts’ forecasts include Treasury Wine Estates ((TWE)), REA Group ((REA)) and Reece ((REH)) among large caps, and Domino’s Pizza ((DMP)), G8 Education ((GEM)), Audinate Group ((AD8)) and Healius ((HLS)) among smaller caps.
Contractors and services providers
The inclusion of three contractors and services providers in Macquarie’s small cap selection for positive earnings momentum aligns with analysts elsewhere that have identified this particular sector for strong momentum and potential for upside surprises.
UBS repeated that view on Monday, highlighting the sector in Australia looks poised for resilient growth with double digits expected in August (FY25) and for FY26. This broker identified Worley ((WOR)), SGH Ltd ((SGH)), ALS Ltd ((ALQ)) and Cleanaway Waste Management ((CWY)) as its Key Picks.
Sector analysts at Macquarie earlier reiterated their Outperform (Buy-equivalent) ratings for Ventia Services, Service Stream ((SSM)), Monadelphous, Perenti, Maas Group ((MGH)), and Worley.
Jarden analysts have a Buy rating for Symal Group ((SYL)) and Overweight ratings (one notch below Buy) for Emeco Holdings ((EHL)), Monadelphous and NRW Holdings ((NWH)).
Sticking with the smaller cap theme, analysts at RBC Capital nominated Temple & Webster ((TPW)), SiteMinder ((SDR)) and Hub24 ((HUB)) as their Top Picks among small cap industrials on the ASX.
Regular readers of our daily Australian Broker Call Report will have noticed, Citi analysts hold an above-average conviction on EVT Ltd ((EVT)) – and they cannot believe the market’s hesitance to jump on the opportunity.
Stockbroker Morgans sees plenty of opportunity among smaller caps that, as a group, have lagged the broader market led by large caps over the past number of years. Morgans sees stronger growth potential (double the growth on offer from large caps) priced on average at a relative -10% discount.
Morgans is in particular positively biased towards Corporate Travel ((CTD)), PWR Holdings ((PWH)), Qualitas ((QAL)), Suncorp Group ((SUN)), and Superloop ((SLC)), and has a negative anticipation for upcoming result releases from Ramsay Health Care and Super Retail ((SUL)).
Stocks selected as preferred exposures include CSL ((CSL)), Light & Wonder ((LNW)), Megaport ((MP1)), Pinnacle Investment Management, Qualitas, ResMed, and WiseTech Global ((WTC)).
The outlook for FY26
Market strategists at Wilsons agree with the general assessment that, after stripping out banks and resources, the Australian share market looks a lot less ‘bubbly’ and growth-constrained, and instead seems to offer plenty of opportunities.
On Wilsons’ adjusted assessment the median ASX-listed stock is only trading “a touch” above five- and 10-year averages while expected to grow at 6% in FY25, followed by 12% in FY26.
As per local tradition, forecasts for FY26 will probably weaken as corporate results provide updated insights, but all in all Wilsons strategists are willing to stick with a generally positive outlook.
Peers at Macquarie are prepared to take it one step further: they predict an upgrade cycle for local forecasts as FY26 takes shape and economic momentum turns.
Neither of these views negate the fact that August, once again, might prove tricky to navigate for investors as earnings momentum early in the new financial year might not have picked up yet while FY25 hasn’t exactly been flash for a sizeable group of companies.
See also the share price shellacking on Monday following uranium miner Boss Energy’s ((BOE)) market update.
Macquarie’s seasonality analysis suggests August usually marks the peak in downgrades for EPS forecasts. Thus far, downgrades have marked the first six months (H2 of FY25).
On Thursday last week firm punishment was reserved for small cap underwear retailer Step One Clothing ((STP)).
These pre-season disappointments do not hide the fact there has been no deluge in corporate profit warnings, as had been forecast by some, despite global tariff uncertainty and a more hawkish than anticipated RBA.
One of the extra features in the upcoming results season is that of a weaker trend for the US dollar. This is not unimportant given most of strong growing businesses listed on the ASX are international market leaders with a sizeable presence in the US, where tariffs are yet another feature to take into account.
Macquarie is anticipating cautious outlooks and guidance statements from companies still surrounded by plenty of question marks and uncertainties. This too could become a source of added share price volatility on the day of result releases.
REITs in focus
One sector that will be equally in focus next month are the real estate investment trusts, REITs.
The cycle for bond yields and central bank policy has turned for the better and the sector is expected to benefit through much improved operational cashflows and growth prospects ahead.
Here the challenge consists of not getting trapped in share prices that might have run too hard already, at least for the time being. Macquarie’s sector analysts are expecting upside surprises from the likes of Ingenia Communities ((INA)), Goodman Group ((GMG)), National Storage ((NSR)) and Scentre Group ((SCG)).
Peers at UBS see the best prospects outside of the usual large cap favourites, nominating Arena REIT ((ARF)), Centuria Industrial REIT ((CIP)), Charter Hall Long WALE REIT ((CLW)), Centuria Capital Group ((CNI)), Centuria Office REIT ((COF)), HomeCo Daily Needs REIT ((HDN)), National Storage, and Rural Funds Group ((RFF)).
UBS strategist Richard Schellbach has thus far been noticeably less accommodative than previous mentioned peers at Macquarie, Morgans and Wilsons. His forecast is for disappointing earnings, on balance, with cautious indications from CEOs and little evidence of positive impact from AI investments to date.
Such a downbeat tone in August might not kill off the current uptrend for the market, but Schellbach can see a ‘pause’ in the uptrend emerging for the months ahead.
As per always, lots shall be revealed as results releases accumulate throughout next month. Investors will get an early taste this week with scheduled releases from Champion Iron ((CIA)), Rio Tinto and ResMed.
Conviction Calls
The Importance Of The USD
An underlying trend of US dollar weakening might make American businesses more competitive vis a vis foreign competitors, but for foreign investors a dilemma is being created.
FNArena has written about this already, but ClearBridge Investments highlighted the issue yet again this week and it’s worth repeating the gap that is forming between domestic and foreign investors in US assets.
“Investors looking at their June statements must feel good unless they live outside the United States.
“While US investors saw a 6.2% return year to date, the S&P 500 Index is down in most foreign currencies due to the significant decline in the US dollar.
“S&P500 investors in Japan lost -1.2% in yen; in euros that would be a -5.3% loss; while the S&P500 declined -16.4% relative to gold. Indeed, the dollar is the only commonly used yardstick that flatters US returns.
“A quick survey of global equity performance drives home the point. Not only did US equities become worth less in the first six months of 2025, they also significantly underperformed global markets with the S&P500 up 5.5% versus the MSCI ACWI ex US Index’s 17.9%.
“Yet despite considerable underperformance, US stocks, with a trailing price-to-earnings (P/E) of 23.8x, continue to trade at a record premium to foreign markets, at 15.3x.
“For US focused investors, it is easy to lose sight of global dynamics. But for foreign investors, these issues are front and center every day. Rising US equity markets may make American investors feel good, but they will not do any good if those investors are unable to maintain and grow their purchasing power.
“Continued US underperformance also risks becoming self-reinforcing. With US markets at all-time highs, foreign markets relatively cheaper than they have ever been and global investors over-indexed to US markets, it is easy to envision cascading outflows.”
Australia’s Golden Goose
A recent UBS report on Australia’s mandated superannuation system, considered the country’s golden goose, contained the following comment:
“The size and growth in Super funds potentially creates systemic risks in Australia.
“The top funds hold a disproportionate amount of the total system’s funds, and this skew is likely to further over coming years given these largest funds are still capturing the strongest inflows.
“What does strike us as uncomfortable, is the layered exposure Australian householders now have to the domestic residential property market. More than half of Australians’ wealth already sits in residential property.
“If we also include the Superannuation fund holdings of Australian Banks, then we estimate the proportion of Australians’ wealth directly (or very closely) linked to the Australian housing market is 55%.”
August: It’s About More Than Earnings
There’s lots of noise in and around financial markets, strategists at Macquarie concluded this week, but investors should not be complacent about risks which remain elevated.
Macquarie’s suggestion is to adopt a more defensive portfolio stance through quality growth stocks that are still trading on reasonable multiples.
All of BlueScope Steel ((BSL)), Amcor ((AMC)), Brambles ((BXB)), James Hardie ((JHX)) and SGH Ltd ((SGH)) are Buy-equivalent rated by Macquarie analysts, and they fit the more defensive mould.
Investors might also consider Reliance Worldwide ((RWC)), suggest the strategists, but it’s probably too early still for Fletcher Building ((FBU)) and Reece ((REH)).
Within this context it’s interesting to note analysts at Morgan Stanley have identified Amcor and Orica ((ORI)) for likely delivering a positive surprise in August, but with Brambles and Dyno Nobel ((DNL)) likely to surprise negatively.
Aurizon Holdings ((AZJ)) is also still considered a negative surprise risk.
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August was supposed to be the earnings season when RBA rate cuts facilitate an uptick in domestic consumer spending but the RBA has mostly held off thus far and most Australians prefer to have more savings just in case it would appear.
Analysts at Morgan Stanley lined up the following five key themes to watch for investors in consumer companies during the upcoming results season:
1) FY26 sales/margin trajectory;
2) Earnings benefits of cost out programs;
3) Capital management;
4) Escrow unwind; and
5) Strategic reviews
Morgan Stanley remains wedded to a defensive/cautious approach, preferring staples over discretionary retailers and Sigma Healthcare ((SIG)) over alcohol and fast-food as health & wellness have become a solid trend among Australians too.
Potential cost out benefits apply to all of Domino’s Pizza ((DMP)), Woolworths Group ((WOW)), Sigma Healthcare, and Treasury Wine Estates ((TWE)).
For the chance of a special dividend, the analysts have penciled in both JB Hi-Fi ((JBH)) and Super Retail ((SUL)).
Multiple management teams are currently reviewing strategies, including at Woolworths, Endeavour Group ((EDV)), Treasury Wine Estates, Domino’s Pizza, and Sigma Healthcare.
To date, the pace of recovery in discretionary retail has been slower than expected across Australia. How many greenshoots will be announced in August is anybody’s guess at this stage, but Flight Centre ((FLT)) just issued its second profit warning since April, even though some analysts are prepared to declare this will prove to be the last piece of negative news coming out of the travel agent (for this cycle).
Post disappointing indications from Metcash ((MTS)) and Viva Energy ((VEA)) investors will be curious to find out how much the popularity of illegal tobacco in Australia is hurting the supermarket businesses at Woolworths and Coles Group ((COL)).
Outside of your typical consumer spending related dilemmas, Morgan Stanley strategists believe the following themes are likely on investors’ mind ahead of August results:
-the domestic economic cycle (expectation is for better times ahead)
-momentum rotation and its durability
-costs and margins
-capital allocation and M&A
-AI investments and results
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Sector analysts at Citi have re-iterated their preference for Buy-rated AMP ((AMP)) and Challenger ((CGF)) among non-bank financials with the added observation that expectations for Neutral-rated Computershare ((CPU)) are higher than market consensus.
Least preferred is ASX Ltd ((ASX)), while overall enthusiasm is only a smidgen higher for Perpetual ((PPT)).
Among insurers, the preference lays with QBE Insurance ((QBE)) and Insurance Australia Group ((IAG)).
All health insurers are rated Neutral, though for different reasons. Medibank Private is seen as fully valued while ongoing challenges and a new CEO at nib Holdings has the analysts wary of a potential rebasing of expectations (i.e. a good old fashioned profit warning to make future achievements look better).
Peers at Morgan Stanley are expecting solid results from the insurers this season. Analysts at Jarden see upside risk for insurers versus downside risks for the banks.
Morgans’ favourites among financial services providers are Generation Development ((GDG)), MA Financial ((MAF)) and Tyro Payments ((TYR)).
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Over at Ord Minnett, Research analyst Athena Kospetas sees too many question marks in addition to elevated valuation multiples to get excited ahead of August:
“Downgrades have been concentrated in real estate and consumer-related sectors. Earnings expectations for energy and materials stocks remain depressed, held back by softness in commodity markets.
“Falling interest rates and intensification of competition has led to earnings downgrades with the banking sector, with some minor downward revisions across the rest of the financials sector, namely the insurers as premiums and investment yields have moderated.
“Technology is one area of the market that has seen strong positive earnings momentum, and with valuations particularly stretched in this part of the market, so we expect sizeable reactions if companies disappoint.”
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One of the sectors that currently stand out is the domestic telecommunication industry. Forecasts remain buoyant and momentum, both operationally and in share prices, has remained to the upside.
No surprise, a recent sector update by Jarden shows Buy-equivalent ratings for all of Aussie Broadband ((ABB)), Superloop ((SLC)), Telstra ((TLS)), and TPG Telecom ((TPG)).
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One sector expected to climb out of its recent rut is the automotive sector with sales momentum expected to improve this second half of 2025.
Macquarie’s sector favourites are Eagers Automotive ((APE)), ARB Corp ((ARB)) and Amotiv ((AOV)).
Five Bellwethers For August
Looking back over the (more than) twenty years of closely monitoring corporate results seasons in Australia, one of the most commonly made mistakes by investors is assuming a share price that has already run hard leading into the result must by definition soon run out of oxygen.
This year’s August season already presented us with the perfect example; global CPAP market leader ResMed ((RMD)).
With the share price up some 29% over the past twelve months, and rallying 9% in the immediate lead-in to Friday’s Q4 result release, one could be inclined to assume the only logical outcome would be profit-taking or a sell-off from disappointment next, but the shares have added more gain and held their ground in an overall weaker market.
In a time of fragile sentiment, with indices near all-time record highs, and constant erratic tariff policy moves coming out of the White House, one can never be too confident about what the immediate future looks like, but if analysts updated modeling and forecasts are anything to go by, this share price still has a lot of upside potential in front of it.
FNArena’s consensus price target has improved to $47.46 from $46 prior to Friday’s update implying today’s share price below $43 could still add more than 10% over the year ahead, dividends not included.
It is still early days, of course, but ResMed’s continued outperformance echoes my personal observations from the two decades past.
It sends an apposite warning to investors ahead of the deluge in market updates forthcoming: don’t give up on your winners simply because they have performed well and don’t automatically assume that hiding in cheaper-priced market laggards is by default a winning strategy.
Regarding the latter, two other companies also reported thus far and both market laggards –Champion Iron ((CIA)) and Rio Tinto ((RIO))– underwhelmed and saw their share price weaken post market update. Both share prices are now trading below price levels of this time last year.
Share markets have become extremely polarised post the 2020 pandemic and the past three years in particular have kept a lid on cyclicals and smaller cap stocks in general.
And while many a professional investor and market commentator has been predicting a broadening of the market’s positive momentum for quite a while, the all-important question remains whether August will provide enough triggers for such a broadening of the rally into those segments largely ignored and left behind?
My personal view is August comes too early. Both the Federal Reserve and the RBA locally are still figuring out the possible effects from US import tariffs, as are, by the way, most CEOs and CFOs around the world.
While the general expectation is that consumer spending and housing construction will be in better shape by this time next year, there’s still potential for disappointment and negative news in the shorter-term.
Flight Centre ((FLT)) just issued its second profit warning in four months. Its share price is now back where it was during the April sell-off. Appen’s ((APX)) market update equally saw more selling orders kicking in.
Gold miner Greatland Resources ((GGP)) has only been listed for six weeks on the local bourse but it is already facing scrutiny about its updated guidance on costs, effectively translating into a proifit warning this early in its public existence in Australia.
Whereas many a market commentator is warning investors about a sizeable spike in volatility this season, the risks are not necessarily concentrated inside the 40% of ASX-listed companies that carried the index to a new record high three weeks ago.
Momentum Favours Telcos
Analysts have been busy mostly with reducing forecasts both during and after the school holidays in July. Consensus is now projecting the average earnings per share (EPS) to retreat by -1.7% from the year prior in FY25. It’ll mark the third year in a row of net negative earnings growth for corporate Australia.
A lot has to do with the oversized importance of miners and energy companies, but also: the current consensus forecast for FY26 is a positive 4.8% average growth, albeit that number is now gradually sliding south (and probably will be lower by the end of this month).
Outside of miners and energy companies, most sectors carry positive expectations, but extreme polarisation remains the key word, including inside sectors. This set-up works in both directions, of course.
One sector caught my eye as it seems to stand out. Firstly, through positive share price performances. Secondly, through ongoing positive prospects. And thirdly, because of a lack of the extreme polarisation that still dominates most other market segments.
That sector is the local telecommunication sector with all of Telstra ((TLS)), Aussie Broadband ((ABB)), Superloop ((SLC)), TPG Telecom ((TPG)) and Tuas ((TUA)) enjoying a stamp of approval from most analysts covering the sector. The few representatives from New Zealand have arguably gone through a tougher time, but even there market dynamics seem to be improving.
If we stick to the five largest Aussie telcos on the ASX, all share prices are trading higher than in August last year and most share prices have caught positive momentum in recent weeks and months. No doubt, this is also the result of analysts gradually warming towards these companies and their (ongoing) potential for growth.
When it comes to growth, one should keep things in perspective for local market leader Telstra. Recent price hikes and overall rational competition is translating into firmer confidence about higher dividends forthcoming.
Add growing concerns about valuations inside the local banking sector and some doubts creeping in regarding the insurers and it should be no secret why Telstra is back in focus as a reliable, defensive, growing dividend payer.
Added feature: nil exposure to US import tariffs.
That latter characteristic equally applies to the three fast-growing challengers of Aussie Broadband and Superloop in Australia and Tuas in Singapore, as well as former market darling TPG Telecom, which is now a corporate turnaround story.
Apart from rational competition, recent pricing changes by the National Broadband Network (NBN) favoured the wholesalers over retail and this, analysts suspect, could facilitate added margin increases for the likes of Aussie Broadband and Superloop.
High levels of cash generation and asset sales (TPG) open up the prospect of share buybacks.
We will have to wait and see how increased expectations compare with actual results this month, but at face value it looks like Aussie telecom could be one of the eye-catching stand outs this season.
Five Bellwethers For August
Analysts at Morgan Stanley believe five stocks have the ability to shape trends and investor sentiment this month:
-CSL ((CSL))
-Insurance Australia Group ((IAG))
-Woolworths Group ((WOW))
-Stockland ((SGP))
-Telstra
After five years of notable underperformance, the analysts believe CSL is now arguably the most topical stock inside the local Top 20, with investors “highly focused on several catalysts that could reinforce or challenge an improved outlook”.
With internal cost discipline and capital management emerging as important levers for sustaining long-term growth, Morgan Stanley believes the company’s ability to navigate external pressures such as tariffs and vaccine sentiment will be at the core of how this month’s market update will be received.
I mentioned creeping doubts about whether favourable dynamics for insurers can last for longer. Morgan Stanley believes investors will be scrutinising IAG’s result for signs of (potentially) peaking industry conditions.
Shares in Woolworths have now underperformed major competitor Coles Group ((COL)) for more than 18 months. Historically, this is almost unheard of. But is Woolworths ready to close the gap and regain its former premium? Morgan Stanley sees Woolworths’ result as a litmus test for portfolio positioning in staples.
Stockland should be an early indicator of improvement in housing-linked conditions. Its market update might well function as the bellwether for housing sentiment generally.
In case you missed it, analysts at Morgan Stanley point out, Telstra shares are up by 23% since its interim result release in February. No discussion, the positive turnaround in on the ground momentum has not gone unnoticed. But market positioning “feels crowded”, say the analysts.
This, however, doesn’t mean the road ahead can only result in disappointment for Australia’s largest telco. There’s ongoing optionality in further asset sales (InfraCo) and a generous bull case scenario would see the telco meaningfully lift its dividends, well above current market forecasts.
All shall be revealed over the four weeks ahead.
AI Updates, Hot Favourites & First August Results
August Updates Are A-Comin’
The Australian corporate results season has officially started but, as per unofficial tradition, the pace of corporate releases remains rather glacial this early in the month.
By week’s end FNArena’s Corporate Results Monitor will only list some 18 companies, not more than a drop in the ocean given that number will be around 385 or so by early September, but that’s just how this cookie crumbles in Australia nowadays.
Are there any conclusions that could possibly be drawn this early?
Nah. But we do note the REITs have been a positive contributor thus far, as anticipated by analysts covering the sector.
Plus all of ResMed ((RMD)), News Corp ((NWS)) and Credit Corp ((CCP)) managed to outperform forecasts while updates from REA Group ((REA)), AMP Ltd ((AMP)) and Pinnacle Investment Management ((PNI)) contained enough good news to keep the share price well-supported.
One might say the season has begun on a relative positive note, but let’s not get overly excited just yet. There’s literally a deluge in releases awaiting us over the coming three weeks (plus a bit).
By this time next week, the numbers will be a lot larger, but the bulk is reserved for the final two weeks of the month.
FNArena is keeping a close watch daily: https://fnarena.com/index.php/reporting_season/
The Era Of Polarisation
A timely reminder entered the inbox this week: it’s not just share markets that are heavily polarised nowadays, the same observation applies to the economies underneath.
Economists at Oxford Economics shared the following observations about the US economy:
“The economy has slowed and is growing below its short-run potential, but this hasn’t altered the bifurcated nature of the consumer, business environment, and labor market. This leaves the economy more vulnerable and masks some of the fissures beneath the aggregate economic data.
“High-income consumers are doing well while lower-income households are struggling. Trade and fiscal policy will reinforce the bifurcated consumer. The net impact of tariffs and fiscal policy will reduce the lowest-income quintiles’ real disposable income by 2.5%-3% while boosting the highest incomes by the same amount.
“As large businesses can weather tariffs better, they outperform small ones, reinforcing recent labor market weakness. Employment among small businesses, the backbone of the labor market, has barely budged and fundamentals remain unfavorable.
“It’s also a tale of two labor markets. It’s a good labor market for those with a job, but a challenging one for those who are unemployed or not in the labor force but want a job. The bifurcated labor market can change quickly if layoffs increase, a significant risk to the forecasts.”
Morgan Stanley’s Hot Favourites For August
Analysts at Morgan Stanley tend to nominate their Conviction Ideas among smaller cap companies prior to each results season, and this time the tradition remains intact.
So far, the following four have been nominated:
-Tuas ((TUA))
-McMillan Shakespearre ((MMS))
-Generation Development ((GDG))
-Breville Group ((BRG))
Attention Returns To AI Infrastructure
On Tuesday and Wednesday, share prices in Macquarie Technology ((MAQ)), NextDC ((NXT)) and Goodman Group ((GMG)) enjoyed renewed buyers’ interest as analysts at Morgan Stanley reiterated their positive projections –yet again– for global spending on AI and the flow-on benefits for ASX-listed data centre operators.
Irrespective of the multiple challenges that lay ahead for the industry, Morgan Stanley’s in-house view is that global data centre capacity is poised to grow at a 23%-plus CAGR between 2025 and 2030. In Australia, capacity is projected to grow from 1275MW today to 3200MW, which in layman’s terms translates to more than double over 4.5 years.
The industry equally received some attention from Treasurer Jim Chalmers who declared data centres represent “a major opportunity” to position Australia as a global player in AI infrastructure.
Having had spent time with institutional investors holding about $3trn in capital, Chalmers stated for Australia to seize this opportunity, future success hinges on getting energy, zoning approvals, and workforce skills right.
He’s confident any obstacles can be overcome.
Meanwhile, the quarterly corporate results season in the US is very much pointing in the direction of an acceleration in demand for data centres and cloud connectivity.
Earlier in the year, when doubt crept in and clouded global investor sentiment towards the future and outlook for AI, shares in NextDC et al sold off. To date they haven’t fully recovered from that reversal in sentiment just yet.
Echoing the optimism also expressed by their colleagues at Morgan Stanley, RBC Capital analysts have been quick in pointing out Australian data centres should be among key beneficiaries from the positive mood emanating from market updates by major investors including Meta, Amazon, Google and Microsoft.
RBC Capital reminded investors it has Outperform ratings for NextDC (price target $20) and Macquarie Technology (Price target $95) and a Sector Perform, Speculative Risk rating for cloud connectivity player Megaport ((MP1)) (target $13).
Regular readers would be well aware all of Goodman Group, NextDC and Macquarie Technology are included in the FNArena-Vested Equities All-Weather Model Portfolio.
Rudi Interviewed: Is August Too Early?
It has become the ‘unofficial’ tradition in recent years: an interview with Livewire Markets ahead of yet another corporate reporting season in Australia.
Below is a sub-edited transcript from the pre-August results season interview that took place on August 5. The video is available on Livewire and on YouTube.
James Marley: Welcome to the Rules of Investing, Podcast that gets inside the minds of leading investors, economists and industry experts, brought to you by Livewire.
My name is James Marley. I’m going to be your host today. With reporting season on the ASX about to kick into full swing, my guest today is someone that has crunched the data on more results and the reactions from the market than just about anyone else.
Rudi Filapek-Vandyck, Editor of research website FNArena and popular contributor to Livewire, is with me to help you get match fit and in the zone for the upcoming reporting season.
From the big picture on current valuations, the impacts of AI and the stocks to watch in August, this is going to be a cracking session.
Now, remember, if you’re not subscribed to the Rules of Investment podcast, you can find it in all the major podcasting platforms, or you can sign up to Livewire Markets.
It’s free. It’s easy to register, and we’d love to have you on board. Now with that, I’d like to extend a very warm welcome to Rudi for our regular reporting season preview.
Rudi, great to have you online, and thanks so much for your time.
Rudi Filapek-Vandyck: My pleasure. The sound you’re hearing is the rain coming down in Sydney on the moment this interview starts.
They’re saying in investing timing is important. Apparently, with recording, it’s equally as important.
James: I thought it was a sign that we’re about to get rained down with a deluge of information on reporting season, and you’re going to be our little safe harbour to help us get through it?
Rudi: I will definitely do my best, but after such an intro, half my work has already been done!
Valuations Are High, What Gives?
James: Well, we were having a chat about what will we talk about today? And you sent through a few points. One starting point are valuations. Are they high? Are they stretched? It’s topical for investors. Difficult one to answer.
I’m going to draw attention to an article that my colleague Kerry Sun put together recently, which effectively told people to stop calling markets expensive. They’re at all-time highs but the crux of the article is, drawing from UBS research, the market has evolved. Companies have gotten better.
Therefore, we need to think about market valuations in a different light. So Rudi, does that mean we need to get used to paying higher multiples, should we be more comfortable with higher valuations?
Rudi: I think the answer is yes, under certain circumstances, not always, but we definitely need to stop calling the market overvalued simply because the valuation multiples are higher than what we are used to.
It is being said that generals always fight the last war. I’ve come to the conclusion that most investors invest in yesterday’s market, and they need to invest in tomorrow’s market, of course, because it’s all about looking forward.
I can’t emphasise enough how happy and how glad I am that stories like that and analyses like that are being published, not just by me, but by others as well.
Because I do think a whole change still needs to take place in the psyche of investors. Australia being a typical value-oriented market for such a long time, investors are constantly thinking that something trading on a PE of six or nine is, by default, a better long-term investment than something that’s trading on 96 times.
We clearly saw over the past 15 years or so that’s no longer true. In addition to all the arguments mentioned –and I completely subscribe to those arguments– I do think there’s also a very simple, easier way to understand the metrics for today’s market.
We still reason in averages. We judge the market by the average PE ratio for the ASX200 and we judge the environment for corporate Australia by the average EPS growth forecast.
In both cases, the market is so polarised these days, and it has been for such a long time. The market has at least been polarised ever since covid hit. That’s 2020, five years ago now.
On my analysis, the polarisation is quite extreme in today’s market. What that means also is those averages we are used to watch, the PE ratios and the average EPS forecast, you can’t take them at face value anymore.
A big part of the reason why the PE ratio looks this high for the Australian market is because we have 11% –Commbank ((CBA))– of the index probably trading at the highest valuation any of us has seen in our lifetime.
At 11% of the index, of course, it’s going to have a big influence on the average PE ratio, and that’s one of the reasons why the PE ratio is that high.
The bigger question, I think, is should the market sell off because CBA is trading at an all-time high?
I know sentiment is important, but I would argue it doesn’t need to. The other element is resources remain a very important input in Australia.
They are the second biggest index weight, and they too have an outsized impact on all the averages we can calculate for the index.
So I would often smile when the next person is calling for the bubble to burst.
I don’t think there’s a bubble. I think it’s way too early to say there’s a bubble. Are valuations high? Yes, they are, but there are particular reasons why that potentially can be justified.
I’m sure we’ll talk about it over the next however long this interview takes.
Why Is Corporate Australia Not Growing Earnings?
James: One of the things you mentioned there was earnings. And we get told, as investors, over time, where earnings go so too will share prices.
Same note from UBS, or a more recent note perhaps, pointed out we’re about to get the second consecutive year of negative earnings growth for the ASX.
Now, to your point, that’s on average, but we’ve got all-time highs being hit at the time when earnings are weak. So, what gives?
Rudi: Again, yes, you’re right at face value. We are at an all-time high, with a PE ratio we very seldom see, on average, and August will mark the third consecutive year of negative EPS growth on average for the local market.
So you would think it’s all about multiple expansion; there’s no earnings growth here.
But that’s not true when you look below the surface. Below the surface, the two largest components of the index locally, banks and resources, are weighing negatively on the average.
The banks are positive for this year, but it’s not much, and the resources –again– negative, both the mining companies and energy companies.
If you strip those out, you see the growth forecast for corporate Australia outside of those two sectors, is actually not that bad at all.
It’s more in the mid to high single digits EPS growth. Long term the average in Australia is 5% EPS growth per year.
If the forecast now is six or seven or eight, that means there are large parts of the Australian economy that are performing above average.
Coming back to the polarisation that I touched upon earlier, what you will find in sectors is that one company has performed and the other one hasn’t. If you want to drill down to it, it’s usually that one company has performed operationally and the other one hasn’t.
So, earnings do count, not only in August, but also for the in between seasons.
August Too Early?
James: Banks, it’s going to be hard for them to meaningfully move their earnings. They’re flat-ish type businesses and have been for a long time. Resources, highly cyclical. Can you see a turnaround story in that earnings outlook? People have been waiting for that broader earnings picture to move into positive territory again. Are we going to see it this August?
Rudi: Its going to be interesting. My view in advance, I think the question that will come to the fore for August is: is it not too early still?
That will be the question that will be asked for a lot of things. We’ve now had at least three years of large caps on average outperforming small caps. Is that going to reverse?
I think the question will be: is it not too early for that?
We have subdued consumer spending. We have profit warnings from consumer spending-related companies in Australia. Is that going to turn around in August?
I think the question will be: isn’t it too early yet for that?
I also think the whole revival of the resources sector is most likely too early.
Are we going to see a big improvement in earnings forecasts? I think it’s too early in August; the RBA has been very reluctant in helping out, Trump tariffs, it hasn’t all helped.
I think maybe a more logical time will be February next year, instead of August this year, which clearly will pose some challenges for investors.
You can also expand that to other sectors and to other themes. Are we going to see a broadening out of the advantages, the benefits, the applications of AI across corporate Australia?
Probably a little bit too early to see concrete results of that. If you take the broad view this whole AI theme at some stage will stumble and at least have a pause, but that too, I think, will be too early for August. I think that will continue.
So, I think the challenges are lining up, and I know the usual reflex of investors is trying to figure out which companies haven’t performed yet — they might perform in August.
I think the danger is they will say goodbye too early to companies that have performed and that still have a lot of firepower to continue performing.
If you look, for example, at the three corporate results just prior to this interview, Champion Iron ((CIA)) and Rio Tinto ((RIO)), two commodities companies, two iron ore producers, two disappointments.
Both share prices went down. Both share prices have not performed over the year past.
We also had ResMed ((RMD)) reaching an all-time high, and it comes out with a result better than expected. Share price up.
I think there’s a lesson here for investors. Don’t say too early to companies that have performed that this is the end of the road, and don’t think too easily that those who are lagging that their time has come to perform now.
August might just be too early for that.
How To Deal With Volatility?
James: Interesting. From the US perspective, we also saw some of the big tech companies match up. Microsoft performing really, really well. We had the IPO of Figma, which was just stratospheric in terms of returns.
It connects to that theme around AI and some of that tech momentum you’ve talked about.
Volatility. It’s been a big part of prior Australian reporting seasons and it has been evident in the US.
Do you think that that’s going to be a feature again, and how do you deal with it? Any tips for investors on how to take advantage of it?
Rudi: My personal position is probably the best starting point. The portfolio I manage currently has 10% in cash. It was a bit more, but we did apply for extra shares in Xero ((XRO)) recently.
So, we have 10% in cash and, at this point in time, no intention of doing anything with it because I worry a little bit we might need it in in August or in September, because it might well get that volatile.
If it happens in the right stocks, then we’ll be buying and that’s basically the attitude you need to have as an investor.
What worries me a little bit in that regard, and that’s backed up by research done by the likes of UBS, and I believe Morgan Stanley did something similar as well, is the average volatility in the last two seasons has picked up dramatically, like: really significantly.
That basically means if, somehow, releases do not quite meet expectations, the punishment can be extraordinary.
That is obviously devastating if you’re holding the wrong stocks for the wrong reasons, and you have no confidence in them because there are your losses, even if you don’t take them.
But for the right stocks, if you are confident it’s a temporary setback and the long-term story remains intact, the obvious observation to make, of course, that it’s an opportunity.
I am often being asked, which ones do you think will fail, and which ones are your favourites?
I’ve been doing this for such a long time, and I’ve stopped predicting, because you simply don’t know.
In a very simplistic proposition: I’m still a long-term shareholder in ResMed. The shares are now up 100% in two years.
I have no intention of saying goodbye to them. The shares rallied very strongly over the past month into this result, and that normally can make you a little bit worried, because who tells you that that will not lead to a disappointment on the day?
In this case, it hasn’t, but there’s no guarantees when you put all the elements together. Whether that matters in the immediate term is very much dependent on why you own your stocks, what’s your horizon, what does your portfolio look like?
And probably the most important thing is: how large is your confidence in that whatever happens in August does not necessarily reflect on the year ahead or the two years ahead?
Is August Key For CSL?
James: Let’s dive into a couple of important results and key results for people to keep an eye on. I’ve picked CSL ((CSL)). I know it’s a company you followed for a few years.
We had a number of commentators and fund managers on Livewire saying this result really matters for CSL. Investors have been patient. The stock’s been trading sideways for an extended period.
It’s time for management to deliver on some of the promises around better margins and growth. What’s your take on the outlook for CSL?
Rudi: I’m not so sure whether that’s true. I think those people might be expecting too much.
The reason why is we still have Trump in the White House and I do know Trump goes after healthcare costs in the US and is targeting Big Pharma.
How much of that will also impact on CSL, or will it exclude CSL, etc, etc?
The share price hasn’t performed post covid. What people forget and it’s easy to ignore, is this company’s growing at double digits.
Underneath the share price is a company that grows at double digits. It did that last year, and it has guided to do that this year, and it probably will equally guide to do that next year.
There’s only so much the company can control. On one end, you’re right. There is a lot of insecurity if you are inside the CSL bunker and there are signs I’ve noticed over the year that they’re definitely feeling the pressure.
They definitely feel like they need to do something, because shareholders, clearly, they’re not sitting there to have a share price that doesn’t move.
But in the same respect, I am very cognisant of the fact it’s not all in their power. They would love to be in a position like ResMed is, where they can just have solid sales and an increased margin.
Similar as with BHP Group ((BHP)), where they had to increase capex and postpone the second expansion project in Canada with Jansen potash, the disappointment from CSL was that the return to the pre-covid profit margin has been delayed — twice.
From that perspective, they probably need to come out and say we’re on track now and not delaying by another 12 months.
That would definitely be a big disappointment. If they read the room correctly, that’s exactly what they shouldn’t do in August.
Again, we will have to see. If it wasn’t for the whole anti-vax movement in the US that is now in charge of the government, I would not be that negative about CSL. I’m not negative now, but I am cognisant of the fact they have no control over certain things that can have a big impact still on market sentiment, at the very least.
What I do notice is that in July, both ResMed and CSL share prices have rallied quite strongly. Clearly, the market, for some reason, felt more comfortable in owning those shares after June than before and why exactly that is, I don’t know.
All I know is Trump hasn’t changed his views. But maybe, maybe there’s more confidence out there that whatever comes out of CSL operationally will not be bottom of the barrel.
Corporate Results In Focus
James: Rudi, gives us a couple of stocks that you’ve got your little Rudi microscope on for reporting season; that you think could be interesting to keep an eye on?
Rudi: I’m still very much into AI mode. I still believe the scepticism that has descended upon the Australian share market will be proven misplaced.
You’ll find that all those stocks that last year could do no wrong because they had an AI label attached to them, the whole atmosphere around them has changed this year.
I’ll definitely be on the lookout and not just the likes of Goodman Group ((GMG)), NextDC ((NXT)), Macquarie Technology ((MAQ)), Infratil ((IFT)), and others, but also the technology companies like WiseTech Global ((WTC)) that will be applying AI fully through its operations.
The AI discussion in the US is much livelier than it is in Australia. In the US, those who are convinced that AI will have a profound influence on the economy over the years ahead, they are toying with the idea that companies will be successful.
These companies can be in finance. They can be in the insurance sector. They don’t necessarily have to be one of the big tech companies.
If companies are successful in applying AI, their revenue will go up and their margins will increase. If you have the combination of those two, then whatever is priced in today will not look expensive in two or three years’ time.
This is something investors in Australia should consider as well. Again, I think it will be too early in August, but companies will talk a lot more about AI, I’m sure.
That will include the likes of CBA. In recent times, even companies like Imdex ((IMD)) are now moving into SaaS and AI.
You will hear it from Pro Medicus ((PME)). You will hear it from WiseTech. You’ll also hear it from Scentre Group ((SCG)), and from Myer ((MYR)), and from Temple and Webster ((TPW)).
While August will be a season with a lot of talk about AI, we won’t see that much in terms of extra revenue and profit increases.
That might come, at your earliest, probably in February next year, maybe August next year.
AI Front Runners In Australia
James: Do you have a couple of front runners on the AI front? You’ve talked about the data centres; I know you’re a fan there.
You’ve listed a cluster of stocks from bricks and mortar retailers, through to the biggest bank, through to a mining services software provider. Are there a couple on the top of your list where you think they could be on the front?
Rudi: I think there’s a time and timing for everything. I’m still into the data centres, because that is still a very straightforward way of playing this mega trend.
At this point in time, the most obvious other companies are companies in which we already are a shareholder anyway.
So you talk about TechnologyOne ((TNE)), you talk about Xero ((XRO)), you talk about WiseTech Global; they already are working with AI.
It’ll go through the databases. It’ll go through their client bases. Given their business models, they will stand to benefit.
Also quite straightforward: the margins will probably increase, the cost will go down.
These are the obvious ones to watch this reporting season. (Note: TechOne and Xero don’t report in August, WiseTech Global does).
In the next phase, we will start talking about AI being used in finance; insurance companies, banks, probably also in other finance services providers.
The telecommunication companies will start using it. We can position for that right now, but it is still early days.
As I said earlier, BHP is big on AI, but it won’t move the dial there, unless we see the copper boom coming to the surface, or potash, or iron ore staying resilient for longer.
Because, at the end of the day BHP can apply AI as much as it likes, if those commodity prices don’t move, the share price won’t move either.
Three Bonus Questions
James: Rudi, we usually have three regular questions, but I’m going to call them irregular questions this time around, because I’ve tweaked them for you, ahead of reporting season.
They’re meant to be short, sharp, a little bit of fun. So why don’t we get stuck into those?
You’ve analysed 1000s of broker reports, maybe tens of 1000s, possibly hundreds of 1000s, over the last two decades. If you had to pinpoint one aspect the most valuable part of that research, what is it? And how can investors use it?
Rudi: Probably in the way I use it. It helps you understand what makes a company tick.
For someone like myself, that is more important than someone putting a Sell or Hold or Buy rating on the company and coming up with a price target or valuation.
What has helped me massively over the past 20 years that I’ve been doing this, and longer, is having access to such reports.
If I come across a company and I have no idea what it does, I can, obviously, download an annual report or something, but having access to broker research that goes through the whole company from A to Z and back — you don’t have to agree with everything– it helps you understand what is important, this market, that product, etc, etc.
As I always like to say, Warren Buffett said you want to invest in a company that sooner or later can be run by an idiot.
But you have to understand it, to identify that particular company.
James: Normally, we ask people what they think are investors getting wrong about the market. Which company do you think investors are underestimating the most in the market right now?
Rudi: That’s an easy one: NextDC. Recently I had, again, a long conversation with investors, and I can’t get around the impression that people really can’t get their head around how the data centres sector actually works, and why the world needs companies like NextDC.
Maybe this is something I underestimated over the past decade, that I was quite lucky to have access to industry reports, to broker reports that explain how the industry works, why we need NextDC, why there is a mega trend, and all of that.
I’ve noticed that, clearly, for a whole bunch of other people, it’s very difficult to get their head around.
Not making it any easier: this is a company that doesn’t make a profit.
James: Rudi, last question, it’s been about 15 months or so, maybe a little longer, since you were last on the Rules of Investing. You were asked by Ally if you could only own one stock for the next five years, what would it be?
You’re a bit cheeky. You picked three stocks. Those stocks were Goodman Group, NextDC and CSL. Are you happy to stick with those stocks for the remaining three and a half years? Did you want to substitute one instead?
Rudi: No. If you’d want to substitute one, it would probably be CSL, simply because of the risk factor.
But I still believe that CSL is a quality company. It’ll get things right as far as what they can control.
Actually, we now are making a circle to where we started this conversation today.
People have to stop looking at Goodman Group as a property developer. They have to stop looking at NextDC as a capital-intensive business.
What they do have to understand is that we are most likely revisiting the 1920s and in the 1920s, at the beginning of the wave upwards, at the beginning of societal change, at the beginning of the mega trend, the last thing you worry about is that you can overpay.
Because those share prices will be carried by the mega trend. It’s called a mega trend for a reason. CSL will use AI as well.
James: if you were to switch out of CSL, is it ResMed you’d pop in instead?
Rudi: I might pick ResMed, yes, for obvious reasons. ResMed, also in the portfolio, has –sort of– taken the mantle from CSL.
James: Rudi, talking of mega trends, that was a mega interview ahead of reporting season. Always great to catch up. I really appreciate your time and putting your hard hat on. Best of luck for August.
Rudi: Thank you. And don’t fight the last war!
James: Very good. Ladies and gentlemen, I hope you enjoyed that episode of the Rules of Investing. A special one with Rudi Filapek-Vandyck ahead of the August reporting season.
Remember, if you enjoyed that video or the podcast, make sure you subscribe to our channels on YouTube or on Apple and all the major podcasting platforms.
What The Experts Are Saying
An observation from UBS:
“After a multi-year period of underperformance, gold equities (GDX Index) have outperformed the gold price by >40% YTD.
“In particular, the last three months have been very strong for equities, despite a largely rangebound gold price. However, this has largely been an international phenomenon, with Australian gold stocks lagging quite materially.
“Gold miners have had a poor track record in recent years resulting in valuation de-rating; but recent results were a net positive for the global gold miners, with the stocks generally delivering record Free Cash Flow, 2025 production/ cost guidance generally maintained (despite higher royalties), management teams demonstrating discipline with limited increases in capex & increasing cash returns.”
UBS’s preferred sector exposures are Barrick Mining, Endeavour, Kinross, AngloGold, & Franco-Nevada. None are listed locally.
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This month’s update on Morningstar’s Best Stock Ideas in Australia has seen the removal oif IGO Ltd ((IGO)) from the list and the inclusion of Pilbara Minerals ((PLS)).
Among the many discussions whether the return of positive momentum for lithium prices and share prices of linked exposures might prove justified, and sustainable, or not, Morningstar simply sees the market taking a more optimistic stance.
Lithium demand is expected to triple by 2023 from levels registered in 2023 and Pilbara has mine reserves spanning twenty years, and more.
IGO Ltd also has exposure to lithium, of course, but the preference has been switched to Pilbara.
Morningstar’s selection of Best Stock Ideas (Conviction Buy Calls by any other name, mostly chosen because of under-valuation):
-Auckland International Airport ((AIA))
-ASX Ltd ((ASX))
-Aurizon Holdings ((AZJ))
-Bapcor ((BAP))
-Dexus ((DXS))
-Domino’s Pizza Enterprises ((DMP))
-Endeavour Group ((EDV))
-Fineos Corp ((FCL))
-IDP Education ((IEL))
-Pilbara Minerals
-Ramsay Health Care ((RHC))
-SiteMinder ((SDR))
-Spark New Zealand ((SPK))
-Woodside Energy ((WDS))
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Equally noteworthy: we couldn’t help but noticing the Conviction Buy list at Goldman Sachs specifically for ASX-listed exposures is now down to three and with Unibail-Rodamco-Westfield ((URW)) about to disappear from the local bourse, will that be two remnants only by month’s end?
-Goodman Group ((GMG))
-ResMed ((RMD))
-Unibail-Rodamco-Westfield
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Investors looking for exposure to the steel sector are guided towards BlueScope Steel ((BSL)) in UBS’s sector update this week. It’s the only one with a Buy rating in the sector.
UBS does highlight short term the emand outlook, particularly in the US, is subdued due to global trade uncertainty and lower consumer/business confidence. Its optimism is based on the premise things will improve medium term.
Both Sims ((SGM)) and Vulcan Steel ((VSL)) are rated Neutral with the latter continuing to battle the absence of a V-shaped recovery in New Zealand.
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The week past has seen a major change in view regarding the the ADNOC consortium’s bid for Santos ((STO)) by stockbroker Morgans.
Up until now, the broker remained sceptical about the Treasurer and FIRB approving Santos becoming a foreign-owned key energy operator in the Australian landscape.
But with its balance sheet stretched and gas reserves constrained, Morgans can see the government turning more accommodative as the new owner would bring along deep pockets and most likely be willing to agree to some restriction (such as some reservations for domestic consumers).
The result has been a swift double-take upgrade in Morgans’s rating to Accumulate from Trim. In the same vein, and with an oil price remaining under pressure, the broker has downgraded both Woodside Energy ((WDS)) and Karoon Gas ((KAR)) to Accumulate from Buy.
Irrespective of the weak pricing environment for oil, share prices have appreciated by a lot these past number of weeks, leading Morgans to suggest the easy gains have by now been made in this sector.
Elsewhere, every update on global opportunities inside the energy sector by RBC Capital features Woodside Energy, and only Woodside as far as ASX-listed exposures are concerned.
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Bell Potter‘s selection of preferred stocks in the agriculture sector has seen the addition of GrainCorp ((GNC)).
Were already on the list:
-Bega Cheese ((BGA))
-Elders ((ELD))
-Nufarm ((NUF))
-Rural Funds Group ((RFF))
Elsewhere, Bell Potter analysts favour stocks exposed to a recovery in Out Of Home consumption, including Bega Cheese, Retail Food Group ((RFG)) and Noumi ((NOU)), and market leading discretionary retail exposures, including JB Hi-Fi ((JBH)), Universal Store Holdings ((UNI)), and Harvey Norman ((HVN)).
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Not wanting to depress anyone’s mood, but the following quote summarises UBS’s outlook for US equities (lower, for now):
“US’ growth inflation mix is likely to worsen. Along with dampening earnings growth expectations, this should also lift equity volatility, which, in turn, would challenge the flow driven momentum trade buoying valuations.
“This drives us to call the market lower in the near-term and to expect it to remain below current levels even by end ’25. We then see a smart recovery in H2 ’26.”
On UBS’s projections, the S&P500 is en course for a correction to 5900 around late Q3/early Q4 before recovering to 6100 by end 2025 and 6800 by end 2026.
Peers at Citi have their own ideas:
“The S&P 500 continues to trade in “euphoric” conditions per our Levkovich Index. History shows that this entails higher volatility.
‘Thus, while we are increasingly confident in the fundamental set up for index, we remain wary that much is already priced in. Thus, as we’ve been arguing, volatility should be expected, and bought into.
“Our base case year-end expectation for the S&P 500 is lifted to 6600. The new bull case is 7200, with bear case at 5600.”
One more, from Wilsons:
“We see the 6-to-12-month outlook as decent.
Longer term the US market should”remain supported by significant structural technology sector tailwinds, so our caution is tactical rather than strategic.”
Best Buys & Conviction Calls
Bell Potter’s sector preferences for the financial year ahead.
Listed Investment Companies ((LICs)
-Australian Foundation Investment Company ((AFI))
-Metrics Master Income Trust ((MXT))
-MFF Capital Investments ((MFF))
Agricultural & Fast Moving Consumer Goods (FMCG)
-Bega Cheese ((BGA))
-Rural Funds Group ((RFF))
-Elders ((ELD))
Technology
-WiseTech Global ((WTC))
-Gentrack ((GTK))
-Seek ((SEK))
Diversified Financials
-Cuscal ((CCL))
-Praemium ((PPS))
-Regal Partners ((RPL))
Real Estate
-Aspen Group ((APZ))
-Cedar Woods ((CWP))
-Region Group ((RGN))
Retail
-JB Hi-Fi ((JBH))
-Universal Store Holdings ((UNI))
-Propel Funeral Partners ((PFP))
Industrials
-LGI Ltd ((LGI))
-Environmental Group ((EGL))
Healthcare
-Telix Pharmaceuticals ((TLX))
-Neuren Pharmaceuticals ((NEU))
-Monash IVF ((MVF))
Gold
-Minerals 260 ((MI6))
-Santana Minerals ((SMI))
-Evolution Mining ((EVN))
Base Metals
-Aeris Resources ((AIS))
-Nickel Industries ((NIC))
-AIC Mines ((A1M))
Strategic Minerals & Processing Technologies
-Alpha HPA ((A4N))
-IperionX ((IPX))
Energy
-Boss Energy ((BOE))
Mining & Industrial Services
-Develop Global ((DVP))
-ALS Ltd ((ALQ))
-Duratec ((DUR))
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Crestone’s Best Sector Ideas:
-Ampol ((ALD))
-APA Group ((APA))
-Aristocrat Leisure ((ALL))
-Beach Energy ((BPT))
-Brambles ((BXB))
-Cochlear ((COH))
-CSL ((CSL))
-Goodman Group ((GMG))
-IGO Ltd ((IGO))
-James Hardie Industries ((JHX))
-Lottery Corp ((TLC))
-Macquarie Group ((MQG))
-Metcash ((MTS))
-Monadelphous Group ((MND))
-REA Group ((REA))
-ResMed ((RMD))
-Suncorp Group ((SUN))
-Xero ((XRO))
Crestone’s selection for sustainable income:
-Amcor ((AMC))
-Ampol ((ALD))
-ANZ Bank ((ANZ))
-APA Group ((APA))
-Atlas Arteria ((ALX))
-Beach Energy ((BPT))
-BHP Group ((BHP))
-Car Group ((CAR))
-Coles Group ((COL))
-Dalrymple Bay Infrastructure ((DBI))
-Iress ((IRE))
-Lottery Corp ((TLC))
-Macquarie Group ((MQG))
-Metcash ((MTS))
-Mirvac Group ((MGR))
-Pro Medicus ((PME))
-QBE Insurance ((QBE))
-RAM Essential Services ((REP))
-ResMed ((RMD))
-Suncorp Group ((SUN))
-Tabcorp Holdings ((TAH))
-Telstra Group ((TLS))
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Jarden’s 18 Best Ideas among Australia’s small caps (“emerging companies”) includes the following Key Picks considered offering the highest potential return, in order of projected total investment reward:
-GQG Partners ((GQG))
-Dicker Data ((DDR))
-Universal Store Holdings ((UNI))
-Qualitas ((QAL))
-EVT Ltd ((EVT))
-Pinnacle Investment Management ((PNI))
-Temple & Webster ((TPW))
-SiteMinder ((SDR))
The other ten stocks selected:
-Aussie Broadband ((ABB))
-Arena REIT ((ARF))
-Genesis Energy ((GNE))
-Harvey Norman ((HVN))
-Integral Diagnostics ((IDX))
-Karoon Energy ((KAR))
-Michael Hill ((MHJ))
-Pepper Money ((PPM))
-Symal Group ((SYL))
-Vault Minerals ((VAU))
****
Macquarie‘s small caps desk nominated its favourites (Best Picks) ahead of the August results season.
-Aussie Broadband ((ABB))
-Amotiv ((AOV))
-AUB Group ((AUB))
-Alpha HPA ((A4N))
-Bega Cheese ((BGA))
-Capstone Copper ((CSC))
-Codan ((CDA))
-Genesis Minerals ((GMD))
-Iluka Resources ((ILU))
-Integral Diagnostics ((IDX))
-Harvey Norman ((HVN))
-Jumbo Interactive ((JIN))
-Lovisa Holdings ((LOV))
-Maas Group ((MGH))
-Megaport (( MP1))
-Monadelphous ((MND))
-Neuren ((NEU))
-Nick Scali ((NCK))
-oOh!media ((OML))
-Pinnacle Investment Management ((PNI))
-Qualitas ((QAL))
-Reliance Worldwide ((RWC))
-SiteMinder ((SDR))
-Summit Minerals ((SUM))
-Universal Store Holdings ((UNI))
-Ventia Services ((VNT))
-Web Travel Group ((WEB))
****
Morgans‘ selection of Best Ideas consists of the following 29 ASX-listed companies:
Acrow ((ACF))
ALS Ltd ((ALQ))
Amotiv ((AOV))
BHP Group ((BHP))
Collins Foods ((CKF))
Corporate Travel Management ((CTD))
CSL ((CSL))
Dalrymple Bay Infrastructure ((DBI))
Dexus Convenience Retail REIT ((DXC))
DigiCo Infrastructure REIT ((DGT))
EBR Systems ((EBR))
Elders ((ELD))
Goodman Group ((GMG))
Guzman y Gomez ((GYG))
James Hardie Industries ((JHX))
Light & Wonder ((LNW))
Lovisa Holdings ((LOV))
MA Financial Group ((MAF))
Megaport ((MP1))
Orica ((ORI))
Pinnacle Investment Management ((PNI))
ResMed ((RMD))
South32 ((S32))
Treasury Wine Estates ((TWE))
Qualitas ((QAL))
Universal Store Holdings ((UNI))
Whitehaven Coal ((WHC))
WiseTech Global ((WTC))
Woodside Energy ((WDS))
****
Morgan Stanley’s six Conviction stock picks that each represent a compelling individual investment case underpinned by idiosyncratic drivers and the ability to deliver earnings upside, believed to be underappreciated by the market.
-WiseTech Global ((WTC))
-Charter Hall Group ((CHC))
-Suncorp Group ((SUN))
-Life360 Inc ((360))
-Generation Development Group ((GDG))
-Data#3 ((DTL))
Morgan Stanley’s Macro+ Focus List in Australia is currently made up of:
-Aristocrat Leisure ((ALL))
-ANZ Bank ((ANZ))
-Car Group ((CAR))
-Goodman Group ((GMG))
-GPT Group ((GPT))
-James Hardie Industries ((JHX))
-Orica ((ORI))
-Santos ((STO))
-Suncorp Group ((SUN))
-Xero ((XRO))
Morgan Stanley’s Australia Macro+ Model Portfolio is currently made up of the following:
-ANZ Bank ((ANZ))
-CommBank ((CBA))
-National Australia Bank ((NAB))
-Westpac ((WBC))
-Macquarie Group ((MQG))
-Suncorp Group ((SUN))
-Goodman Group ((GMG))
-GPT Group ((GPT))
-Scentre Group ((SCG))
-Stockland ((STG))
-Aristocrat Leisure ((ALL))
-Eagers Automotive ((APE))
-CAR Group ((CAR))
-Domino’s Pizza ((DMP))
-The Lottery Corp ((TLC))
-Wesfarmers ((WES))
-WiseTech Global ((WTC))
-Xero ((XRO))
-James Hardie ((JHX))
-Amcor ((AMC))
-Cleanaway Waste Management ((CWY))
-Orica ((ORI))
-Coles Group ((COL))
-AGL Energy ((AGL))
-Telstra ((TLS))
-Transurban ((TCL))
-BHP Group ((BHP))
-Newmont Corp ((NEM))
-Rio Tinto ((RIO))
-South32 ((S32))
-Santos ((STO))
-Woodside Energy ((WDS))
****
Ord Minnett’s High Conviction calls (all nominations made by sector analysts on a 12 month horizon):
-Aussie Broadband ((ABB))
-Brazilian Rare Earths ((BRE))
-Bubs Australia ((BUB))
-Cuscal ((CCL))
-Qoria ((QOR))
-Regis Healthcare ((REG))
-SiteMinder ((SDR))
-Vault Minerals ((VAU))
-Waypoint REIT ((WPR))
-Zip Co ((ZIP))
****
Shaw and Partners’ Large Caps Model Portfolio:
-ANZ Bank ((ANZ))
-Aristocrat Leisure ((ALL))
-BlueScope Steel ((BSL))
-Brambles ((BXB))
-Dexus ((DXS))
-Macquarie Group ((MQG))
-Newmont Corp ((NEM))
-South32 ((S32))
Shaw and Partners’ emerging companies Top Picks:
-AML3D ((AL3))
-Australian Vanadium ((AVL))
-Bannerman Energy ((BMN))
-Chrysos ((C79))
-Humm Group ((HUM))
-Metro Mining ((MMI))
-Santana Minerals ((SMI))
-Southern Cross Electrical ((SXE))
****
UBS’s Most Preferred Stocks in Australia
In Resources segment:
-BHP Group ((BHP))
-BlueScope Steel ((BSL))
-Newmont Corp ((NEM))
-Orica ((ORI))
-Origin Energy ((ORG))
Among Financials & A-REITs:
-Dexus ((DXS))
-Lifestyle Communities ((LIC))
-Mirvac Group ((MGR))
-Medibank Private ((MPL))
-QBE Insurance ((QBE))
-Steadfast Group ((SDF))
Among Industrials:
-Brambles ((BXB))
-Collins Foods ((CKF))
-Cochlear ((COH))
-Coles Group ((COL))
-NextDC ((NXT))
-REA Group ((REA))
-ResMed ((RMD))
-SGH Ltd ((SGH))
-TechnologyOne ((TNE))
-Telstra Corp ((TLS))
-Telix Pharmaceuticals ((TLX))
-WiseTech Global ((WTC))
UBS’s Least Preferred Stocks in Australia
-Aurizon Holdings ((AZJ))
-ASX Ltd ((ASX))
-Bank of Queensland ((BOQ))
-CommBank ((CBA))
-Charter Hall Group ((CHC))
-Computershare ((CPU))
-Evolution Mining ((EVN))
-Temple & Webster ((TPW))
****
Wilsons‘ Key Investment Opportunities:
-Goodman Group ((GMG))
-Pinnacle Investment Management ((PNI))
-ResMed ((RMD))
-WiseTech Global ((WTC))
-Woolworths ((WOW))
High conviction investment ideas:
-ARB Corp ((ARB))
-Maas Group ((MGH))
-Nanosonics ((NAN))
-Ridley Corp ((RIC))
-SiteMinder ((SDR))
Speculative idea:
-Clarity Pharmaceuticals ((CU6))
Wilsons’ Focus Portfolio currently contains the following:
-ANZ Bank ((ANZ))
-Aristocrat Leisure ((ALL))
-BHP Group ((BHP))
-Brambles ((BXB))
-Car Group ((CAR))
-Collins Foods ((CKF))
-CSL ((CSL))
-Evolution Mining ((EVN))
-Goodman Group ((GMG))
-HealthCo Healthcare & Wellness REIT ((HCW))
-Hub24 ((HUB))
-James Hardie ((JHX))
-Macquarie Group ((MQG))
-Northern Star Resources ((NST))
-Pinnacle Investment Managers ((PNI))
-ResMed ((RMD))
-Sandfire Resources ((SFR))
-Santos ((STO))
-South32 ((S32))
-TechnologyOne ((TNE))
-Telix Pharmaceuticals ((TLX))
-The Lottery Corp ((TLC))
-Westpac Bank ((WBC))
-WiseTech Global ((WTC))
-Woolworths Group ((WOW))
-Worley ((WOR))
-Xero ((XRO))
Paying subscribers have 24/7 access to my curated lists, including All-Weather Performers at: https://fnarena.com/index.php/analysis-data/all-weather-stocks/
Early August Signals & Observations
The first two weeks of the August reporting season have only shown a limited sample of how corporate Australia is performing –the bulk starts flooding in from Wednesday this week onwards– but already there are plenty of signals for investors to take on board.
The first impression is plenty of share prices respond positively to results, but those who disappoint will get punished. See AGL Energy ((AGL)), Audinate Group ((AD8)), Bravura Solutions ((BVS)), oOh!media ((OML)), and SGH Ltd ((SGH)).
Those examples are thus far matched by strong gains for the likes of Coronado Global Resources ((CRN)), Baby Bunting ((BBN)), Orora ((ORA)), Temple & Webster ((TPW)), and Westpac ((WBC)).
The first two weeks of August have seen more gains than the occasional shellacking, which has underpinned the market’s positive momentum resulting in a fresh all-time record high at the month’s half-way point of 8,938.60.
But maybe not all is what it necessarily looks like as the first 52 results of the season suggest corporate Australia is not strong and healthy enough to handsomely beat rather mediocre forecasts, at least that would be one of the conclusions from the first two weeks.
On Friday August the 15th, 52 earnings releases had only seen 23% (12 results) outperforming analysts’ forecasts, while 27% (14 results) underwhelmed and the big bulk (50% or 26 results) proved simply in-line with forecasts.
It might still be early days with another 330 results or so to be assessed by early September, but those numbers do not make for a great opening gambit.
For context, I have gone back in time and compared with where we were at this point in the past three seasons.
In February, 47 results had seen 42.5% outperforming forecasts against 25.5% ‘misses’ and 32% in line.
In August last year, 64 results had seen 36% in ‘beats’ versus 31% in disappointments and 33% in line.
In February last year, 68 reports generated 41% in ‘beats’ against 22% in ‘misses’ and 37% in line.
Now consider that August last year ultimately ended with the worst score in the 14 year history of FNArena’s Corporate Results Monitor (by a wide margin), and that the two February seasons were not that great either.
The argument that the local economy needs more RBA rate cutting, and maybe less uncertainty from tariffs and China-Russia-Israel-US tensions, would find solid support from those numbers.
Note also: the number of companies reporting in the first half of each season continues to decline from the year prior. Is this too a signal companies are merely struggling and muddling instead of reaping home runs and tries?
By Monday, the numbers on FNArena’s Corporate Results Monitor have worsened, not improved, with 59 results disappointing by 30.5% (18 results) against 23.7% better-than-forecasts and the remaining 27 (45.8%) simply meeting forecasts.
Early indications are similar for the 17 or so companies reporting on the day; most manage to broadly meet analysts’ estimates, with a bias towards slight ‘misses’. Results released by Audinate Group and oOh!media have been identified for instant capital punishment.
As things stand, August 2025 will mark the third year in succession of net negative earnings growth for the ASX200, currently estimated at -1.6%. The local average EPS will have declined by circa -19% since peaking in 2022.
Expectations are FY26 and FY27 should see net positive outcomes of (currently estimated) 4.5% and 7.5% respectively, though the underlying trend is still to the downside.
July and August are witnessing large investment portfolios rotating into smaller caps, resources, cyclicals and other laggards, suggesting market positioning is changing towards (anticipation of) a better environment in 2026.
Corporate results are never the sole determining factor, not even during reporting season, but large beats and misses can leave major imprints on share prices that last for months after the market update.
Compare The Pair
If I had to summarise the first half of this season, I’d go with Life360 ((360)) versus Qoria ((QOR)). Allow me to explain.
Life360 is a US-headquartered ‘family safety’ network developer that listed on the ASX in late 2018 and whose spectacular growth momentum has really captured investors’ attention since 2023. Its share price has almost appreciated ten-fold over the past 2.5 years.
Qoria, on the other hand, originally started life as Family Zone Cyber Safety in Perth in 2014. The current name was adopted in May 2023. Its existence on the ASX has followed a much less ebulliant trajectory.
Even after a spectacular re-animation in 2025, its share price still has some work to do in order to surpass the two peaks recorded in July of 2017 and July of 2021.
The two businesses have some overlap, but are far from similar. Life360 offers an app in direct competition with Apple and Google and concentrates on families, including kids and pets and just about anything that can be traced and tracked.
Qoria specifically targets kids’ safety and its service in the cloud (SaaS) runs through schools.
Life360 has become profitable, Qoria is not there yet. Life360 is growing much faster and is a much larger entity with quarterly sales larger than the circa $117m in revenues Qoria might announce for its full financial FY25 this month.
All of this easily explains why Life360’s market cap of $10bn is more than ten times the size of Qoria’s (less than $900m).
But here is where this story gets interesting. Because of past successes, Life360 shares are trading on what many would consider are elevated multiples.
Qoria’s share price was broadly lingering, moving sideways until a market update in July which pulled in the buyers and almost literally injected a rocket under the share price.
Qoria shares have rallied in excess of 50% over the past number of weeks.
Before or after that market update, some tipsters had suggested investors should sell out of Life360 and swap it for the much cheaper-priced Qoria.
Investors who followed that advice are probably smiling today. Even if they didn’t reap the full 50%-plus in gains, their timing has proved impeccable. Congratulations, and well done.
But that is only one limited way of looking at this.
Let’s move back to Life360 and ignore for now the fact shareholders missed out on a sizeable gain by sticking to their position.
As said, Life360 shares have almost risen by a factor ten over the past 2.5 years, so there would be a lot of smiling faces among its shareholders too.
And it’s not as if the Life360 share price hadn’t moved pre-august either, with a total gain of 78% since January 1.
I can see the logic as to why the tipsters started looking for an alternative. Following such an enormous run, Life360 surely must run out of puff at some stage?
As it turns out, August 2025 wasn’t going to be this company’s Waterloo. Its Q2/mid-year market update has seen the share price adding some 15% over the following five days.
Analysts covering the company have yet again been forced to upgrade their forecasts, which has pushed up valuations and price targets for the twelve months ahead.
One key difference with Qoria is updated targets are still above the share price post rally.
Whether Qoria’s FY25 update later this month might trigger a similar response is yet to be seen, but given its market update in July already included guidance for FY26, I’d be inclined to think it might not.
Currently, analysts’ revised price targets are below where Qoria shares are trading.
The key question that arises from all of this is: who in this story should have the biggest smile?
Those investors who swapped Life360 for Qoria and made a quick killing or those who staid on board and saw their gains increase further?
The question is relevant because examples such as Qoria’s tend to get a lot of media attention, similar to the 30%-plus gain for Coronado Global Resources shares or the 40%-plus reward for investors holding equity in Baby Bunting.
For companies such as Life360 any attention mostly goes out to its elevated multiples and when exactly mighty competitors such as Apple and Google might decide to kill its chances of survival?
I am by no means predicting that Life360 will never ever stumble or disappoint, and maybe Qoria is now embarking on a similar trajectory, but the past number of years have generated plenty of examples of companies growing strongly and continuing to do exactly that.
The likes of ResMed ((RMD)), REA Group ((REA)), TechOne ((TNE)), Xero ((XRO)) and others have maintained their positive trajectory for a lot longer than the past 2.5 years, but at its core their story is very much the same.
Ahead of every reporting season, one can sense the doubt and the criticism surrounding their share price, with tipsters suggesting maybe Bravura could be a better choice, or Nuix ((NXL)), or EML Payments ((EML)), but have a wild guess which share prices are today at or near an all-time record high?
So, instead of highlighting the random successes that can generate outsized returns from beaten-down market laggards on surprisingly better-than-feared market updates, let’s shine a light on, and admire, the remarkable resilience from the ASX’s highest quality growth businesses that yet again stand out from the crowd in this early phase of the current results season.
Expectations are well above average for these companies, and yet they very rarely mimic an Audinate Group or Avita Medical ((AVH)).
If anything, in most reporting periods these companies shine through quality and excellence, usually forcing analysts to add-on to future growth projections.
Quality Among The Winners
The opening two weeks of August have already provided plenty of positive examples of multi-year strong performers that refuse to run out of oxygen.
Viewed from such angle, August 2025 is shaping up as a repeat of February this year, which repeated the experience of August last year, which roughly followed the script of February that year.
I think you get the picture. Financial results released by Nick Scali ((NCK)), Pinnacle Investment Management ((PNI)) and REA Group strictly taken did not beat expectations beforehand, but performances were solid enough to continue supporting their share prices.
Quality growers that did prove the sceptics wrong include Car Group ((CAR)), JB Hi-Fi ((JBH)), Pro Medicus ((PME)), ResMed, and Temple & Webster.
Cochlear’s ((COH)) result did not excite the market, but there’s clearly sufficient confidence that launches of Nexa system and Kanso 3 will re-initiate strong growth in 2H26 and beyond.
As we have passed the midpoint of the month, corporate results releases are only gradually ramping up in numbers, as has become the local tradition for many years now.
By early September, FNArena’s Corporate Results Monitor will cover circa 385 companies, so there’s a whole lot to be unleashed upon us, still.
Early signals are not looking very flash. I expect most quality growth companies to continue the positive balance to date.
Elsewhere, we will see more positive repeats of Baby Bunting and Coronado, but investors should equally expect to see a whole lot more disappointments a la Audinate Group and Bravura Solutions.
As per always, the share market offers a true smorgasbord for all varieties in strategies and risk appetite, but maybe there is also an important lesson for investors to be reminded of?
A Glass Half-Full Outlook
Dividends included, the Australian share market gained 3.10% throughout the local August results season, so it must have been one cracker of a performance put in by corporate Australia.
Share price moves dominate investor views and experiences, but we all know there can be multiple factors and drivers impacting.
Even in results season, the main game is not only about corporate earnings and dividends.
New Records in August
Last month, investor judgment wasn’t so much about what companies had achieved, but whether there were enough reasons to confidently assume things are getting better.
Two sectors unequivocally said ‘yes, the outlook is brightening’. Those sectors are consumer discretionary and contract services providers. Think Harvey Norman ((HVN)) and Adairs ((ADH)), but also SRG Global ((SRG)), Macmahon Holdings ((MAH)), and numerous others.
Similar positive signalling came from builders and property developers, but mostly in relationship to domestic markets, not if the main course is the US.
This discrepancy explains the opposing share price responses between Stockland ((SGP)) and Wagners Holding Co ((WGN)) on one hand and James Hardie ((JHX)), Reece ((REH)) and Reliance Worldwide ((RWC)) on the opposing side.
Apart from US headwinds, which also hit several companies in the healthcare sector, persistent sluggish dynamics in Victoria and in New Zealand continued to feature.
Contrary to share prices pushing the ASX200 to a new all-time record high above 9000 towards the end of the season, downgrades to earnings forecasts have dominated the month.
Consensus forecasts placed the average EPS at minus -1.8% pre-August and by the end of the month that number has shrunk to -3%.
All in all, August results have shaved off around -1% from FY26 forecasts too, with consensus now projecting 4.5% growth ahead for the new financial year.
But share prices generally and the major local index specifically moved in the other direction; up. The end outcome is the Australian share market’s forward-looking Price-Earnings (PE) ratio ended August at 19.9x, a multiple usually reserved for US equities.
No double-guessing why market watchers and commentators are feeling increasingly uncomfortable with the market’s relentless uptrend. Where have all the earnings gone? Arent they supposed to underpin this next bull market?
In Anticipation Of Better Times Ahead
Negative, suggest strategists at Macquarie, share market momentum is being fed more by general liquidity and by the prospect of more rate cuts.
Certainly, such factors are supportive too, as does the fact US indices keep setting fresh new record upon new record this year.
I’d also add the importance of portfolio positioning and of general sentiment.
Previously, the share market’s uptrend had predominantly been the prerogative of large caps and of Growth stocks, AI-related or otherwise.
The Small Ordinaries, for instance, had underperformed the ASX100 for four years in a row (2021-24) and investors clearly were fed up with the narrow basket of continuous Winners and looking for a broader base to take this market to the next level.
Viewed from this angle, August delivered in spades. The Small Ordinaries surged 8.18% during the month (total return 8.41%), leaving all other indices at a significant distance.
Over three months this index is up 11.84%, over six months it’s up 15.13% and over twelve months the gain has now extended to 20.15% (23.40% including dividends).
Small caps are back in vogue. And so are many of the stocks that could not attract much attention post-2022.
How better to illustrate this reversal in market momentum than through the 60% rally for shares in IDP Education ((IEL))? Since late 2021 that share price had only known one direction, and it was down.
Financials and Materials performed well, with gold miners in particular stealing the show, but lithium’s comeback didn’t falter either.
As portfolios rotated, somebody had to lose out. No surprise, given the previous lead in the narrow based uptrend, Technology became August’s main victim, followed by Healthcare and Staples.
Shares in Vault Minerals ((VAU)) are up by more than 40%, closely followed by gains in 29Metals ((29M)).
It wasn’t all black and white though and individual performances did give companies the opportunity to sail against the broader trends.
Note the big jump in the share price of NextDC ((NXT)), for example, but also the sell-off in response to CommBank’s ((CBA)) result and to Bank of Queensland’s ((BOQ)) market update, while numerous turnarounds and promises failed to materialise, as is usually the case.
This season’s big disappointments included AGL Energy ((AGL)), Amcor ((AMC)), CSL ((CSL)), James Hardie ((JHX)) and Woolworths Group ((WOW)), but also Audinate Group ((AD8)), Avita Medical ((AVH)), Domino’s Pizza ((DMP)), Ebos Group ((EBO)), EVT Ltd ((EVT)), HMC Capital ((HMC)) and DigiCo Infrastructure REIT ((DGT)), IPH Ltd ((IPH)), Ramsay Health Care ((RHC)), ReadyTech Holdings ((RDY)), and Sonic Healthcare ((SHL)).
Note the prominent presence of healthcare companies in that list which also saw the likes of Cochlear ((COH)), Medical Developments International ((MVP)), Micro-X ((MX1)), Monash IVF ((MVF)), Paragon Care ((PGC)) and Telix Pharmaceuticals ((TLX)) release disappointing updates.
It remains remarkable how what once was Australia’s super-duper cannot fail, consistently outperforming sector is today but a shadow of its former self, unable to string two halves together of strong (out)performances.
Shareholders in ResMed ((RMD)) and Pro Medicus ((PME)) must be thinking they’ve won the lottery.
More Misses, But Who Cares?
One popular method to judge the season (apart from observing share price moves) is by measuring whether financial results ‘beat’ or ‘missed’ against forecasts.
On this simple benchmark both UBS and Morgan Stanley report the August balance is about 33% for each, which is not great as there should be more ‘beats’ — and usually that is the case.
FNArena’s Monitor not only measures a larger number of companies (we combine eight brokers monitored daily) but we also take a broader view, including outlook guidance and other metrics outside of earnings, profits or dividends that equally drive analysts’ forecasts and forward-looking valuations.
On this broader methodology, more appposite and accurate we feel, this year’s August results season has been the worst since 2013, when FNArena’s Monitor started.
Out of 373 results, only 78 or circa 21% has genuinely outperformed forecasts and forced analysts to increase forecasts and valuations.
Never in the twelve years of history of the Monitor has any percentage of ‘beats’ come out this low, and against low expectations too (note the -1.8% forecast beforehand).
The previous low was 24% registered in August 2019, when the domestic economy was almost literally grasping at straws ahead of banks and cyclicals reducing their dividend payments to shareholders.
The key difference between today and back then, of course, is the RBA has cut the cash rate three times this year, and there’s general anticipation of at least one more cut forthcoming.
One of the notable observations during August results was how many references were made to RBA rate cuts when predicting better operational momentum ahead for companies ranging from Eagers Automotive ((APE)), to Coles Group ((COL)), to Stockland ((SGP)), Accent Group ((AX1)), and others.
On FNArena’s assessment, a little less than half of all results merely met expectations, with 110 results or 29.5% disappointing. The latter percentage is high, but not extraordinary.
The over-ruling impression is corporate Australia is still very much limping forward, but greenshoots are emerging and investors have been prepared to take a leap in anticipation of better conditions ahead by 2026.
Greenshoots Emerging
Those greenshoots included a pick-up in consumer spending, mostly apparent through trading updates from the first seven weeks into FY26, and improving momentum in local building activity.
Rising costs remain in many cases the all-important threat on the horizon.
In terms of re-ratings and de-ratings, as well as downgrades and upgrades to forecasts, the net outcome has still been slightly more negative than positive, reports UBS.
FNArena’s monitoring too has noted significantly more downgrades in ratings throughout the month (81 downgrades versus 48 upgrades); this is probably equally in response to a market setting fresh all-time record highs and share prices often rallying on ‘good enough’ results.
Real estate and Financials are the sectors that enjoyed most of the positive adjustments, even though discretionary retailers caught everyone’s eye in the month.
This was thanks to smaller caps including Zip Co ((ZIP)), Australian Finance Group ((AFG)) and Bendigo and Adelaide Bank ((BEN)) forcing analysts forecasts higher, as did the likes of Centuria Capital Group ((CNI)), Charter Hall ((CHC)), and Cromwell Property Group ((CMW)).
The Energy and Materials sectors saw most market updates followed up with forecast downgrades, though this may not necessarily been apparent from simply watching share prices.
Small Cap industrials excelled in both directions with companies like Redox ((RDX)) and Kelsian Group ((KLS)) joining contract services providers on the positive side, while deep cuts were reserved for the likes of Johns Lyng ((JLG)), Reece, Reliance Worldwide, and Aurizon Holdings ((AZJ)).
I intend to dig deeper into results for individual companies in Thursday’s Part Two, Rudi’s View update.
Early trading in September suggests the market’s mindset remains set on portfolio rotation into the New Winners (i.e. yesteryear’s laggards of resources and smaller caps).
Historically, September and October can be tricky months to navigate, but with so many changes occurring and plenty of potential catalysts either way, it’s probably not too much of a luxury to hold some of the portfolio in cash.
Conviction Calls
When I finished writing Weekly Insights on Tuesday afternoon, it was my intention to dig deeper into individual companies and performances during the August results season, but time has not worked in my favour on Thursday.
So that idea has now shifted to the next Weekly Insights coming Monday. Meanwhile, below are some of the cherries from analysts’ conclusions and responses post August results.
Another August Record: Volatility!
If your impression is that volatility for Australian equity has seldom been as high during results season as in the past month, you’re most likely on the mark.
Some statistics gathered by analysts at Wilsons:
-Average post-result intraday trading range 7.7% (a record)
-Circa 50% of ASX200 constituents experienced share price moves of 5% or more
-Some 30% of on-the-day share price moves exceeded 10%
Among the heaviest hit were large caps James Hardie ((JHX)), down -25%, CSL ((CSL)), down -21%, WiseTech Global ((WTC)), down -15%, Amcor ((AMC)), down -11%, and Woolworths Group ((WOW)), down -9%.
August results triggered a number of changes for Wilsons’ Focus Portfolio.
On reduced confidence, exposure to CSL has been downgraded (by half) while no confidence was left after James Hardie’s newest debacle, so all shares in that company have been divested.
Winners already in the Portfolio that saw their weighting increased; Goodman Group ((GMG)), ResMed ((RMD)) and Pinnacle Investment Management ((PNI)).
Post August, the Portfolio’s largest overweight positions are ANZ Bank ((ANZ)), ResMed, Pinnacle Investment Management and Goodman Group.
Other high conviction holdings currently include Stockland ((SGP)), CAR Group ((CAR)), WiseTech Global ((WTC)), Xero ((XRO)), The Lottery Corp ((TLC)), and Brambles ((BXB)).
From a sector perspective, the Focus Portfolio’s largest overweights are in Consumer Services, Technology and Real Estate.
Banks remain underweighted through no exposure to CommBank ((CBA)) or National Australia Bank ((NAB)), with the analysts referring to valuation concerns and uncompelling growth.
Greenshoots For Resi
One of the greenshoots that emerged from the August reporting season is a renewed uptrend in residential property development and the general consensus seems to be that Stockland ((SGP)) is the best option available on the ASX to seek leverage to the theme.
As mentioned above, Wilsons’ Model Portfolio added the stock following the release of FY25 financials in August. Sector analysts at Morgan Stanley too have articulated their preference for Stockland over Mirvac Group ((MGR)), though both should be natural beneficiaries.
Depending on how strong exactly the sector upswing will prove to be, and further RBA rate cuts might prove influential in this regard, but Morgan Stanley suggests both companies should achieve guidance for the year ahead, with risk to the upside.
Stockland is preferred because it has a relatively higher exposure to the residential segment, construction risk is deemed lower and the shares are trading on a cheaper valuation.
A-REITs Are Winners
Another sector that marked August as a true ‘come back’ experience are ASX-listed REITs. Jarden’s sector analysts report “there is much to be excited about”.
Not unimportant: Jarden is counting on two further RBA rate cuts over the coming 6-9 months.
Among the positives cited are transaction volumes picking up, cap rates starting to move down while rental/price growth, helped by limited supply across most asset classes, is driving up asset values. Also: balance sheets across the sector are in good shape and most REITs have a range of capital management options to fund the next leg of the growth cycle.
Jarden’s post-August sector update includes no fewer than 16 fresh price targets and four rating changes. The over-riding conclusion is there should be ample of opportunity to achieve double-digit gains from the sector in the year ahead.
Firstly, the rating changes. Ingenia Communities ((INA)) has been upgraded to Buy from Overweight. Both Abacus Storage King ((ASK)) and Charter Hall Retail REIT ((CQR)) have been upgraded to Overweight from Neutral. Overweight sits in between Buy and Neutral.
The one downgrade went to HMC Capital ((HMC)), former highflyer whose market update flopped in August, with Jarden’s rating falling to Neutral from Overweight.
Now over to the sector team’s preferences. At this point of the cycle, Jarden continues to like active fund managers in the sector, which in this case reflects well on both Goodman Group ((GMG)) and Charter Hall ((CHC)).
For exposure to residential property through REITs, Jarden’s favourite is Ingenia Communities. Again (see also above), Stockland is preferred over Mirvac.
Jarden also likes Self-storage and Arena REIT ((ARF)).
Are all rated Buy:
-Goodman Group
-Ingenia Communities
-National Storage ((NSR))
-HomeCo Daily Needs REIT ((HDN))
Seven more REITs are rated Overweight. Seven others are rated Neutral.
This leaves the following on Underweight:
-Dexus ((DXS))
-Lifestyle Communities ((LIC))
-BWP Trust ((BWP))
-Centuria Office ((COF))
-Charter Hall long WALE ((CLW))
Jarden has currently no Sell ratings in this sector.
Sector analysts at UBS are a little less bullish, but still positively biased overall. UBS finds the sector is now much more “fairly” valued, following a positive August experience, but further upside can definitely be achieved on the back of RBA rate cuts or stronger earnings growth “if accretive acquisitions can be equity funded”.
UBS has Sell ratings for Vicinity Centres ((VCX)) and Charter Hall. While Goodman Group’s FY25 update didn’t quite meet high expectations, the shares are still expected to find solid support.
The one key negative market update last month is identified as the one delivered by Centuria Office. Key standout results, as far as UBS is concerned, were released by Centuria Capital Group ((CNI)), Stockland, Lifestyle Communities, and GPT Group ((GPT)).
This broker’s Key Buy ratings are reserved for Dexus, Lifestyle Communities, Centuria Industrial REIT ((CIP)), BWP Trust, and National Storage.
Gold Bull Awakens
The local gold mining sector crowned itself as one of the stand-out performers in August. A renewed uptrend for the price of bullion provided the necessary trigger as the world’s anxiety grows (yet again) about how governments in Europe and inside the Whitehouse plan to finance their budget deficits.
Analysts at Morgans see plenty of evidence a fresh bull market for the sector is unfolding. Among the signals: significant capital flowing into small and micro-cap equity exposures.
Morgans has lifted its long-term bullion price forecast to US$2500/oz from US$2200.
And now for the tricky part; amongst the many (and strong) share price rallies, which ASX-listed gold miner/explorer/developer is still a comfortable Buy?
Morgans prefers Northern Star ((NST)) over Newmont Corp ((NEM)), Catalyst Metals ((CYL)) among MidCappers, and rates alternative favourites Meeka Metals ((MEK)) and Minerals 260 ((MI6)) both as Speculative Buys.
A few days ahead of Morgans’ update, gold sector analysts at Macquarie had equally switched their preference among large caps to Northern Star from Newmont.
Among MidCaps, Macquarie prefers Genesis Minerals ((GMD)) and Vault Minerals ((VAU)).
Only one Underperform rating is currently active at Macquarie and it’s reserved for Evolution Mining ((EVN)).
No Change At Morgan Stanley
In contrast with Wilsons’ Focus List (above), Morgan Stanley’s Australia Macro+ Focus List has seen no changes since April this year.
Hence, the ten stocks included remain (note the continuous inclusion of James Hardie):
-Aristocrat Leisure ((ALL))
-ANZ Bank
-Car Group
-Goodman Group
-GPT Group
-James Hardie
-Orica ((ORI))
-Santos ((STO))
-Suncorp Group ((SUN))
-Xero
Healthcare Needs A Cure
The title of most disappointing sector in August goes to Healthcare and analysts at Wilsons, for one, report they cannot remember a time when the disparity between companies in the sector they like or dislike has been as stark as post August 2025.
Wilsons number one sector favourite –“far and away”– is ResMed, with Fisher & Paykel Healthcare ((FPH)) a distant second.
During August, Wilsons upgraded Pro Medicus ((PME)) to Overweight. Cochlear ((COH)) is believed to be cum downgrade.
And while the analysts are happy to keep CSL on Marketweight, they’d hoped to become more positive on each of Ramsay Health Care ((RHC)), Monash IVF ((MVF)) and Healius ((HLS)), but were disappointed, yet again.
Other favourites are Neuren Pharmaceuticals ((NEU)), Clarity Pharmaceuticals ((CU6)), Clinical Labs ((ACL)), and Somnomed ((SOM)).
Healthcare sector analysts at Canaccord Genuity have identified their candidates for a re-rating over the year ahead. Ahead of the plans to merge with Wilsons, Canaccord’s focus is still very much on the smaller end of the ASX.
Key stocks to potentially re-rate over the next 6 months:
-Botanix Pharmaceuticals ((BOT))
-Clarity Pharmaceuticals
-Integral Diagnostics ((IDX))
-PYC Therapeutics ((PYC))
Key stocks to potentially re-rate over the next 12 months:
-EBR Systems ((EBR))
-Immutep ((IMM))
-Imricor Medical Systems ((IMR))
-Neuren Pharmaceuticals
P.S. Whenever RBC Capital releases a list of international key picks for exposure to energy it standard features Woodside Energy ((WDS)). That has not changed.
August Results; Standouts, Turnarounds, Failures & Misfits
While mulling over earnings reports and their potential ramifications for the year(s) ahead, I reminded myself of that old verse of wisdom regarding friends and acquaintances we all meet in life:
Some are there for a reason, others for the season, and only a few are here for life.
I am by no means suggesting one should treat listed equities as a personal “friend”, but the underlying principle can certainly be applied more broadly.
Some companies are worth holding on to, sometimes for years and years on end. Others are best treated as a short-term experience. Usain Bolt might have been the world’s fastest runner in his heydays, he simply wasn’t suited for a long-distance contest.
The quicker we, as investors, understand this, the better our strategy, execution and investment return.
Note: there’s no such thing as perfect execution, and luck always plays its part, but we can but do our best to read the signals and interpret them in the best ways possible.
And yet, a lot comes down to what kind of investor we are, and what our specific strategy and investment horizon is.
Below are some of the trends and characteristics identified from the recent August results season.
To be read and interpreted in line with our own risk appetite and personal investment approach.
Category #1 – Hercules & Friends
There’s a group of ASX-listed companies that is operating from a purple patch. Everything works out fine. The occasional cloud in the sky is nothing but a short-term distraction. Shareholders are smiling all the way to the bank (proverbially).
Some of these companies have been on a strong winning streak for many years, and there doesn’t appear a pothole or bend in the road. Alas, for those investors not yet on board, share price valuations tend to reflect the wonderfully, strong and healthy conditions.
My personal view is every portfolio should have at least some exposure to some of these Corporate Champions, but when is the right time to jump on board?
Investors are noticeably more nervous about equities suffering a “correction” or “pullback” in the weeks or months ahead.
Observe, for example, the views expressed by market strategists at Bell Potter on Monday morning:
“We are tactically cautious US equities over the next 3-4 months due to the elevated risk of a market correction in the near term.
“The US equity markets resilience is likely to be tested by some short-term risks. The threat of slowing economic growth and reaccelerating inflation could be a key catalyst.
“Elevated valuations leave little margin for error, making the market highly sensitive to negative catalysts and vulnerable to a correction.”
And:
“The ASX200 has continued to rally despite an ongoing earnings downgrade cycle, taking its lead from global markets in a move we believe is unjustified given Australia’s weaker growth outlook.”
Many of these share prices got wallopped back in April, only to sprint back to fresh all-time record highs once the tariffs tension subsided.
Maybe such a downward move in markets will offer another opportunity to revisit the Strong and the Mighty at lower, more comfortable price levels?
Pick your pick from the following list:
-Aussie Broadband ((ABB))
-Breville Group ((BRG))
-Car Group ((CAR))
-Codan ((CDA))
-Coles Group ((COL))
-Generation Development ((GDG))
-Goodman Group ((GMG))
-Hub24 ((HUB))
-JB Hi-Fi ((JBH))
-Life360 ((360))
-Netwealth Group ((NWL))
-Pinnacle Investment Management ((PNI))
-Pro Medicus ((PME))
-Qualitas ((QAL))
-REA Group ((REA))
-Regal Partners ((RPL))
-ResMed ((RMD))
-Sigma Healthcare ((SIG))
-Superloop ((SLC))
-Temple & Webster ((TPW))
-Wesfarmers ((WES))
Category #2 – Houston, we have a problem
Sometimes a business hits a barrier, a nasty bend in the road, or it gets struck by lightning.
It’s evidence we all are but mortal and vulnerable and Dame Fortuna sometimes mis-times her absence when we need her to intervene.
In many cases, the punishment that follows through a weaker share price is but a gift for those who can see through the fog and focus on the unique circumstances and events, with an eye on the longer-term horizon.
At times, however, the waited-for rebound turns into the brainchild of Samuel Beckett (Waiting for Godot) and as time passes by, it dawns upon investors there’s more trouble brewing than what was understood and assumed.
By now, we’re looking over our shoulder to a share price that has only weakened further and deeper, with August yet another season that did not live up to expectations.
Time to finally flick the disappointment, or do we remain stoic in our belief and conviction? Do we up the ante and buy more shares?
CSL‘s ((CSL)) 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.
As reported last week, Wilsons’ Focus Portfolio reduced its exposure by half; to 4% from 8%. Portfolio strategists at Bell Potter sold out completely.
While the stock is still held in the FNArena/Vested Equities All-Weather Model Portfolio (we had reduced exposure earlier) we can but sympathise with general sentiment; the August market update was a painful pill to swallow, signalling all’s not well inside the ranks of Australia’s major (and most successful) biotech.
The decision to spin off Seqirus almost feels like policy on the run and certainly fails in the general communication supporting the move. Are the shares cheaply valued? They most certainly are, but unless the market sees a better operational trajectory ahead, it’s difficult to see the CSL share price knocking it out of the park.
Not making it any easier for current management to turn this ship around: the current US administration still has another 3.5 years in it.
The uncertainty (and disappointment) from supermarket operator Woolworths Group ((WOW)) is not dissimilar. FNArena published an excellent and insightful dissertation about the Coles Group ((COL)) versus Woolworths gap in relative performances on Monday:
https://fnarena.com/index.php/2025/09/08/coles-does-it-better-woolworths-de-rated/
In both cases, my suspicion is investors might have to be a lot more patient, and maybe for longer than they might be thinking of, post August disappointments.
Cheaply priced share prices tells us nothing about the timing of the recovery and neither does it imply there cannot be more disappointment on the menu first.
The challenge for CSL and Woolworths will be to avoid the scenarios that have unfolded for the likes of Domino’s Pizza ((DMP)) and Ramsay Health Care ((RHC)).
Not quite as severe, but on a streak of continuous disappointment nevertheless, are the likes of AGL Energy ((AGL)), Amcor ((AMC)), ASX Ltd ((ASX)), Cochlear ((COH)), Ebos Group ((EBO)), Monash IVF ((MVF)), Pexa Group ((PXA)), Sonic Healthcare ((SHL)), and WiseTech Global ((WTC)).
This basket of stocks also includes a variety of lesser quality companies that mostly disappointed over an elongated period of time.
Cheaply-priced corporates that in many cases have galvanised the statement: cheap for good reason.
Disappointed yet again in August:
-ARN Media ((A1N)),
-Audinate Group ((AD8))
-Aurizon Holdings ((AZJ))
-Bapcor ((BAP))
-Beach Energy ((BPT))
-Centuria Office REIT ((COF))
-Endeavour Group ((EDV))
-Fletcher Building ((FBU))
-GWA Group ((GWA))
-Healius ((HLS))
-HealthCo Healthcare & Welnness REIT ((HCW))
-Inghams Group ((ING))
-Integrated Research ((IRI))
-IPH Ltd ((IPH))
-Matrix Composites & Engineering ((MCE))
-Nuix ((NXL))
-ReadyTech Holdings ((RDY))
-Seven West Media ((SWM))
-Treasury Wine Estates ((TWE))
Bank of Queensland ((BOQ)) and Nufarm ((NUF)) only released a trading and strategy update, but that didn’t make the disappointment any less. They might as well join the list.
James Hardie Industries ((JHX)) is operating in its own separate universe these days, without the slightest regards for shareholders and seemingly on a crash-course to annihilate the share price.
Whatever the restrictions are that prevents the ASX from stronger action and/or intervention, this aint right. It’s an embarassment that cannot be highlighted often enough.
Category #3 – Look at me, folks!
Whether they were flying under the radar previously or going through a tough time, maybe new management has settled in, or the industry dynamics are fundamentally changing; every result season unearths strong operational performances from companies not yet well-known or understood.
The past result season has put these companies on the podium and they are asking for investors’ attention.
Could this be the beginning of a multi-year rewarding journey? Or was it simply a lucky strike, soon to fizzle and deflate?
Only time will tell.
New Kids on the Promising Outlook podium include:
-Cuscal ((CCL))
-Electro Optic Systems ((EOS))
-Gemlife Communities ((GLF))
-Judo Capital ((JDO))
-MA Financial ((MAF))
-Praemium ((PPS))
-Qoria ((QOR))
-SiteMinder ((SDR))
-SKS Technologies ((SKS))
Category #4 – It’s the cycle, stupid!
RBA rate cuts and a more stable inflation environment is creating a better environment for consumer spending and construction activity in Australia.
It’s why share prices of retailers rallied strongly in August and why sector analysts covering the likes of GPT Group ((GPT)), Stockland ((SGP)), Wagners Holdings ((WGN)), Big River Industries ((BRI)) and Acrow ((ACF)) are expressing more confidence with their projections.
Among the eye-catching outperformers were automotive-related companies, including Autosports Group ((ASG)), Eagers Automotive ((APE)), and McMillan Shakespeare ((MMS)).
The one potential problem with these scenarios is that everyone all of a sudden seems convinced the RBA will deliver two more rate cuts and stimulate the domestic economy back into acceleration mode, while Michele Bullock & Co might just surprise in negative fashion, yet again.
Also, across the Tasman, the central bank in New Zealand has done a lot more rate cutting and the economy over there still finds it difficult to get any durable traction. Despite August enthusiasm, the positive scenarios put forward are far from a fait accompli (excuse my French).
Also very much catching investors’ attention throughout the season were gold producers and contract services providers, including Duratec ((DUR)), Emeco Holdings ((EHL)), Maas Group ((MGH)), Macmahon Group ((MAH)), Monadelphous ((MND)), NWR Holdings ((NWH)), SRG Global ((SRG)), Worley ((WOR)), and numerous others.
Category #5 – Is that a turnaround?
It was the wise Oracle of Omaha himself who once declared the problem with most turnaround stories is they seldom successfully turn around (or something alike).
But it does happen, at times, that things have gotten so bad, there really is only one way left, and that is upwards.
Companies that –finally– served up some better fortune in August include:
-AMP ((AMP))
-a2 Milk (A2M))
-Challenger ((CGF))
-Integral Diagnostics ((IDX))
-Kelsian Group ((KLS))
-Mineral Resources ((MIN))
-Objective Corp ((OCL))
-Orora ((ORA))
-Pepper Money ((PPM))
-Playside Studios ((PLY))
-Redox ((RDX))
-Seek ((SEK))
-Tabcorp Holdings ((TAH))
Category #6 – I am risky, did you forget?
Not all stocks are equal in their risk profile and while explosive returns certainly can be on offer –just look at 4DMedical ((4DX))– this knife most definitely cuts both ways.
August presented some painful reminders for investors with an above-average penchant for risk taking.
Think Avita Medical ((AVH)), ImExHS ((IME)), Mach7 Technologies ((M7T)), and Telix Pharmaceuticals ((TLX)).
Category #7 – The AI Megatrend is Spreading
Apart from strong performances by Goodman Group and NextDC ((NXT)) –even though the market had higher expectations for Goodman– the August result season also featured regular references to investments in and development of AI applications.
From ALS Ltd ((ALS)) to Nine Entertainment ((NEC)), to Sonic Healthcare and WiseTech Global; AI is increasingly featuring in market updates and future investments.
While the critics are correct; there is to date very little to show for in terms of tangible returns generated, this does not equal waste of money and time (or that we are experiencing the replay of the Nasdaq bubble meltdown of March 2000).
I intend to follow up on this feature separately.
Consider the above incomplete, but I am hoping it will serve as a reference sheet for investors reviewing their portfolio post August.
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.
Conviction Calls
The key conclusion at my presentation to members of the Australian Shareholders’ Association (ASA) in Canberra on Monday was that megatrend AI is already changing the world as we know it.
At this early stage of development, this is generally a positive.
Clearly, global macro strategists at Citi agree with that statement. Ahead of this week’s FOMC -25bp rate cut, their conclusion was that Fed policy easing in combination with a booming AI capex cycle translates into a soft landing for the US and the global economy.
Irrespective of all the fears, threats and worries out there, such an outcome is a positive for equities, assuming more cuts will follow and nothing untoward disrupts the AI megatrend.
I think counter-scenarios are definitely possible, but not very plausible at this point.
Market strategists at Macquarie spelled it out in more detail on Thursday morning: the Federal Reserve is adding more liquidity in a market where growth is OK.
Taking a leaf from history, Macquarie is anticipating stocks will outperform bonds, cyclicals (including technology) will outperform defensives, and Growth (including technology) will beat Value.
Ahead of this week’s rate cut (delivered as expected), Macquarie’s Model Portfolio added more exposure to technology through NextDC ((NXT)) and Seek ((SEK)) and to Growth via Lovisa Holdings ((LOV)) and Webjet Travel ((WEB)).
Reduced exposures include defensives, bond proxies and US housing. The latter decision is inspired by perceived risk of higher yields.
Macquarie research signals cyclicals that should benefit from renewed Fed rate cuts and stronger US growth (even with a weaker USD) include Block ((XYZ)), Aristocrat Leisure ((ALL)), Light & Wonder ((LNW)), Breville Group ((BRG)), Car Group ((CAR)), Flight Centre ((FLT)), and Credit Corp ((CCP)).
Other beneficiaries should be gold companies and smaller caps.
Now that we’ve mentioned small caps… Wilsons analysts highlighted this week earnings growth expectations are highest in Australia for profitable small cap companies (note the addition of ‘profitable’).
Wilsons’ two favourites are Ridley Corp ((RIC)) and Nanosonics ((NAN)).
Other ‘noteworthy’ opportunities, according to Wilsons research, include Maas Group ((MGH)), GemLife Communities ((GLF)), Autosports Group ((ASG)), Jumbo Interactive ((JIN)), ARB Corp ((ARB)), and Tyro Payments ((TYR)).
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More supportive conclusions for bullish equity views were unearthed through historical precedents this week by strategists at Canaccord Genuity.
Their digging into the past found seven prior periods since the 1970s when the Fed resumed a rate-cutting cycle after a long pause (126 days or more).
Near term returns for the S&P500 were rather inconclusive, with median gains of 1.4% over one month and 2.9% over three months, though index performances proved positive 71.4% and 57.1% of the time, respectively.
Bulls would want to focus on longer-term outcomes as they proved both stronger and more consistent: nine- and twelve-month gains have occurred 85.7% of the time, with median returns of respectively 4.7% and 14.5%.
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See also last week’s: https://fnarena.com/index.php/2025/09/11/rudis-view-us-equities-csl-macquarie-technology-xero-more/
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Another factor that was highlighted on Monday is result seasons have noticeably become a lot more volatile. Share prices moving by 5% on the day of reporting now occur in about 50% of all market updates and for 30% of companies the market reaction involves at least 10% in either direction.
This triggers the question: how does sharply increased volatility impact on the usual post-season patterns? Can a share price that jumps by, say, 10% still outperform on the back of a surprisingly great result in the following weeks and months?
Analysts at Macquarie asked the same question and did some deeper digging in the hope they might find some answers. Not surprisingly, one of the observations is that strong gains can fade more quickly in modern times.
Having said so, Macquarie research also suggests consecutive earnings surprises tend to accumulate into a stronger-for-longer winning streak with 46% of companies still beating market expectations after three consecutive releases of better-than-expected results.
Goes without saying, such a positive streak tends to translate into “tangible excess returns” over a longer period of time. Investors and traders like backing winners, no doubt about it.
Equally important: repeated disappointments tend to also feed upon itself, resulting in compounding under-performance.
Post result season trends are mostly, though not always, underpinned by revisions in analysts’ forecasts.
Combining these observations has led to the selection of the following stocks that are likely to offer opportunity in case of short-term share price weakness: Brambles ((BXB)), Coles Group ((COL)), Seek, Qantas Airways ((QAN)), and REA Group ((REA)).
In contrast, Macquarie also identified some companies that disappointed in August and are currently experiencing poor earnings forecasts revisions, suggesting underperformance ahead for the likes of Endeavour Group ((EDV)), Fortescue ((FMG)), and Reece ((REH)).
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A recovery in consumer spending was one of the stand-out features of the August results season and the latest survey by UBS for the September quarter (conducted in August) shows Australian consumers to be the most positive on their spending intentions since the survey began six years ago.
Extra note: cost of living remains a serious challenge for many, with UBS interpreting the survey results as “could suggest that most people have adjusted to this new reality”.
Among companies mentioned to likely benefit are Metcash ((MTS)), Harvey Norman ((HVN)) and the recently re-listed Virgin Australia ((VGN)).
Analysts at Morgan Stanley have equally jumped on the consumer spending is getting better bandwagon by offering relative preferences:
-Sigma Healthcare ((SIG)) preferred over Wesfarmers ((WES))
-Harvey Norman ((HVN)) preferred over JB Hi-Fi ((JBH))
-Guzman Y Gomez ((GYG)) preferred over Domino’s Pizza ((DMP))
-Accent Group ((AX1)) preferred over Super Retail ((SUL))
Citi’s two favourites to play the theme are JB Hi-Fi and Harvey Norman.
Over at Bell Potter, Coles Group ((COL)) has now been included in the broker’s selection of Top Picks.
Other favourites include Bega Cheese ((BGA)) and Noumi ((NOU)), as well as Harvey Norman, Universal Store Holdings ((UNI)) and JB Hi-Fi.
Light & wonder ((LNW)) is seen as a more compelling growth story than Aristocrat Leisure ((ALL)).
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Morgan Stanley’s Asia Pacific Thematic Focus List is the latest attempt to combine all major trends, mega and otherwise, into one basket, and filter selections made down to 25 stocks across the region as best opportunities available for investors to choose from.
Three ASX-listed companies made the selection: BHP Group ((BHP)), Goodman Group ((GMG)), and Lynas Rare Earths ((LYC)).
Other names on the list are TSMC, Tencent, Samsung Electronics, and Sony Group.
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Key investment opportunities as identified by analysts at Wilsons:
-Stockland ((SGP))
-Collins Foods ((CKF))
-Xero ((XRO))
-Pinnacle Investment Management ((PNI))
-ResMed ((RMD))
Small and MidCap investment ideas:
-GemLife Communities ((GLF))
-Autosports Group ((ASG))
-Jumbo Interactive ((JIN))
-Nanosonics ((NAN))
-Ridley Corp ((RIC))
-ARB Corp ((ARB))
Speculative ideas:
-Tyro Payments ((TYR))
-Clarity Pharmaceuticals ((CU6))
Wilsons’ Australia Equity Focus Portfolio currently includes:
-ANZ Bank ((ANZ))
-Aristocrat Leisure ((ALL))
-BHP Group ((BHP))
-Brambles ((BXB))
-Car Group ((CAR))
-Collins Foods ((CKF))
-CSL ((CSL))
-Evolution Mining ((EVN))
-Goodman Group ((GMG))
-HealthCo Healthcare & Wellness REIT ((HCW))
-Hub24 ((HUB))
-Macquarie Group ((MQG))
-Northern Star Resources ((NST))
-Pinnacle Investment Managament ((PNI))
-ResMed ((RMD))
-Sandfire Resources ((SFR))
-Santos ((STO))
-South32 ((S32))
-Stockland ((SGP))
-TechnologyOne ((TNE))
-Telix Pharmaceuticals ((TLX))
-The Lottery Corp ((TLC))
-Westpac Bank ((WBC))
-WiseTech Global ((WTC))
-Woolworths ((WOW))
-Worley ((WOR))
-Xero ((XRO))
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Morgan Stanley’s Macro+ Focus List last changed in April this year, with the following ten making up the selection since:
-Aristocrat Leisure ((ALL))
-ANZ Bank ((ANZ))
-Car Group ((CAR))
-Goodman Group ((GMG))
-GPT Group ((GPT))
-James Hardie Industries ((JHX))
-Orica ((ORI))
-Santos ((STO))
-Suncorp Group ((SUN))
-Xero ((XRO))
Morgan Stanley’s Macro+ Model Portfolio consists of the following:
-ANZ Bank ((ANZ))
-CommBank ((CBA))
-National Australia Bank ((NAB))
-Westpac Banking ((WBC))
-Macquarie Group ((MQG))
-Suncorp Group ((SUN))
-Goodman Group ((GMG))
-GPT Group ((GPT))
-Scentre Group ((SCG))
-Stockland ((SGP))
-Aristocrat Leisure ((ALL))
-Eagers Automotive ((APE))
-Car Group ((CAR))
-Domino’s Pizza ((DMP))
-The Lottery Corp ((TLC))
-Wesfarmers ((WES))
-WiseTech Global ((WTC))
-Xero ((XRO))
-James Hardie ((JHX))
-Amcor ((AMC))
-Cleanaway Waste Management ((CWY))
-Orica ((ORI))
-Coles Group ((COL))
-AGL Energy ((AGL))
-Telstra ((TLS))
-Transurban ((TCL))
-BHP Group ((BHP))
-Newmont Corp ((NEM))
-Rio Tinto ((RIO))
-South32 ((S32))
-Santos ((STO))
-Woodside Energy ((WDS))
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Paying subscribers have 24/7 access to my curated selection of All-Weather stocks and related lists: https://fnarena.com/index.php/analysis-data/all-weather-stocks/
September, The Gift
Post August results season, the Australian share market is wrestling with a genuine identity crisis.
Should one buy more leverage to the AI megatrend? Are commodities now definitely back? Small caps, but not the discounted ‘value’ plays?
If anyone finds it difficult to answer such questions in a convincing manner then don’t worry; judging by this month’s price action, the market doesn’t know the answers either.
The one visible result from the local indecisiveness is a net -2% loss for the month thus far while other markets continue to steamroll to fresh new record highs. The Hang Seng in Hongkong is up 5.85% in September while Tokyo’s Nikkei225 has gained 5.45%.
Over in the US, the S&P500 is up more than 3% while the AI-driven Nasdaq Composite has added 5.48%. Even the more sobering Dow Jones Industrial Average (DJIA) is up 1.69% since August.
Bank of America’s global funds manager’s survey signals large institutions put a lot of additional money to work this month, with positive sentiment rising to the highest level in seven months.
And while concerns about elevated (and concentrated) price momentum for US markets is ever present, fund flows are directed towards Europe and emerging markets with global growth optimism on the rise.
In contrast, it is my observation a lot of commentary and predictions in Australia express discomfort with where indices and share prices are trading at; predictions and warnings about the potential for a significant sell-off have only become more common across social media platforms and elsewhere.
Of course, nothing is ever set in stone when it comes to financial markets and investing. US markets can still have that elusive downward correction –the AI trade is yet again overbought on technical indicators– or Australia can catch up, or a combination of the two scenarios occurs.
For those with a little bit of cash at hand, and more confident about the ongoing duration of the current bull market than worried about the potential for stumbles in the shorter term, September can provide opportunities that are harder to identify in offshore markets.
From this perspective, September weakness is actually a gift for investors rather than the disappointment many seem to be focusing on.
Post-August Portfolio Maintenance
While the ASX200 is only down -2%, below the surface many stocks have suffered greater losses.
A number of stocks that have my personal interest are now trading at double-digit percentage below freshly updated consensus price targets. In some cases this has been the result of upgraded targets on excellent results and a weakening share price.
I hope you can see why I am calling September weakness a gift?
Companies that come to mind include Car Group ((CAR)), Goodman Group ((GMG)), REA Group ((REA)), and ResMed ((RMD)).
Usually, the FNArena-Vested Equities All-Weather Model Portfolio comes out on top throughout local results seasons –it’s one key factor behind my conviction about investing in quality companies– but August 2025 did not play to the usual script and left behind an over-ruling sense of disappointment.
There was that once-in-a-generation disappointment from CSL ((CSL)), but a similar experience emanated from Woolworths Group ((WOW)), while unexpected operational weakness from Macquarie Technology ((MAQ)) and another leg downwards for shares in WiseTech Global ((WTC)) further added to the overall sour experience.
A number of positive performances elsewhere did not prevent share prices from weakening, like for the four companies I mentioned earlier. Put these two factors together and August has been, uncharacteristically, a rather negative experience for the All-Weathers.
Part of that experience is payback for the relative outperformance over the past three years, with portfolio rotation prominent and decisive last month, so I am not worried. This is simply how the cookie crumbles, as they say.
With my own assessment in mind (September is a gift), we’ve taken our time to digest the many re-assessments and reviews post August market updates. With 10% in cash, and looking to re-allocate for ongoing upside for the year ahead, it soon dawned a number of existing exposures could do with some added weight.
As such, most of this month’s reshuffling of the portfolio involves adding additional exposure to the high quality growers that have been in the portfolio for a while, in some cases a long while, and in which our trust and confidence remains undiminished.
Bottom line: while regular reviews and rejuvenation remain part of portfolio maintenance, it doesn’t always involve looking around for greener pastures elsewhere.
Paying subscribers have 24/7 access to my curated lists of All-Weathers and related sub-categories: https://fnarena.com/index.php/analysis-data/all-weather-stocks/
Consensus Targets
It’s not a secret I am an avid reader and user of the data, insights and tools available on the FNArena website.
One of the tools permanently on my radar are consensus price targets, with the extra comment I always try to use them as intelligently as possible.
What do I mean with that last part of the prior sentence?
Ahead of financial result releases I bear in mind a positive result is likely to push targets higher (so I am not by definition worried when the share price rallies above targets beforehand).
I also pay attention to outliers. For example, Ord Minnett setting a price target of $57.20 only for Hub24 ((HUB)) weighs down the average of the seven brokers that cover this company. Remove the negative outlier and the average price target for Hub24 jumps to $112.50 from $104.58.
In other words: that share price seemingly trading above its consensus target is actually still below it.
Having said so, I do keep in mind what is Ord Minnett’s main gripe about this company; it’s a leveraged play on the current bull market. When share prices tumbled back in April, the Hub24 share price sank and might have fallen into the abyss had general sentiment soured for longer.
I am also well aware that a company experiencing a downgrade cycle will most likely trade at a discount to its price targets and those targets will reset at lower levels upon every negative market update.
This is why you won’t find me getting excited about Aurizon Holdings ((AZJ)) or Healius ((HLS)), even when their share prices are exhibiting large discounts (apart from the fact that, in my option, these are truly low quality strugglers).
I am not your typical deep value investor, but this too is hardly a secret. Give me high quality with an elongated runway for growth any time, except at too high a valuation.
FNArena’s consensus price targets assist me with assessing when/whether this might be the case.
Also; when shares are trading at a seemingly ridiculous distance to their target, you’ve most likely not spotted an as yet undiscovered opportunity. Something’s wrong; it’s most likely a trap.
Don’t Fight The Fed, Inflation, Gold, Copper & More
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.
US Equities upon resuming Fed rate cuts – Franklin Templeton Institute
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
AI Boom Reveals Our Inner Bias
A strong rise in price does not by default mean irrational investors have created an unsustainable bubble, or that a sharp price reversal is but the sole logical outcome, inevitably, and just around the next bend in the relentless up-trend.
Probably the most obvious example of that statement are Australian property prices. Yes, they are ‘expensive’. Yes, the multiples and ratios have expanded significantly from comparable times in the past. But isn’t it remarkable how all the doom and gloom forecasters have gone silent on their previous conviction forecasts?
Property prices haven’t fallen into the abys. If anything, they’ve kept on rising, with the occasional pause/brief pull back along the way.
My own conclusion has always been that too many of such forecasts are made on too flimsy justifications; simply looking at asset prices without the broader context surrounding them is by definition a flawed, unscientific way of analysing and making forecasts.
Quod erat demonstrandum.
Admittedly, things are not always straightforward and seeing the forest through the trees is not easy when in the eye of the action. Plus, when it comes to the share market, narratives, FOMO and bubbles are always firmly embedded and part of what creates broad-based enthusiasm for market participation.
In simple terms: bubbles, in all kinds of lengths and varieties, are part and parcel of what makes investing both treacherous and exciting.
The years past have offered plenty of examples, from electric vehicles and lithium, to 3D printing, cannabis, covid beneficiaries, and GLP-1s. In all cases, lots of money was made, during the good times, but it didn’t last and those who stayed the course, or returned too soon, suffered the consequences.
The situation in late September 2025 is that equities have –without debate– experienced a truly fantastic run since bottoming on the back of a global reset in bond yields in late 2022; particularly in the US where “exceptionalism” has become the new buzzword for investors and financial commentators.
The S&P500 is up 86% since its closing low on 12 October 2022, while the Nasdaq Composite has risen 121% since the 28th of December that year. Achieved over less than three years, those returns are well above historical averages. Equally important: after such a run, multiples and ratios are well above historical averages too; in some cases they are near or at an all-time high.
Hence, it’s understandable for your average level-headed market participant to start asking questions, like: is this experience too good to remain true? US equities haven’t experienced one negative month since the tariff-related sell-off in April. The up-trend has remained so strong, even a seasonally treacherous September has gone by without a dent in the trend.
US markets have been flashing ‘overbought’ signals for a number of weeks, but to no avail. At least up until now. Markets do not necessarily follow a set script (see September) but maybe they’ll find something to unwind some of this year’s bubbled-up exuberance when we least expect it throughout the weeks ahead.
But contrary to what general commentary might look like (I suspect), any temporary unwinding of too much hot money chasing the same narratives tells us nothing about the elasticity and durability of what has –at its core– fuelled today’s bull market; artificial intelligence, or AI.
For those aiming to draw parallels with similar-looking times prior to significant bear markets a la 2000 and 2008, there are multiple similarities that can be highlighted, including strong upward momentum and elevated valuations, but that, still, might not be the full picture.
Indeed, a recent update by Oxford Economics (hardly the kind of analysis source that can be accused as biased towards pulling more clients’ money into the market to keep the trend going for longer) suggests rather than approaching its final destination, today’s investment boom in AI and its underlying infrastructure might only have just started (see the comparative chart with the 1990s below).
Leaving negative biases aside in favour of a glass half-full approach, there are at least as many signals and indicators available to support conclusions and projections from Oxford Economics and others in favour of ongoing AI ‘exceptionalism’; and they are worth highlighting lest investors are wrongly presented with the conclusion all the good news has occurred already and the only possible outcome is now for a return to the mean (or worse).
Recent media reports on a survey conducted by MIT concluding 95% of all enterprises investing in AI had failed to achieve tangible results is an excellent example of how much the bias has turned in favour of AI disbelief and warnings about the next bear market post share market exuberance.
While that was indeed one of the conclusions drawn, the same survey also suggested the 95% could learn from the successful 5% who’d chosen not to develop the entire AI process in-house, but instead hired experience and insights from outside. This also immediately counters one of the emerging narratives that saw share prices in software companies sold off on Wall Street and locally.
The idea that today’s equivalents of Hewlett and Packard, hibernating in their parents’ garage, rewriting software applications with support of AI, might soon make established software services providers redundant, now that sounds a lot like science fiction-alike wishful thinking to me.
It also completely underestimates what else is needed to become a multi-million dollar success-story with sticky customers that have become dependent on their products and services. I don’t think today’s shareholders in Data#3 ((DTL)), TechnologyOne ((TNE)), WiseTech Global ((WTC)) or Xero ((XRO)) need to worry; not for this particular reason.
The direct AI-impact thesis does seem valid in specific cases like for Adobe whose product suite includes pricey software for designing images which can now be done through generic AI applications.
If anything, it appears a lot more likely today’s software companies with a sticky customer base attached to their platform will be among the second-stage winners of this further developing megatrend. Morgan Stanley has just elevated Microsoft to Top Pick status.
Keep an eye out for October 9 when TechOne is planning to make its next announcement to clients and the financial market at large. TechOne’s Showcase event in Melbourne this year is scheduled to include the “launch of groundbreaking AI-driven functionality” with a follow-up Q&A session for investors.
As most readers are probably all too aware, I am a long-time shareholder in TechOne, but most importantly; such announcements rather support the view that megatrend AI is only just getting started.
In equal fashion, the recent August results season was the very first in which many ASX-listed companies started to communicate their own intentions and investment in AI.
Those who stepped on a podium include the usual suspects of Car Group ((CAR)), Hub24 ((HUB)), Pro Medicus ((PME)), REA Group ((REA)) and Temple & Webster ((TPW)) –all platform operators embedded in software– but also a widening range of more traditional business models including ALS Ltd ((ALQ)), CommBank ((CBA)), Fortescue ((FMG)), Imdex ((IMD)), Myer ((MYR)), Scentre Group ((SCG)), Sonic Healthcare ((SHL)), and Telstra ((TLS)).
BHP’s Chief Technical Officer, Johan van Jaarsveld, flagged in an interview with me earlier this year applying AI at Escondida had achieved an additional US$200m worth of copper extraction, annually. No tangible results?
Probably the best thing that could happen, and that would substantially change the negative bias that has crept into AI market commentary recently, is for more traditional businesses to start exhibiting their success stories. Having said that, one also senses it is simply still too early for that.
TechnologyOne hasn’t even made its first big announcement yet and its bread and butter is software.
As the centre of today’s megatrend is located in the US, chances are American companies generally will keep leading the rest of the world. Here the promise remains for lower costs and higher margins, which could easily justify today’s valuations — if such potential does materialise.
Consider, for example, that on today’s assumptions struggling funds and asset managers could reduce their operational costs by up to -40% by reducing admin and red tape, speeding up processes and, yes, by including AI for menial tasks and chores that go with the investment research and decisions.
If the coming years see only half, or even a third, of that potential realised, today’s share prices will look like an absolute steal (in hindsight, of course, when looking back in three or four years).
Such examples also highlight why most skeptics’ focus is in the wrong places; adopting AI may not necessarily bring about a step-change in revenues for companies, but if it helps lifting margins and profits, valuations will rise (all else remaining equal).
By the way; you want more evidence of the-end-is-nigh bias from the media? Today (Monday), the Australian Financial Review is quoting research by Macquarie to warn about potential damage from the AI-led share market selling off, while in fact Macquarie strategists are POSITIVE about equities and the AI boom.
Macquarie’s portfolio is Overweight AI-related exposures like NextDC ((NXT)), Megaport ((MP1)) and Goodman Group ((GMG)).
For good measure: traditional media still function as a broad-based utility source of information and there is nothing wrong with offering alternative, sobering views and projections, as that, at the end of the day, is what makes the market. We all like to show our readers and viewers we did warn you once the tide has turned.
I nevertheless sense an eagerness among some to see share markets collapse that is, frankly, over the top. We all have witnessed market narratives come to a sorry end –think the GFC but also the Nasdaq in 2000– but at the same time: see Australian property values.
The current AI-led investment boom has effectively kept the US economy out of recession. It is underpinned by ‘gigantonormous’ amounts of spending by mega-profitable tech giants who don’t care about short-term returns, as also yet again confirmed by Meta’s Mark Zuckerberg recently, but who do have the cash and flow to finance it.
This newly emerged megatrend is equally supported by governments the world around who do not want to be left behind in what is broadly considered a crucial race to technological leadership. Nobody wants to be left behind, in particular not the US or China.
Those who operate closer to the centre of today’s technological break-through, with a glass half-full approach, cannot but admire the step-changes that are occurring in the development of AI.
In the words of Neil Jacobstein, Chair of AI and Robotics at Singularity University: AI is moving so fast it is now a blur.
Will this technology end up re-shaping the world? That process has already started, so yes.
Is this likely to end in tears, eventually? If history is our guide, the answer is probably ‘yes’. Simply because it always has.
But if 2025 is the historical equivalent of 1925 or –reflecting back on the suggestion put forward by Oxford Economics– more 1995 than 1999, than today’s fear mongers cannot possibly claim many more years into the future they told us so.
That would not be an accurate or honest assessment of their actions today.
Conviction Calls
Morgan Stanley has nominated its post-August key small-/mid-cap ideas, supported by conviction on earnings and outlook:
-Redox ((RDX))
-Baby Bunting ((BBN))
-Life360 ((360))
As the in-house view has grown more confident about a more resilient global growth outlook, multiple changes have been made to the Australia Macro+ Model Portfolio and the Focus List.
A better growth outlook domestically translates into improved attractiveness for selected small and midcap companies, which is reflected in the changes made.
For the Australia Macro+ Model Portfolio:
Have been added in September:
-AMP ((AMP))
-BlueScope Steel ((BSL))
-Generation Development ((GDG))
-GemLife Communities Group ((GLF))
-Iluka Resources ((ILU))
-Qube Holdings ((QUB))
-Seek ((SEK))
-Tuas Ltd ((TUA))
Have been removed:
-AGL Energy ((AGL))
-Amcor ((AMC))
-Cleanaway Waste Management ((CWY))
-WiseTech Global ((WTC))
Additions made to the Australia Macro+ Focus List:
-AMP
-BlueScope Steel
-GemLife Communities Group
-Iluka Resources
-Seek
-The Lottery Company ((TLC))
Have been removed:
-Car Group ((CAR))
-GPT Group ((GPT))
-James Hardie ((JHX))
-Orica ((ORI))
-Santos ((STO))
-Suncorp Group ((SUN))
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Contrary to many an offshore market, the ASX suffered from post-August reporting disappointment with a little bit of RBA hawkishness added into the mix, strategists at Wilsons have observed.
Consensus earnings forecasts have been reduced throughout the month to 3.3% growth only for FY26 (was 4.8%) and this has been reflected in a net negative outcome for the ASX200 in September.
Mind you, minus -0.8% on a total return (dividends included) is hardly the stuff to be overly depressed about, though we know from personal observation many an individual stock has performed a lot worse over the past four weeks.
Wilsons strategists suggest post-August weakness has opened up opportunities in Brambles ((BXB)), The Lottery Corp ((TLC)) and Worley ((WOR)).
Wilsons’ Focus Portfolio’s largest overweight positions include ANZ Bank ((ANZ)), ResMed ((RMD)), Pinnacle Investment Management ((PNI)) and Goodman Group ((GMG)).
Other high conviction holdings include Collins Foods ((CKF)), Telix Pharmaceuticals ((TLX)), Sandfire Resources ((SFR)), Worley, TechnologyOne ((TNE)) and WiseTech Global ((WTC)).
Having said all that, Macquarie strategists spotted the early beginnings of a new positive uptrend with the broker’s EPS forecasts actually improving throughout September.
Macquarie, as indicated earlier, is looking for forecasts to rise throughout FY26, which underpins this broker’s positive outlook for the market.
Macquarie is expecting a net positive outcome from the upcoming AGM season with the team of quant analysts favouring Aussie Broadband ((ABB)), Stockland ((SGP)), Australian Finance Group ((AFG)), JB Hi-Fi ((JBH)) and Downer EDI ((DOW)) for positive market update (among others).
The same quant analysis has identified Treasury Wine Estates ((TWE)), nib Holdings ((NHF)) and WiseTech Global ((WTC)) for negative news (among others).
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Strategists at UBS believe smaller cap Australian stocks remain circa -10% undervalued against the top class of the index which could open up the prospect of a larger-than-usual re-rate.
UBS has tried to identify industrial companies trading at relatively depressed valuations versus history and with a reasonable correlation to the Australian economic cycle (expected to improve).
Companies that fit the mould include Superloop ((SLC)), oOh!media ((OML)), REA Group ((REA)), Aussie Broadband ((ABB)), National Storage REIT ((NSR)), Rural Funds ((RRL)), Dexus ((DXS)), Metcash ((MTS)), Premier Investments ((PMV)), and Harvey Norman ((HVN)).
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Strategists at stockbroker Morgans have zoomed in on Quality stocks that have run into selling pressure of late and whose underperformance is now seen as an opportunity.
Morgans has highlighted Amcor ((AMC)), CSL ((CSL)), Pinnacle Investment Management ((PNI)), PWR Holdings ((PWH)), Sonic Healthcare ((SHL)), Treasury Wine Estates ((TWE)), and Xero ((XRO)).
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Jarden has revisited its thesis that the backdrop for Australian consumer electronics companies is the most favourable it has been in years, and believes that conclusion still stands.
Positive factors include the replacement cycle post-covid, new home activity and new product development.
Most likely to benefit most in the two years ahead:
-Breville Group ((BRG))
-Harvey Norman ((HVN))
-JB Hi-Fi ((JBH))
-Officeworks ((WES))
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The latest strategy update by Bell Potter has revealed the addition of Generation Development ((GDG)) to the Core Portfolio and the removal of Hub24 ((HUB)).
Platform operator Hub24’s share price has no doubt surprised both friend and foe over the twelve months past by roughly surging 70%.
Bell Potter’s investment case for Generation Development is predicated on exposure to structural tailwinds in the Australian superannuation and managed accounts sector, combined with the scalability of the business.
In communicating its top five top and bottom portfolio positions, the strategists are showing their current convictions.
Top Five Portfolio Exposures (Largest first):
-WiseTech Global ((WTC))
-News Corp ((NWS))
-Light & Wonder ((LNW))
-Whitehaven Coal ((WHC))
-Worley ((WOR))
Bottom Five Portfolio Exposures (smallest exposure first)
-Wesfarmers ((WES))
-CSL ((CSL))
-CommBank ((CBA))
-Telstra ((TLS))
-Rio Tinto ((RIO))
In general terms, Bell Potter strategists retain a positive outlook for Australian equities with RBA rate cuts expected to deliver an improving economic outlook that should, all else remaining equal, benefit mid and small cap companies in particular.
Elevated valuations for growth stocks in combination with the risk for stagflation in the US is seen as less favourable for equities generally.
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Morningstar’s selection of Best Stock Ideas currently consists of:
-Auckland International Airport ((AIA))
-ASX ((ASX))
-Aurizon Holdings ((AZJ))
-Bapcor ((BAP))
-Domino’s Pizza ((DMP))
-Dexus ((DXS))
-Endeavour Group ((EDV))
-Fineos Corp ((FCL))
-IDP Education ((IEL))
-Pilbara Minerals ((PLS))
-Ramsay Health Care ((RHC))
-SiteMinder ((SDR))
-Spark New Zealand ((SPK))
-Woodside Energy ((WDS))
All Eyes On Corporate Results
The current public debate in and around global financial markets intertwines two key points of discussion that are not by default each other’s twins or equals.
On one side is the observation that equities are pricing in a lot of good news, which always carries the risk for disappointment.
On the other side are growing concerns that many hundreds of billions of investments in AI and AI infrastructure are setting the stage for the next ‘bubble’ to burst.
While many a public warning does not differentiate between the two, there are valid reasons to do so, if only because respective outcomes might not be as straightforward as suggested.
What if the answer to the question whether equities are presently overvalued is ‘yes’, but the AI megatrend as investment theme continues to charge ahead (after initially correcting lower in line with the broader market)?
In case anyone finds this a rather preposterous proposition given the many doubts and questions raised by megatrend critics, investors are reminded the US economy is showing plenty of signals pointing towards slowing momentum and a deteriorating outlook for jobs.
Were large institutions to adopt a more defensive portfolio positioning, depending on how long and how deep concerns about economic momentum would stretch, it is not inconceivable funds looking for relative safe havens would flow back into the same megacaps and AI beneficiaries that have dominated US markets for the past 2.5 years.
And yes, that would really fire up those voices warning about irrational bubbles already.
Many are wary, frustrated and anxious about share markets
When valuations are high
Virtually nobody disputes the fact equity markets globally, including in Australia, look ‘expensive’.
Whether this justifies the many warnings about a bubble waiting to burst is a different matter.
Many of such warnings seem based on generalised, face value calculations of today’s markets in comparison with precedents from the past.
One easy to make counter-argument is that indices change. In Australia, the ASX200 has changed rather dramatically in recent years.
Consider, for example, both Pro Medicus ((PME)) and TechnologyOne ((TNE)) are now included in the ASX50 with PE multiples well-above average, joining the likes of Cochlear ((COH)), ResMed ((RMD)), WiseTech Global ((WTC)) and Xero ((XRO)).
Plus let’s not forget today’s local market heavyweight, CommBank ((CBA)), good for circa 12% of the major index, is trading on a forward-looking (FY26) multiple of 26.7x – this would have been considered inconceivable only a few years ago.
If we just stick to those two factors, it should be beyond discussion we can no longer simply rely on generalised calculations to truthfully assess where market valuations sit in 2025, in particular vis a vis the past.
The chart below was last updated in September, post the August results season, and nothing much has changed since for the main index components outside of resources.
ASX 200 ex-Resources median stock PE 550
Two main conclusions stand out from it:
-valuations, on average, have noticeably lifted post 2016
-valuations are currently high, but not at levels we haven’t seen before post 2019
So, yes, nothing here suggests markets are ‘cheap’ or ‘undervalued’ but maybe warnings about bubbles bursting and deep sell-offs forthcoming look just a little over the top?
America leads
The situation in the US, still leading the rest of the world including on AI, is different from Australia.
Valuations are higher and so is the representation of AI. There’s arguably a lot more speculative momentum trading going on over there too.
US equities have enjoyed 114 sessions without a -5% pullback, which is on par with that multiple for CommBank shares; a rather rare occurrence.
Citi’s proprietary Panic/Euphoria index (renamed Levkovich Index after the death of its former strategist who devised this market indicator) sits well into Euphoria territory, indicating overall sentiment is simply too bullish, at least for the time being.
This is nothing out of the ordinary and nothing other technical indicators haven’t equally been flashing for a while now.
It is but one key reason as to why so many have been anticipating a pause in the uptrend, or a pull back, even a correction, but so far US market momentum has refused to play to that script.
September is normally almost a guarantee for a pickup in volatility and market vulnerabilities, but not so in 2025.
Goes without saying, the absence of September weakness for US markets serves as yet more evidence to doom and gloomers that equities truly are in a bubble, but any tangible ‘evidence’ for such predictions remains limited to what appears biased interpreting of facts and indicators.
Once we convince ourselves there’s an irrational, euphoric bubble forming, it’s not too difficult to find more evidence to underpin this assessment, but that doesn’t make it an accurate analysis.
Citi’s Bear Market Checklist is showing no more than 8 out of 18 signals are currently flashing red or orange, which is nowhere near the 17.5 recorded prior to 2000 or the 13 in October 2007.
Back in late 2021, before the Federal Reserve had to pivot into tightening policy, along with global bond yields jumping higher, depressing valuations of growth stocks, Citi’s Bear Market Checklist had nine items flashing red or orange for the US.
Hence, it is possible today’s markets could be in for a rough ride in 2026, but that’s seldom a matter of valuation.
Something fundamentally will need to change.
Australia, the laggard
The Australian share market did not follow its offshore peers towards higher highs in September with many of the local stalwarts suffering funds outflows in favour of commodities and smaller caps.
Whether this will be of any significance if/when US equities finally stumble, or worse, remains to be seen.
But at least one local indicator –Macquarie’s FOMO Meter– is signalling the September pause has taken the sting out of local market sentiment which is no longer measuring as excessively exuberant.
Similarly, and in contradiction to Citi’s Euphoria reading and other technical signals, Macquaries FOMO Meter for US equities is equally suggesting market sentiment is positive, but maybe not yet too positive.
Momentum remains narrow
What is too often ignored in market analyses and assessments is US market concentration and dominance in investor portfolios can be justified on the basis of achieved earnings and cash flows.
Understandably, institutional investors do not want simply to be buying the same stocks year in, year out and many have been wishing for a broadening of the bull market.
A recent clients’ tour by analysts at RBC Capital signalled many are frustrated as US market momentum continues to revert to the same megatrend and mega-growth companies.
Indeed, after a brief revival for value over growth and for small caps generally, recent momentum in the US is back with ‘old leadership’.
A broadening in this bull market away from the usual suspects has been anticipated on multiple occasions over the past number of years, but when exactly will this happen in a sustainable manner?
On some forecasts, more time is required for Fed rate cuts to come through and stimulate the US economy, which would improve the outlook for smaller cap companies and thus broaden their appeal.
Most economic projections that have entered the FNArena inbox this past number of weeks are signalling economic weakness ahead for the US, before momentum is projected to pick up throughout 2026.
Up until such reversal in momentum, investors might have to deal with the fact that strong earnings growth is still the privilege of the minority and, yes, AI features prominently among those.
Quarterlies and AGMs
Maybe the upcoming quarterly reporting season in the US can provide us all with some answers about earnings momentum, capex commitments, AI developments and –equally important– the general mood among investors.
One crucial factor underlying this year’s strong uptrend for US equities has been the fact that earnings growth thus far has steadfastly surprised to the upside (not in Australia, though).
We know the potential scenario in case of an underwhelming result and/or guidance, but what if –as some forecasters are suggesting– US quarterly earnings will yet again surprise positively?
In Australia, post-August results to date have been mostly uninspiring, see https://fnarena.com/index.php/reporting_season/
The RBA is equally less likely to cut as much and as quickly as the Federal Reserve.
It’ll be a while yet before investors can assess financial results from three of the major banks locally, as well as from local growth companies such as Aristocrat Leisure ((ALL)), TechnologyOne ((TNE)) and Xero ((XRO)), hence the all-importance of US quarterlies in the short term.
This week also sees local AGM season taking off with the likes of Redox ((RDX)), REA Group ((REA)) and Perenti ((PRN)) among the first.
Those market updates too might prove crucial for market sentiment generally over the weeks ahead, including TechOne’s first AI-driven product announcement on Thursday.
Markets are reflecting optimism
As far as macro factors are concerned, current elevated levels for US indices seems to suggest investors expect no negative impact from US import tariffs, which might prove too optimistic.
Consensus forecasts also seem to suggest there’s more margin expansion on the horizon, no doubt partially based on expectations of AI-driven efficiencies.
But a lower USD, bond markets behaving and nothing untoward from the White House, on top of Fed rate cuts and better economic conditions in 2026, are all crucial factors for these forecasts to be achieved.
What about AI being in a bubble waiting to burst?
History suggests new technological innovations, be they steam engines, rail roads, electricity or the internet, ultimately stumble on too high expectations fuelled by too many investments on too rosy projections.
I have yet to see any evidence this principle already applies to AI in 2025.
Maybe upcoming results releases by Microsoft, Nvidia and others can counter some of investors’ concerns?
(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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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.
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