Rudi's View | 4:41 PM
Updates on Conviction Calls, Best Buys and most favoured sector picks for the February results season.
By Rudi Filapek-Vandyck, Editor
This week I was yet again interviewed by James Marley at Livewire Markets, in a preview to February results, as has become an unofficial tradition in recent years.
The video of that interview will soon be made available via Livewire and YouTube.
My view expressed in this interview is the extreme polarisation that has characterised Australian equities in recent years has completely flipped with those segments previously not participating in positive share price momentum --materials and other cyclicals-- now enjoying a raging Bull market.
The offset is those segments previously supporting major indices to all-time record highs are now in a prolonged and nasty Bear market. Segments impacted include Quality, Growth, Quality Growth, Technology and AI beneficiaries.
That's pretty much everything trading on above-average PE multiples.
How long both newly established trends may continue is anyone's guess; there are multiple factors and drivers in play, not in the least investor sentiment which is currently euphoric in one direction and extremely bearish towards today's laggards.
I intend to zoom in on what is holding back shares in the likes of Car Group ((CAR)), NextDC ((NXT)), Pro Medicus ((PME)), REA Group ((REA)), TechnologyOne ((TNE)), and many others, in Monday's Weekly Insights.
Three Laggards In Focus
Three larger cap names that find themselves under above average scrutiny this February reporting season are Woolworths Group ((WOW)), CSL ((CSL)), and Macquarie Group ((MQG)).
All three have been rather disappointing for loyal shareholders and investors' attention is focused on whether the long awaited operational turnaround is finally materialising.
Analysts are not so sure. Scrolling through the majority of February previews, the majority still expects Coles Group ((COL)) to continue outperforming its larger rival. The key question that as yet remains unanswered is whether Woolworths can muster enough positive pivot to lift general sentiment.
Previews are generally sitting on the fence, but at least sentiment and forecasts are not as bad as for prior offshoot Endeavour Group ((EDV)) which is multiple times listed as one key stock to keep avoiding this month.
General sentiment is a little more upbeat regarding CSL. One narrative going around the local market is that meeting expectations this time around might well be sufficient for local investors to re-embrace the previously can-do-no-wrong market leader of the local healthcare sector, but scepticism remains galore.
Six years post the covid outbreak and analysts' views and expectations for what had previously been the stand-out local sector over a long time is very much palpable. ResMed ((RMD)) is hands down just about everybody's sector favourite and its quarterly update on the final day of January did beat expectations generally.
This did not stop its share price from weakening after the initial rally. Not exactly what we, shareholders in this strong performer (over a very long time), want to see, is it?
In sharp contrast, the much cheaper priced shares in dual-listed packaging company Amcor ((AMC)) enjoyed a firm rally post a mere wishy-washy interim result that was predominantly positively received because it did not come with a downgrade to full-year guidance.
As far as notable signals go prior to the bulk of corporate results this month, this one might be the one to pay attention to. Double irony: ResMed's result is the only one that clearly beat expectations thus far (out of eight, it's early days).
FNArena's Corporate Results Monitor: https://fnarena.com/index.php/reporting_season/
Cochlear ((COH)) has now equally built a legacy of repeated underwhelming financial updates, and analysts are cautious, if not negative ahead of February's release. The general view is downright negative for Sonic Healthcare ((SHL)).
Apparently signals are all pointing to ongoing tough times for pathology services providers, which also includes Healius ((HLS)) and Australian Clinical Labs ((ACL)). Integral Diagnostics ((IDX)), on the other hand, is here and there highlighted for potential positive surprise.
Analysts at Citi reported a lot of interest among clients for Telix Pharmaceuticals ((TLX)) with investors apparently ready to jump on the register again once more clarity is achieved for TLX591. The general view remains the shares are a lot more worth than their current price.
Ramsay Health Care ((RHC)) is not completely forgotten about either, but investors want to know first what the future of Ramsay Sante looks like.
There have been times when previews for the healthcare sector were beaming with enthusiasm and strong growth projections, but no longer. Covid, Trump and inflation have left a lasting mark.
Macquarie stands out among the three with growing expectations of renewed operational mojo on the back of growing market share in Australia (mortgages and deposits), a growing pipeline of IPOs, capital raisings and M&A, and the revival in commodities.
The strenghtening AUD is an obvious headwind, but that hasn't stopped the share price from recovering since its sell-off in October and November.
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