Rudi Interviewed: February Is Less About Earnings

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This story features COMMONWEALTH BANK OF AUSTRALIA, and other companies.
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Transcript of Pre-February results interview by Livewire Markets.

By Rudi Filapek-Vandyck

As per unofficial tradition, I was interviewed by Livewire Markets’ co-founder James Marlay ahead of the February results season. A link to that video is near the bottom.

Below is a curated transcript of the interview.

James Marley:

Hi folks, James Marlay here, co-founder of Livewire Markets. Summer holidays are fading as a distant memory, the kids are back at school, and if you’re looking to get yourself brushed up on what’s going on in the ASX, this is the video for you.

I’m joined by Rudi Filapek-Vandyck, the editor at FNArena and renowned market watcher, knowledgeable of all things ASX and markets.

We’re going to be going through the moving parts on the ASX to get you brushed up and ready for February.

Rudi, great to catch up. I love our chats ahead of reporting season. Have you been good to catch up?

Rudi Filapek-Vandyck:

My pleasure, James, and thanks for having me.

Interviewer:

Rudi, in preparation for today, I did have a look at some of the research that’s out there. Morgans’ forecast is for earnings growth for the ASX200 this financial year to come in around 8%, with a  similar figure for FY27.

That, to me, seems like a decent backdrop for the market. But as we know, valuations and sentiment can play a big role. Can you give me some initial thoughts on your backdrop as we go into reporting season?

Rudi:

Those numbers are already superseded. Things are going so quickly, and analysts always have to catch up with fast moving commodity prices. I think the numbers now are already 10% or 11% and probably going higher.

That’s at face value. If we look back at the past, we’ve had three negative years preceding. So clearly, something has changed in the Australian context, and we’re coming with a big bang out of a period when only a small amount of companies were consistently and persistently growing.

The difference is commodities and for a commodities market like Australia, it makes a big difference.

In very simplistic terms, what is underneath those numbers is still an extremely polarised share market.

It has actually flipped, so sectors that previously were almost the only ones growing in Australia and getting all the attention, they’re now being relegated to being laggards, out of favour.

The sectors that previously arguably were in a bear market, not moving and not growing, and having all the headwinds, today they are now, with a bang, all of a sudden, in favour.

They’re populating the earnings forecasts. They’re getting all the attention in terms of momentum, investor funds flows, etc.

You can make an argument that resources and banks are now in a  bull market, and you can make the argument that large other parts, the ones that previously were in the bull market, are now in a nasty, prolonged bear market.

Winter has arrived for those sections. Unfortunately, for those who are hoping that’s gonna change in February, my instinct tells me it’s not gonna change in February.

So, February will be less about earnings than you would expect normally from reporting seasons.

It’s also good to explain: it’s not that the growth stocks, the quality stocks, the AI stocks, it’s not that they now have negative earnings growth. They don’t, it’s just that the forecasts that underpin their growth, they’re now in a negative trend.

They’re impacted by higher bond yields, by a stronger currency and, in some cases, by specific industry related matters.

So these companies are still growing, but there’s more growth to be had elsewhere, and investors have made that switch.

Here at FNArena, as you probably know, we are updating those forecasts on a daily basis, and in particular for smaller mining companies, we are sometimes changing numbers by 100%.

That, obviously, explains why share price rallies can be so strong in those segments of the market.

It’s still very polarised, and I don’t think that’s going to change anytime soon.

One way to show how deeply polarised this share market is; out of all the stockbrokers we cover, two out of three ratings currently in place are Buy ratings.

Now, some brokers have the reputation of always issuing more buy ratings, but we have historical numbers and they show the percentage in Buys is normally never this high.

There are Buy ratings at one end, because there’s more good news coming, and there are Buy ratings on the other end, where share prices continue to fall and brokers can’t believe how low those share prices go.

Interviewer:

Something you do a lot of at FNArena is looking at the research that’s coming out of the investment banks and the broking houses.

Any particular themes or ideas that have caught your attention?

Rudi:

Let’s start with the banks. There is a positive sentiment coming through on the basis of interest rates going higher, and the economy, at face value, looks in very good shape.

So, everyone who was convinced there’s no life left in banks because they are too expensive, those investors might, yet again, be proven wrong this year.

Question marks remain around CommBank ((CBA)), yes, but they will have to prove they deserve their premium rating.

There’s now clearly a lot of euphoria coming in the resources space, prices are going up for just about anything.

Investing in resources is less about earnings. I remember many, many years ago, MIM or Mount Isa Mining, with a very questionable reputation.

The company would issue a profit warning, the share price goes down, then two to three days later the share price is back up where it was because commodity prices have gone up.

That sort of shows you the dynamic in reporting season. For resources, it matters a lot less about earnings unless, naturally, one comes out with some really bad results.

The contractors, the engineers, they’re obviously having a really good time. You can argue that that’s priced in, but that’s on the assumption there are no new contracts coming through, but that’s probably the case.

I saw NRW Holdings ((NWH)) announcing even more contracts recently. You basically own those stocks because the bull market is extending.

At the other end, the growth stocks, the quality stocks, they’re all suffering at the moment, also because of higher RBA rates, a stronger currency.

All of our quality companies are active in the US.

Then there’s a big question mark over retailers, consumer stocks. The RBA has just raised interest rates. We might see another one, at the very least.

Morgan Stanley has issued a warning to investors: be prepared for much more benign conditions in the second half of the year.

While the RBA raised rates on the basis of the economy is stronger than expected, I noticed last year retailers were issuing profit warnings.

There is that K-shaped economy. It’s not a straight line.

Personally, I’m a little bit more cautious on consumer spending. My observations about the economy do not align with the official statistics and data.

I know all companies ultimately link back to consumer spending, but when it comes to direct consumer spending stocks, I’ve gone defensive.

I’m in Chemist Warehouse/Sigma Healthcare ((SIG)). I think that’s a less risky trajectory of playing that theme,

Interviewer:

I don’t think we can ignore what’s going on in the growth and the technology parts of the market, which is, on the day we’re talking, being put under the blowtorch.

What’s your take on what’s happening there? Maybe talk us through your thoughts there.

Rudi:

Winter has arrived. I think that’s the easiest way of describing it.

People out there talk in terms of bear markets when share prices are down by -20%, but I think that’s a very simplistic way of looking at it.

To go straight to the core: when there’s a bull market, investors are looking for reasons to buy. If it’s a bear market, investors are looking for reasons to sell.

And while, once upon a time, those concepts would apply to markets as a whole, think about the GFC and the Nasdaq meltdown in 2000, increasingly, in later times, those two concepts are rolling through the market and gripping sections of it, each separately from each other.

We’ve had resources in a bear market for two or three years. Previously we had a runaway bull market for anything related to technology, to AI.

Quality stocks have outperformed for 15 years, but all that has now flipped.

We’re now looking to sell anything that is on an above average PE ratio.

Think quality, quality growth, growth, technology, anything related to data centers, AI, it’s all out of favour.

On the other end, we find anything that smells of gold, silver, lithium, uranium, etc

Something to consider people often don’t realise, is the markets behind those commodities are really, really small, and, in some occasions, really, really tiny.

A lot of people have been focusing on the effect of ETFs on equities over the past decade or so.

We are now, maybe, seeing the effect of ETFs on commodities.

If the money is flowing in very, very hard as it is, you have to question how much those markets can absorb.

We saw recently what happened with gold and silver. That might simply be the effect of too much money coming in.

The narratives are there, but the volatility is there too. I think that’s one of the reasons why you will see more volatility in these markets now.

Interviewer:

Rudi, we’ve touched on resources. We’ve touched on technology. These are two parts of the market that are in the headlines for different reasons.

At the moment, what’s being overlooked are the opportunities in sectors that have been pushed to the side.

Last year, healthcare was a difficult part of the market. Are there any opportunities in this overlooked sector?

Rudi:

Healthcare is still a very difficult sector.

What we’ve left behind is once upon a time we were treating healthcare as the go to sector that couldn’t lose. The heydays of ResMed ((RMD)), CSL ((CSL)), Cochlear ((COH)) and the likes, they’re definitely behind us.

We are now talking about very subdued forecasts. Analysts are still very cautious about Healius ((HLS)), Sonic Healthcare ((SLC)), Ramsay Health Care ((RHC)), pathology in general, and that, by default, makes me more cautious.

The big discussion about CSL is if they simply meet expectations this season, whether that’s going to be enough?

Other people think that’s not going to be enough. So that debate goes on.

The one thing I find, personally, very disappointing concerns ResMed. I’m a shareholder, I think ResMed is now the number one company in that sector.

They came out in January with a fantastic result, meeting expectations, forcing analysts, even with a strong Aussie dollar, to increase their forecasts.

And guess what? Apart from on the day of release, the share price is only going down.

That observation in itself, to me, is indicative of what the situation will be in February.

This also leads me to one conclusion in that February will be less about actual results and more about momentum, investor sentiment, and the likes.

Unfortunately, there’s nothing companies can do about it.

Xero ((XRO)) gave a presentation to analysts. They pulled forward the point of reaching break-even for Melio, their acquisition in the US, by three years.

In any different market that would unlock the share price by 10-15% but we are seeing the opposite again, except on the day of release.

If I can make a comparison with the US, there Microsoft sold off by double digits. Their numbers missed consensus by -1% and the one key reason why is they had to reallocate some of their hardware, and they gave it to themselves to develop Copilot instead of to their customers.

Again, the market simply has no appetite for any detail. If you’re in the wrong sector, you’re going to be sold down.

Having said so, there’s always room for more positivism in February. There are a few companies that, when I go through research updates, are being highlighted as potentially delivering a positive surprise.

One that’s often mentioned is Flight Centre ((FLT)). A cheaper currency should help them as well.

One that’s equally often mentioned, it’s quite a small one and it hasn’t been listed for that long. but a lot of people are positive about GemLife Communities Group ((GLF)).

Other companies that are mentioned are Superloop ((SLC)) and Aussie Broadband ((ABB)).

Temple & Webster ((TPW)) is also often mentioned, but I think the problem there is you can still hold the technology label over it, and that will be for many, many companies one big disadvantage in February.

Given we have this really strong fillip between value and growth, it is well possible a lot of people will now start looking among cheap laggards for the next leg up and whether such companies can make a comeback in February.

That is possible. But I still can’t get excited about the likes of Aurizon Holdings ((AZJ)), or Lendlease ((LLC)), or Bapcor ((BAP)), or, like I mentioned earlier, Healius.

I still would refrain from expecting too much from those companies. But hey, we all have our own strategies.

At the larger scale, I think Macquarie Group ((MQG)) is making a comeback, and that’s probably deservedly so.

We are seeing a lot of IPOs, a lot of capital raisings and all of that. People always look at Computershare ((CPU)), but I think Macquarie is the key beneficiary here.

They are using technology to take market share away in Australia. They are doing quite a good job at it.

One stock that has my personal attention is Goodman Group ((GMG)). I think Goodman Group will be very important for the AI trade in Australia.

Amongst all the narratives that were going around last year, one was you can never make money out of data centres, which obviously is ludicrous, but hey, you can’t argue with the crowd.

The share price is now a lot lower than where it was last year. I hope Goodman comes up with a good result, but I’m not so sure whether earnings are going to change much to sentiment.

I think there’s nothing much that companies can do about it, it’ll have to come from elsewhere.

Another example: in January Qoria ((QOR)) shares sold off by -40% not because the market update was bad, no, because management stuck to their guidance and it was based on a weaker Aussie than where it is now.

What has happened since is they’re now going to merge with a US company.

That signifies to me that what used to be growth and technology, the higher PE stocks, they’ve now become value plays.

We all know that’s what the bear market does. We know instinctively the bear market creates opportunities when it ends.

We just don’t know when that will happen and how low share prices are going in the meantime.

Interviewer:

Rudi, you’ve mentioned a bunch of names there. I was just thinking, as we look at reporting season, are there are a couple of results from stocks that you think might be bellwether indicators for industries across the market that you think are going to be particularly interesting to watch?

Rudi:

Goodman Group is the one for the AI trade. For consumer spending, people will be watching the likes of Wesfarmers ((WES)).

Coming back to the laggards, Woolworths Group ((WOW)) is in a similar situation as CSL.

Are they finally ready to not disappoint? Maybe that gap with Coles Group ((COL)) can narrow?

That would normally also apply to Macquarie. Macquarie now had two or three years of basically standstill. But I think they’re probably ready to turn things around.

The big one the amongst the banks, of course, is CBA. They will have to prove they still deserve to trade on a premium. Thus far the evidence is they are still on a premium, and they have kept it, although that has narrowed.

Maybe the premium got a bit too large last year.

Interviewer:

One part of the market we haven’t discussed specifically are the online classified businesses, REA Group ((REA)), Car Group ((CAR)); stocks investors have said these are the ones you want to pick up on a dip, because they’re always expensive.

We’ve got a dip right now. What’s your take on what’s happening in those platform businesses?

Rudi:

I would normally have mentioned them as well, but unfortunately, they’re part of the baskets I mentioned earlier.

I’m a shareholder in Car Group. I’m a shareholder in REA. On a regular basis I see emails in my inbox of people picking apart all the negative scenarios for REA and addressing them in a positive way.

In very simplistic terms, we are now afraid that AI is going to destroy those platform businesses. For REA specifically, there was a threat of increased or irrational competition.

I would normally nominate them as results to pay attention to, but on the basis of the experience and observations on the trends leading into results season, I’m not so sure whether either of those companies can change the trend.

At the moment, the herd sentiment is too negative. As an investor, you either have to wait for better times to arrive, or you step aside and you just wait for things to come.

Interviewer:

Rudi, couple of questions to finish up. Over the years, I’ve asked you about cash holdings. I think at one point it was as high as 20%.

Maybe give me a sense of how much cash you’re holding at the moment. Is that higher or lower than average?

Rudi:

Harry hindsight tells me every morning I’ve done the wrong thing. We know Harry Hindsight is really wise.

I’ve had 10% in cash now for a while. It was a bit higher at some point last year, and I used it to buy Sigma Healthcare ((SIG)).

I also bought Washington H Soul Pattinson ((SOL)). And I bought Pro Medicus ((PME)). Two out of three ain’t that bad.

I haven’t used that 10% for two reasons. One is I thought, and rightfully so, we will see a lot of volatility leading into February. You want to have some cash ready, because otherwise you can’t jump on opportunities.

But I also believe February itself will probably again be exceptionally volatile.

If we look at the trend from just the last two reporting seasons last year, I still vividly remember February was above average volatile, and at that point it was the most volatile reporting season we had seen in quite a while.

Then August came along, and that was the next step up. Simply look at what happened late last year and already in January: Generation Development ((GDG)), for example, tanks on what arguably are quite small misses.

I think we should be prepared to see a lot of volatility kicking in in February.

One of the ways how you can play that is by having cash available.

So, I’m more than happy to have stuck to my 10%. Of course, as Harry reminds me every morning, it’s not enough.

But hey, I only have 10% at this point in time.

Interviewer:

Rudi, you’ve mentioned the bear market term a few times. Winter is coming. That’s just for part of the market, or more broadly?

Rudi:

The index has over the last 15 if not 20 years not been representative of what happens underneath it.

Simply on the basis of observations, everything that is quality, quality growth, anything that’s growth, everything that’s technology, everything that’s AI and data centers related, they have all been in a  bear market since approximately July last year.

On the basis of my experience in late 2016, I was expecting that might come to an end in January, and it hasn’t.

I think we should now be prepared to have a bear market that goes on for longer for those segments of the market.

For some investors this won’t matter because they’re not there in the first place and they’re happily scooping up more gold stocks.

James:

Rudi, I really appreciate you giving us your time today. I always enjoy our pre reporting season discussions. Good luck. I know you’re going to be really busy over the next month, and we look forward to your analysis on the other side of reporting season.

Rudi:

My pleasure, James, and thanks for having me.

The video on Youtube: https://www.youtube.com/watch?v=QMhGsO5yDy0

See also: https://fnarena.com/index.php/2026/02/11/behind-the-ai-threat-narratives/

(Do note that, in line with all my analyses, appearances and presentations, all of the above names and calculations are provided for educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions.)  

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

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

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