Feature Stories | Mar 26 2026
Download related file: FNArena-Reporting-Season-Monitor-Feb-2026
A compilation of stories relating to the February 2026 corporate reporting season in Australia, including FNArena’s final balance for the season.
By Rudi Filapek-Vandyck, Editor
Content (in chronological order of publication):
- Pre-February Top Picks & Favourites
- Key Picks & Sector Favourites
- February Favourites & Avoids
- Many February Uncertainties
- Woolies, CSL, Macquarie (& More)
- Behind The AI Threat Narrative(s)
- Rudi Interviewed: February Is Less About Earnings
- Is Higher Volatility Now A Permanent Feature?
- More Surprises, Led By CBA & BHP
- Positives From February Results
- A Season Of Large Cap Winners
- TACO Time?
- Post-February Conviction Calls
- Oil, Inflation, Growth & Stagflation
- Top Picks & Conviction Buys
- Make Today’s Crisis Your Opportunity
Pre-February Top Picks & Favourites
In less than two weeks –can you believe it?– the February results season will be upon us.
Initial signals are patchy, though not necessarily representative.
Gold producer Northern Star ((NST)) started the year with a disappointing market update and the same observation can be made for Super Retail ((SUL)), Endeavour Group ((EDV)) and –earlier today–Amaero ((3DA)).
I am less familiar with smaller cap stories behind Biome Australia ((BIO)), Carma ((CMA)), TMK Energy ((TMK)), and Metro Mining ((MMI)), but in all cases the share price reaction has been negative. Biome’s share price has since recovered (almost).
Have thus far seen their share price respond positively post market update: Codan ((CDA)), Nexsen ((NXN)), Ryman Healthcare ((RYM)), and Kingsgate Consolidated ((KCN)).
Decidre AI Industries Ltd ((DAI)) –market cap $174m– issued an update on January 8 which initially saw its share price rally in response, but none of that proved sustainable and –no surprise to those owning technology and/or AI-related equities– selling orders came thick and fast next.
Decidre shares are now noticeable weaker than previously. In Australia, growth and technology remain out-of-favour, no matter the market update (or so it still appears).
According to the ASX website: “Decidr AI Industries enables businesses to use Generative and Agentic Artificial Intelligence, unlocking new levels of productivity, automation, and personalized customer engagement.”
I might be reading too much into these early signs, but my inclination is to expect a continuation of the trend that started during results season in February last year: above average volatility with higher spikes and falls, and in much higher numbers.
It might be an apposite strategy to hold cash in advance. There might be opportunities galore with eyes firmly on the longer-term horizon.
Corporate USA – Trends
Apart from a handful of early reporters, such as Alcoa ((AAI)), Credit Corp ((CCP)) and ResMed ((RMD)), it’ll still be a good month before corporate Australia unleashes its financial performances into the public arena.
Before then, there’s plenty to pay attention to, and to possibly take guidance from, during the quarterly reporting season in the USA. Early signals over there are equally rather patchy.
An at face value better-than-expected quarterly performance by JP Morgan resulted in a weaker share price and the likes of Bank of America, Citi and Wells Fargo have equally found the bar for further share price upside has been lifted.
Once again, with indices at or near all-time record highs, and after three years of double digit percentage returns, corporate results are being touted as at an important inflection point. After all, those “expensive” looking share prices need to be confirmed and verified.
Or so the narrative goes.
I am sure investors get a bit tired of hearing the same warnings over and over again. Which is not to say a bad reporting season couldn’t possibly put a dent in the hereto irresistible market enthusiasm and optimism.
In the lead-in, risk appetite remains high and analysts have been lifting their forecasts in direct contravention to the usual seasonal pattern. As analysts at Blackrock put it: solid economic growth combined with Fed rate cuts have boosted earnings and profit margins.
Now add the prospect of AI-driven efficiencies and (expectations of) active stimulus from the Trump administration and there should be no secrets as to where all this optimism stems from. But that’s only half of the story, at best.
One of the ruling narratives is that cyclicals and small caps will outperform Megacaps and yesteryear’s AI Champions and that thesis will surely be put under the microscope over the coming weeks.
In Australia the one sector that has noticeably enjoyed an uptick in earnings forecasts –well above the rest of the market– is Materials.
For good measure: the Magnificent7 are still projected to grow strongly. It’s the gap with the remaining 493 that make up the S&P500 that is expected to narrow significantly.
Watch this space. This might be one reporting season that lives up to the hype of being “very, very important”.
Plenty of US strategists and investment advisors continue to support the Megacaps and AI Champions, though none of that is mirrorred in Australia. Here one of the big questions remains: when will the bear market for Quality, Technology and Growth stocks end?
Not sure whether February might/can produce enough answers to that question. Maybe fear for imminent RBA tightening needs to dial down? Maybe the Nasdaq needs to have a sizeable wobble first?
So far, and no matter the narrative or personal perspective, one observation stands as a rock in Australia: selling orders still dominate share prices for Pro Medicus ((PME)), TechnologyOne ((TNE)), WiseTech Global ((WTC)), Xero ((XRO)), and the likes.
That’s extraordinary given most share prices started weakening in July last year. Bear markets are, indeed, truly brutal.
Just ask any investor who held shares in Pilbara Minerals ((PLS)) in 2024 or Woodside Energy ((WDS)) shares since 2023.
Early Previews
Analysts are by no means back in full action mode this early in the new year (judging from the many email bounces: neither are investors and advisors) but the first previews are cautiously being issued.
Banking analysts at Jarden are wondering whether 2026 could actually become the year when a repricing of bank deposits could turn into a headwind for most inside the sector?
CommBank ((CBA)) could potentially re-ignite market concerns about pressure on the net interest margin (NIM), while Bendigo and Adelaide Bank ((BEN)) is yet to reveal provisions (market is apparently waiting for it) and Judo Bank ((JDO)) might yet again showcase its disruptive business is truly operating in a sweetspot.
Jarden also suggests the upcoming Q3 trading update from Macquarie Group ((MQG)) could turn into a positive event on the back of a general pick-up in capital markets and upward volatility in commodities.
Then what else is the share market but a melting pot of conflicting narratives and approaches?
Banking sector analysts at Citi are expecting positive follow-through from deposit pricing with banks expected to issue cautiously positive outlook statements. They too are positively-biased towards Macquarie Group’s update, also because last year’s comparables were quite soft.
To express their positive view on Judo Bank, Citi analysts have opened a positive 90 days catalyst watch on the stock.
As per usual, not everything will be straightforward negative or positive in February. Jarden’s preview on The Lottery Corp ((TLC)), for example, implies the interim result is likely to be weak (with Jackpot weakness to blame) –with downside risk seen to consensus forecasts– but with the added thought this might well already be in today’s share price.
No double-guessing as to what are Jarden’s thoughts about the current set-up: earlier this morning, this broker upgraded its rating to Overweight from Underweight. Target $5.30 (up by 10c) on positive revisions to longer-term growth projections.
To be continued over the following weeks.
Conviction Calls and Best Buys
Jarden’s Favourites
The following sentence stands out in Jarden’s latest sector update for ASX-listed REITs:
“We are increasingly bullish on residential names given recent underperformance, structural undersupply, government policy support, pipeline restocking measures and strong volume momentum.”
Most preferred names:
Least preferred:
Elsewhere at the retail sector desk, the broker’s favourites are:
plus Sigma Healthcare ((SIG)) for defensive growth and Flight Centre ((FLT))
Least preferred ( “most challenged”):
Citi’s Growing Real Estate Optimism
The Australian Real Estate Team at Citi believes strong sector fundamentals will trump investor concerns about (potentially) higher interest rates in 2026.
As such, Citi is increasingly optimistic about the outlook for A-REITs.
Sector Top Picks:
- Goodman Group ((GMG))
- Stockland ((SGP))
- Charter Hall ((CHC))
- Ingenia Communities Group ((INA))
- Scentre Group ((SCG))
- GPT Group ((GPT))
Among small/mid stocks the preference goes to:
Ord Minnett’s Convictions
Ord Minnett’s selection of Analysts’ Conviction Stocks has seen the addition of Shape Australia Corp ((SHA)) in December.
The rest of the list remains:
- Aussie Broadband ((ABB))
- Beacon Lighting Group ((BLX))
- Brazilian Rare Earths ((BRE))
- Cuscal ((CCL))
- Energy One ((EOL))
- Lindsay Australia ((LAU))
- Qoria ((QOR))
- Ramelius Resources ((RMS))
- Regis Healthcare ((REG))
- SiteMinder ((SDR))
- Zip Co ((ZIP))
RaaS’ Micro Cap Favourites
The team of inhouse analysts at Research as a Service (RaaS) has selected the following candidates believed to be primed for outperformance in 2026:
- Acusensus ((ACE))
- Adairs ((ADH))
- Australian Vintage ((AVG))
- Artrya ((AYA))
- Beforepay ((B4P))
- Raiz Invest ((RZI))
- Saturn Metals ((STN))
- Unico Silver ((USL))
UBS’ Tech Opportunities
The underperformance of ASX-listed large-cap software companies has gone way too far, according to analysts at UBS.
They now see “significant re-rate opportunity”.
The sentence that summarises it nicely: “we remain positive around Software’s defensive moat against AI, continued strength in pricing power and the sector’s ability to monetise agentic AI investments, all of which could drive a meaningful re-rate through the course of the year”.
UBS has reiterated its Buy ratings for:
- TechnologyOne ((TNE)) – price target $38.70
- WiseTech Global ((WTC)) – price target $115
- Xero ((XRO)) – price target $194
Make sure you also read: https://fnarena.com/index.php/2025/12/24/rudis-view-best-buys-favourites-for-2026/
Key Picks & Sector Favourites
With the February results season approaching rapidly, the focus among local analysts is shifting towards sector updates and reviews of projections and expectations in light of what is likely to be yet another ultra-volatile roller coaster for Australian investors.
This week’s share price responses to market updates by the likes of Qoria ((QOR)) and Generation Development ((GDG)) might well serve as preliminary indicators of what to expect from February in case of imperfection.
It need not only be negative news, of course, as also shown by Paladin Resources ((PDN)) and Hub24 ((HUB)).
Still, it might not be a bad idea to have some cash available.
Wading through the first hundred of pages in previews –and a lot more will be produced before month’s end– a few observations stand out, including:
-ongoing support for the newfound momentum for mining companies (though some valuation criticisms are creeping in)
-mostly cautiously positive views on banks (operationally, not valuations)
-ongoing strong outlooks for engineers and contractors
Among individual companies, the following three updates caught my personal attention this week:
Morgan Stanley suggests Lendlease ((LLC)) might well deliver “a sticker shock” on results day (scheduled for 23 February) with the broker toying with the idea this once great franchise could possibly have zero profit on the books as all major asset sales are due for completion in 2H26, and the first half carries costs associated with the CRU segment.
On the other hand, Goodman Group ((GMG)) is mentioned here and there as potentially in a position to upgrade FY26 EPS guidance, currently set for 9% growth. A recent report by Morgan Stanley suggests the recent establishment of the European data centre JV has provided Goodman with flexibility as to the timing of Development EBITDA.
RBC Capital has highlighted CSL‘s ((CSL)) interim result for a better-than-forecast outcome. No doubt, this will be music to the ears of long-suffering shareholders (which includes myself and the FNArena All-Weather Model Portfolio).
CSL’s interim release is scheduled for the 11th of February. RBC sees revenue and gross profit exceeding consensus forecasts. Earnings estimates have already been lifted and the price target increased to $230.
FNArena’s Corporate Results Monitor includes early updates for the February scheduling (scroll down on the page): https://fnarena.com/index.php/reporting_season/
Below are this week’s fresh updates on sector favourites and Top Picks ahead of next month.
Conviction Calls & Best Buys
Analysts at RBC Capital have nominated their two favourite Top Picks among ASX-listed small cap industrial companies:
The former’s upcoming financial result release in February has the potential to address investor concerns that have kept its share price under pressure since the Q3 market update, or so is RBC Capital’s view.
Regarding the latter, the analysts are reporting industry feedback and data points are indicating online retailers have outperformed throughout the all-important pre- and Christmas sales, and expectations specifically for Temple & Webster have been rebased after the company’s AGM update.
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Bell Potter is retaining a positive view on Droneshield ((DRO)), Elsight ((ELS)), and Electro Optic Systems ((EOS)) –all three rated Buy– irrespective of the observation that share prices have almost literally taken off since December.
The broker sees a catalyst rich next six months while valuation multiples remain below that of global peers.
Shares in Droneshield are still recovering from last year’s PR debacle, while the other two shares are trading at or near all-time record highs.
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Today’s freshly released sector update on AREITs by Moelis is characterised by a positive undercurrent irrespective of potential rate hikes by the RBA in the year ahead.
Moelis likes:
1.) Rent collectors with relatively long WALEs & defensive business models: These REITs are trading at discounts to NTA and historical ranges and have balance sheets with capacity to grow earnings.
2.) Discounted industrial REITs: Industrial rents in most markets are no longer experiencing material growth and large warehouses are now typically experiencing extended downtimes upon expiry.
3.) Residential developers with earnings growth potential trading at undemanding multiples: Developers with exposure to QLD, WA residential markets set to benefit the most, with VIC slated for an eventual recovery over the next two years.
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From the Quant desk at Macquarie comes the following list of Best Picks among small and midcap ASX-listings:
- AUB Group ((AUB))
- Breville Group ((BRG))
- Flight Centre ((FLT))
- Generation Development ((GDG))
- Integral Diagnostics ((IDX))
- JB Hi-Fi ((JBH))
- Lovisa Holdings ((LOV))
- Maas Group ((MGH))
- Mader Group ((MAD))
- Macquarie Technology ((MAQ))
- Megaport ((MP1))
- Monadelphous ((MND))
- Nick Scali ((NCK))
- Neuren ((NEU))
- Pinnacle Investment Managers ((PNI))
- Perpetual ((PPT))
- Pexa Group ((PXA))
- SiteMinder ((SDR))
- Universal Store Group ((UNI))
- Ventia Group ((VNT))
- Zip Co ((ZIP))
The above selection is the outcome from combining best picks chosen by Macquarie analysts with the two investment styles of Quality and undervalued pricing (Fundamental Value).
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Traditionally, analysts at Morgan Stanley nominate their Key Ideas ahead of the upcoming results season. Have been nominated so far:
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UBS analysts’ Top Picks among emerging companies ahead of February:
Key Picks:
- Collins Foods ((CKF))
- Dicker Data ((DDR))
- Hansen Technologies ((HSN))
- IDP Education ((IEL))
- Kelsian Group ((KLS))
- NextDC ((NXT))
- Superloop ((SLC))
- Service Stream ((SSM))
- Web Travel Group ((WEB))
Noteworthy mentions:
Positive tone – Flight Centre ((FLT))
Cautious tone – Eagers Automotive ((APE)).
Stocks where UBS analysts see double positive risk to result and outlook:
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Stockbroker Morgans‘ key sector picks among financial services providers are, in order of preference:
- Generation Development ((GDG))
- MA Financial ((MAF))
- Navigator Global Investments ((NGI))
- COG Financial Services ((COG))
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Peers at Citi have published their own order of preference for diversified financials:
- Generation Development ((GDG))
- Challenger ((CGF))
- AMP ((AMP))
- Computershare ((CPU))
- Perpetual ((PPT))
- ASX ((ASX))
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Macquarie has identified three Key Picks among consumer-related companies on the ASX:
- Coles Group ((COL)), for margin resilience
- Wesfarmers ((WES)), for its quality
- Harvey Norman ((HVN)), for exposure to furniture sales
Key stocks to Avoid:
- Endeavour Group ((EDV)) due to further margin downside
- Domino’s Pizza ((DMP)) due to ongoing store profit risk
- Inghams Group ((ING)) due to oversupply
Over at the broker’s Energy desk, the view remains that an underweight portfolio allocation to the sector remains most apposite.
Within this context, the broker’s two sector favourites are Santos ((STO)) and Amplitude Energy ((AEL)).
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Morgan Stanley‘s core view is the rotation into Resources has much further to run (and global portfolios are not yet adjusted for it).
Within this context, the broker’s Model Portfolio includes exposure to:
- BHP Group ((BHP))
- BlueScope Steel ((BSL))
- Iluka Resources ((ILU))
- Newmont Corp ((NEM))
- Rio Tinto ((RIO))
- PLS Group ((PLS))
- South32 ((S32))
On the broker’s assessment, the past six months has shown the largest Resources outperformance since 2009.
In Australia, Resources are now a larger index weight than the banks.
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Nick Scali ((NCK)) is Citi’s key small cap housing retail pick.
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Origin Energy ((ORG)) remains UBS’s most preferred ASX-listed Utilities exposure.
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Citi’s order of preference for insurance sector exposure is QBE Insurance ((QBE)), then Insurance Australia Group ((IAG)), Steadfast Group ((SDF)), nib Holdings ((NHF)), Suncorp ((SUN)) and Medibank Private ((MPL)) last.
February Favourites & Avoids
The local February results season starts Friday this week when Credit Corp ((CCP)), Champion Iron ((CIA)) and ResMed ((RMD)) are scheduled for updates on financial performances.
See https://fnarena.com/index.php/reporting_season/ for regular updates (starting next week) and a calendar (scroll down).
At face value, this will be a markedly different proposition from the years past as average earnings forecasts are on the rise, and generally anticipated to continue rising, but that generalisation ignores the bifurcation that has happened underneath the surface.
As also pointed out by market strategists at Wilsons on Thursday morning (earlier today): strip away the mining companies and the rest of the local resources basket, and net trend is net negative, i.e. more downgrades than increases.
That assessment equally features in the latest update by Macquarie where the analysts note the local energy sector has been the stand-out in terms of positive earnings revisions for two consecutive weeks, while property trusts have been detracting from the positive trend on the prospect for RBA rate hikes.
See also FNArena’s very own weekly update every Monday morning: https://fnarena.com/index.php/2026/01/27/weekly-ratings-targets-forecast-changes-23-01-26/
On Morgan Stanley’s numbers, forecast consensus EPS growth has grown to 9.5% in aggregate, but two-thirds of it is expected to come from the Materials sector.
Wilsons highlights seven out of nine industrials sectors are experiencing net downgrades to forecasts. Heaviest hit have been IT and consumer staples, but for all of healthcare, consumer discretionary, communication services and utilities the net balance from the past three months is negative.
The two exceptions? Materials and Financials.
As the ASX200 is still seen trading around one standard deviation above its five-year average PE multiple, Wilsons wholeheartedly agrees with my personal prediction the trend in above average share price volatility is likely to continue next month.
On Macquarie’s numbers, the Australian market’s PE ratio for December 2025 has increased to 20.1x, while for June 2026 it decreased to 19.2x.
Investors better buckle up. In August last year circa one third of companies reporting saw their share price move by 10% or more on the day, in either direction; more than half of shares in reporting companies moved by over 5%.
Share market updates to date in January –think Qoria ((QOR)) and Generation Development ((GDG)), but also Life360 ((360)), Paladin Energy ((PDN)) and Hub24 ((HUB))– certainly are indicating volatility is not likely to subside.
In the words of Wilsons: “We expect upgrades to be rewarded while downgrades are likely to be disproportionately punished by investors”.
Core predictions made in this week’s preview:
- Mining sector to continue enjoying upgrades to forecasts, also because many models still need to catch up on (much) higher commodity prices
- Retail sector will likely feature cautionary statements in the face of RBA rate hikes. As valuations remain high, any sign of disappointment will likely trigger outsized punishment, Wilsons predicts
- Among Supermarkets, Wilsons’ focus is on whether Woolworths ((WOW)) can finally put an end to its two-year long downgrade cycle?
- A similar question rules inside the banking sector: can CommBank ((CBA)) surprise and deliver an upgrade in February?
- Among online classifieds, Wilsons suggests both Car Group ((CAR)) and REA Group ((REA)) appear well-positioned for relief rallies… assuming either can deliver upgrades to consensus forecasts.
- In healthcare, Wilsons’ High Conviction remains with ResMed ((RMD)). The strategists wonder whether CSL ((CSL)) can change the negative trend after four successive downgrades and remain cautious towards Cochlear ((COH)) following three successive downgrades.
Note The Aussie Dollar
USD/AUD is back at 70c. While once upon a time the long-term average was determined to be 75c, it has been three years since the Aussie battler managed to surge towards a 7 in front of it instead of a 6.
That rally is not necessarily finishing anytime soon either. Apart from a discrepancy in respective outlooks for central bank cash rates (Fed on hold, RBA about to start tightening) strategists at UBS point out AUD usually performs strongly when commodity prices are booming and risk appetite is high.
UBS is equally of the view that foreign investors are still “crowded short” the local share market. A rising AUD in combination with commodities booming and elevated risk appetite should see this positioning reverse towards global investors building ASX exposure again.
To throw in one additional element of support for AUD, UBS believes the local currency remains “structurally undervalued”. Not mentioned is that increasingly erratic US government actions are pressuring the global reserve currency into a persistent de-rating, which is equally fueling the bull market in precious metals.
UBS thinks the RBA could be forced to hike three times throughout 2026.
The implication for investors:
- Best to overweight Australian equities inside a global portfolio
- Best to overweight Mining equities within an Australian portfolio
Taking guidance from your typical historical correlations at the individual stock level, UBS has compiled a list of 14 companies –all Buy rated– whose shares this time around have underperformed more significantly than has been the case in the past.
It should not surprise, the list is over-populated with technology companies, for which headaches and headwinds have formed through alternative narratives including AI and rising bond yields.
UBS’ list of 14 underperforming Buy-rated stocks
- Catapult Sports ((CAT))
- Life 360 ((360))
- Premier Investments ((PMV))
- GQG Partners ((GQG))
- Telix Pharmaceuticals ((TLX))
- SiteMinder ((SDR))
- Zip Co ((ZIP))
- Xero ((XRO))
- WiseTech Global ((WTC))
- Superloop ((SLC))
- Aussie Broadband ((ABB))
- Car Group ((CAR))
- TechnologyOne ((TNE))
- Block ((XYZ))
UBS’s update also contains a second list of companies whose share price today is a lot lower compared with the last time USD/AUD was at 70c (all are Buy rated). PE multiples are generally significantly lower too:
- IDP Education ((IEL))
- Domino’s Pizza ((DMP))
- CSL ((CSL))
- Premier Investments ((PMV))
- Viva Energy ((VEA))
- Mineral Resources ((MIN))
- Amcor ((AMC))
- Block ((XYZ))
- Web Travel ((WEB))
- Metcash ((MTS))
- Dexus ((DXS))
- Nickel Industries ((NIC))
- Worley ((WOR))
- Flight Centre Travel ((FLT))
- Seek ((SEK))
Morgan Stanley’s BHP Conviction
Morgan Stanley has added BHP Group ((BHP)) to its Asia Pacific ex Japan Focus List (selection of highest convictions), citing an attractive mix of commodity exposures (iron ore, copper and met coal) which allows for resilient free cash flows and shareholder returns.
The full list contains 20 stocks, with Wynn Macau removed to free up space for the Big Aussie, of which three others are ASX-listed;
Other international names on the list are Delta Electronics, ICICI Bank, Samsung Electronics, Singapore Exchange, and Zijin Mining Group.
Top Global Ideas
RBC Capital’s Top 30 Global Ideas for 2026 only includes one lonely ASX representative: WiseTech Global ((WTC)).
Other companies selected are Air Products and Chemicals, Airbnb, Alcon, Amazon, Biogen, Boston Scientific, Brookfield Corp, ConocoPhillips, Constellation Software, DuPont de Nemours, Engie, International Paper, Loblaw Companies, L’Oreal, Microsoft, Moody’s, Palo Alto Networks, RB Global, Royal Gold, Safran, Schneider Electric, Shopify, Snowflake, The Williams Companies, US Bancorp, Visa, Xcel Energy, Ventas, and Xylem.
AREIT Favourites
Ahead of February results, Bell Potter has picked its favourites among AREITs:
Others liked are
- Aspen Group ((APZ))
- Cedar Woods Properties ((CWP))
- GemLife Communities Group ((GLF))
- Goodman Group ((GMG))
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Macquarie analysts keep the faith that most preferred quality REITs with earnings growth should still perform in the face of rate hikes and rising bond yields:
- Goodman Group ((GMG))
- Mirvac Group ((MGR))
- DigiCo Infrastructure REIT (DGT))
- Qualitas ((QAL))
- Arena REIT ((ARF))
Healthcare Reviews
Here’s one observation that pretty much characterises the experience of investors in healthcare companies in 2025: all but one company –Ansell ((ANN))– delivered a negative net performance.
The observation was made by sector analysts at Citi who, admittedly, do not cover every single company in the sector locally, but the broader message still stands. It’s been tough for the sector generally post covid and last year was no exception.
Citi thinks 2026 will be more determined by individual narratives with the two most obvious candidates to shake off the bad sector smell identified as:
Citi is mostly Neutral-rated throughout the sector, but has downgraded Sonic Healthcare ((SHL)) to Sell, which says a lot given where that share price is trading at compared to late 2021 (more than -50% erosion).
CSL ((CSL)), by the way, is Buy rated, and so is Pro Medicus ((PME)).
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Macquarie’s most preferred healthcare picks:
Least preferred:
The three post CSL are all part of the local pathology sector.
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Over at Morgan Stanley, healthcare sector analysts see favourable risk/reward for:
- CSL ((CSL))
- ResMed ((RMD))
- with upside for Telix Pharmaceuticals ((TLX)) on pipeline delivery
- Fisher & Paykel Healthcare ((FPH)) on US respiratory hospitalisations
Morgan Stanley is not so enthusiastic about:
The Aussie Consumer & RBA Hikes
Jarden’s key picks among consumer-oriented companies are:
- Sigma Healthcare ((SIG))
- Flight Centre Travel ((FLT))
- Universal Store Group ((UNI))
- Adairs ((ADH))
- Harvey Norman ((HVN))
- Woolworths Group ((WOW))
Are considered at-risk:
Overall, the key sector risk as identified by Jarden revolves around RBA rate hikes as these could dampen spending, with confidence already fragile, the analysts state.
Morgans’ Pre-February Key Calls
Stockbroker Morgans’ Key Calls ahead of February:
Positive
- Lovisa Holdings ((LOV))
- Monadelphous ((MND))
- NextDC ((NXT))
- Sigma Healthcare ((SIG))
- NRW Holdings ((NWH))
- GemLife Communities Group ((GLF))
Negative
With honourable mentions of:
Positive
- Bega Cheese ((BGA)) – result beating expectations?
- Clearview Wealth ((CVW)) – strong outlook?
- Eureka Group Holdings ((EGH)) -strong outlook?
- HomeCo Daily Needs REIT ((HDN)) – result beating expectations?
- MF Financial ((MAF)) – strong outlook?
- Maas Group ((MGH)) – strong outlook?
- Motorcycle Holdings ((MTO)) – result beating expectations?
- Micro-X ((MX1)) – strong outlook?
- Nanosonics ((NAN)) – strong outlook?
- Pro Medicus ((PME)) – strong outlook?
- SRG Global ((SRG)) – strong outlook?
- Symal Group ((SYL)) – strong outlook?
- Tasmea ((TEA)) – strong outlook?
Negative
Many February Uncertainties
It is my favourite observation prior to each corporate results season in Australia: every season tends to have its own specific context, which also defines differences in share price responses and ultimate outcomes.
Ahead of February results (mostly in the second half of this month) general positioning and sentiment are in alignment with the major shifts that flavoured the local market in 2025.
In simple terms: stocks that before mid-year last year could do no wrong have fallen out of favour and those seen languishing for most of the three years prior have sprung to life in a manner seldom witnessed unless after a big economic recession or amidst a major reset in bond yields.
In plain layman’s lingo: Quality, Growth, Technology and AI beneficiaries and infrastructure are now suffering a prolonged bear market while a new bull market has opened up for cyclicals, miners, mining contractors, and the likes.
This is your Growth versus Value switch professional fund managers like to talk about in full display.
The Return Of Corporate Earnings Growth
Carried by strong rallies in industrial metals and minerals, parabolic moves in precious metals and a resurgence in oil prices, earnings forecasts in Australia are now in a firm uptrend and, as analysts are usually slow to catch up to such strong pricing momentum, this trend looks far from finished just yet.
After three years of net negative earnings erosion for corporate Australia, aggregate consensus EPS growth projections are now signalling 11.3% growth is on the menu for FY26, to be followed up by 8.6% growth in FY27.
It wasn’t that long ago market strategists at UBS reported the long-term average pace of growth in Australian earnings lays around 4.5%-5% per annum, so these numbers suggest a new boom time has arrived.
Certainly, when the team here at FNArena is updating earnings estimates these days it is not uncommon to see future numbers increase by 50%, 70%, or even 100% for smaller cap mining companies, which easily explains investor enthusiasm and strong share price gains over the past six months or so.
Narratives supporting the world’s newfound focus on ‘hard assets’ includes geographic disruption and risks (including US tariffs), the prospect of prolonged US dollar weakening (see also: erosion of its status as the global reserve currency), higher bond yields (lots happening), persistent inflation (also: angst about it rising), renewed stimulus and ‘money printing’ in China and the US, ongoing strong demand through data centres, renewables and AI infrastructure, and looming under-supply in the face of rising demand.
Not unimportant for Australian-based investors: commodities tend to offer a natural hedge against an appreciating Aussie dollar unlike most exporters and international success stories whose financial numbers –one way or another– feel the impact from a negative translation back into the local currency.
In January, things suddenly shifted in a parabolic manner, not only in prices of gold and silver, but equally so for AUD. Might this be yet another signal today’s markets are increasingly led by narratives and continuation of momentum?
Time will tell, but the current set-up does not bode particularly well for those prior momentum leaders now in a nasty and enduring bear market; at least for now.
A Nasty Bear Market
Many an investor thinks about bear markets in terms of the GFC in 2008 or the Nasdaq meltdown in 2000, but bear markets that only affect specific segments of the market are much more common.
Open up a price chart for your average lithium stock showing price action between mid-2023 and mid last year and you’ll immediately understand what I am referring to.
It’s gut-wrenching when your portfolio has exposure during the draw-down. And while we all know (should know) bear markets by default offer opportunity when the turnaround arrives (see also those lithium stocks), there’s no certainty about how long they might stick around, or how low share prices might fall in the meantime.
This one I did not see coming.
So to anyone out there who’s suffering from owning shares in companies like Car Group ((CAR)), Life360 ((360)), Telix Pharmaceuticals ((TLX)), Pro Medicus ((PME)), SiteMinder ((SDR)), Xero ((XRO)), and the like; the FNArena-Vested Equities All-Weather Model Portfolio knows exactly what your thoughts and feelings are about the past seven months.
My main concern is February results will not necessarily trigger the next sustainable turnaround for this segment of the local market. This concern is partially based on price action in January which saw companies like Life360, Hub24 ((HUB)) and ResMed ((RMD)) decisively beat analysts’ forecasts, but that initial positive reaction is way too quickly forgotten about.
Analysts might raise their forecasts and valuation, and often express their amazement as to why share prices are trading so far below their price target, but there’s currently not enough appetite around to move these share prices sustainably higher.
This will change at some point, of course, but thus far indications are Growth, Quality, Technology and AI continue sailing into strong headwinds.
Frustration? That’s a grave understatement. I can fully understand why many choose to pull up stumps and relocate their attention to where the grass looks much greener, and momentum is more favourable, but for all others ‘patience’ and ‘persistence’ remain key necessary ingredients.
Nothing of the above prevents us from making adjustments to the portfolio ahead of February results which, I strongly suspect, will elicit above-average volatility in price action, as also already signalled throughout January. One possible strategy is to have plenty of cash available so that opportunities can be jumped upon.
Macro And Sentiment Rule
This year’s February results will be heavily overshadowed by macro considerations and related narratives. Is an underperforming mining company still a Sell if the market pricing of its main commodity continues to move higher, for example?
In similar vein, shares in Qoria ((QOR)) sold off heavily because management’s guidance was based upon a cheaper AUD. Ironically, this share price weakness has opened up the option of a “merger” with a US company, which just goes to show local Growth stocks have turned into value propositions –that’s exactly what bear markets do– and M&A might start featuring more prominently.
Meanwhile, there’s no escaping the fact a much stronger AUD will become a major focal point throughout the season, and that’s not even taking into account that US70c is not necessarily the end point in this uptrend.
A lot depends on whether the RBA is truly about to embark on a new tightening cycle and whether the USD can stabilise, or not.
The AUD In Focus
FNArena last zoomed in on the impact of a stronger AUD for corporate Australia in 2013. This report is still available via the Special Reports section on the website.
Ord Minnett offered its clientele a brief update on the currency’s impact on Friday.
Companies negatively impacted include:
- Those with offshore operations, including the likes of Amcor ((AMC)), Aristocrat Leisure ((ALL)), Brambles ((BXB)), CSL ((CSL)), Incitec Pivot ((IPL)), etc, as sales and profits are translated back into AUD for local shareholders
- Companies that compete domestically with imports, or those that export products from Australia, including BlueScope Steel ((BSL)), Cochlear ((COH)), ResMed ((RMD)) and Treasury Wine Estates ((TWE))
- Resources companies, in theory, are also negatively impacted but commodity prices often match the rise in the AUD, if not exceed it, reducing any negative impact
Companies positively impacted include:
Importers typically benefit including retailers (think Harvey Norman ((HVN)), JB Hi-Fi ((JBH)) and Wesfarmers ((WES)) and airlines such as Qantas Airways ((QAN)) and Virgin Australia ((VGN)).
Focus On Interest Rates, Bond Yields
One obvious stimulant underneath the stronger AUD is the prospect for RBA rate hikes while most other central banks, such as the Federal Reserve in the US, are still expected to cut rates, or leave them as they are.
Traditionally, rate hikes push up bond yields and this weighs on equity valuations, with higher PE multiples more heavily impacted.
History thus shows Growth and Technology stocks underperform during times of central bank tightening (all else remaining equal). This time around two questions remain unanswered:
- Is the RBA truly embarking on a renewed cycle of rate hikes?
- How much of the bond-yield de-rating has already been priced in?
I note, for example, a number of property sector analysts believe much of sector de-rating has already occurred for local REITs and any one-on-one comparisons with past precedents might prove too harsh.
A much more important observation is that economists’ predictions about RBA policy this year remain as wide and varied as ever and contrary to what one might be inclined to assume, there’s not even general consensus on whether the RBA should hike in February or whether it will.
Macquarie has joined the local ‘hawks’, expecting multiple hikes this year, with other central banks to join in.
Taking a leaf from history, Macquarie analysts report as follows:
- Rate hikes usually mean lower returns ahead from equities generally, but returns will likely still be positive
- Gold, Utilities, Infrastructure and Energy often outperform after the first hike, while Technology is hit hardest
- Other sectors likely to underperform, based on history, are Capital Goods, Commercial Services, REITs, and Telecoms
A portfolio made up of Energy, Materials, Banks and Consumer stocks outperformed in three of five historical examples.
In sharp contrast, Morgan Stanley’s preview to the February board meeting starts with the following statement: “We think the RBA will hold rates in February, against market and consensus expectations”.
If the RBA decides to hike, Morgan Stanley’s view is the Australian economy will slow down markedly, in particular in the second half of calendar 2026.
Key Themes To Watch
Ahead of February, Morgan Stanley strategists believe the following should be on investors’ radar:
- Any signs of consumer fatigue? Watch out for signals of excessive discounting. Retailers were among those issuing disappointing trading updates late last year
- Is there any impact from the switch in RBA policy expectations? Negative signals from domestic Industrials could further support a shift to materials and also certain defensive growth names
- Long-term Compounders in focus. Morgan Stanley believes investor scrutiny is focused on three de-rated long-term compounders; CSL ((CSL)), Goodman Group ((GMG)), and Macquarie Group ((MQG))
- Australian Technology? The Australia All Tech index has underperformed the local market by some -28% over the past six months. What comes out of corporate results and what will the response be?
- Turnaround stories. AI might play a role, but plenty of management teams have the opportunity to unlock productivity, resilience and growth in companies that have been lagging.
Potential candidates for such turnaround stories include:
- ANZ Bank ((ANZ))
- AGL Energy ((AGL))
- CSL ((CSL))
- Insurance Australia Group ((IAG))
- Macquarie Group ((MQG))
- REA Group ((REA))
- Telstra ((TLS))
- The Lottery Corp ((TLC))
- Transurban ((TCL))
- Woolworths Group ((WOW))
All shall be revealed over the four weeks ahead.
Ord Minnett has added Alkane Resources ((ALK)) to its Analysts’ Conviction List and removed Ramelius Resources ((RMS)).
Focus On Gold
Finally, in ultimate proof not everything will be determined by corporate earnings this month, analyst Lachlan Woods at Canaccord Genuity offered the following insight about gold and gold stocks over the weekend:
“While the recent share price weakness in gold stocks may ultimately prove short term, many of the current ASX100 and ASX300 addition candidates are gold names. As such, we believe Monday is likely to see notable share price moves in these candidates as index-related buying by quant funds, which had been positioning ahead of potential inclusion, now reverses.
“For ASX100 candidates in particular, these stocks could experience an air gap. This reflects small-cap funds having reduced exposures in anticipation of the gold weighting in the Small Ordinaries potentially falling from ~15% to ~10% should all four current Probable candidates be added at the March rebalance. This prospective index de-weight, combined with stocks sitting between ASX100 and Small Ordinaries mandates, may result in a lack of natural buyers in the near term.
“While any relative underperformance may be temporary over a longer-term horizon, it is an important dynamic to be mindful of over the coming weeks. Over the medium term, larger-cap gold stocks that ultimately miss ASX100 inclusion could become attractive following a potential period of underperformance.”
On Woods’ assessment, candidates likely to be elevated into the ASX100 in March are:
- Westgold Resources ((WGX))
- Greatland Resources ((GGP))
- Regis Resources ((RRL))
- Vault Minerals ((VAU))
Candidates likely to be elevated into the ASX200 in March are:
Candidates likely to be elevated into the ASX300 in March are:
- DPM Metals Inc ((DPM))
- Dateline Resources ((DTR))
- Turaco Gold ((TCG))
- Meeka Metals ((MEK))
- St Barbara ((SBM))
- Santana Minerals ((SMI))
Looking at the above, it appears the gold sector is about to become a whole lot more prominent on the ASX.
Woolies, CSL, Macquarie (& More)
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’ hesitance in 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.
Conviction Calls and Best Ideas
Morgan Stanley has added Lynas Rare Earths ((LYC)) to its Asia Pacific ex Japan Thematic Focus List in replacement of Iluka Resources ((ILU)).
Other ASX-listed inclusions are
Morgan Stanley also runs an Asia Thematic Focus List which includes the following:
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Ahead of February results, energy sector analysts at Morgan Stanley prefer Ampol ((ALD)) and Viva Energy ((VEA)); downstream over upstream.
Less preferred are Beach Energy ((BPT)) and Origin Energy ((ORG)).
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Woodside Energy ((WDS)) is still included in RBC Capital’s Global Energy Best Ideas List.
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UBS analysts have expressed their preferences among Asset & Wealth Managers in Australia.
Preferred names:
- Navigator Global Investments ((NGI))
- Magellan Financial Group ((MFG))
- Perpetual ((PPT))
- Hub24 ((HUB))
Not so preferred:
Having reviewed insurers and diversified financials generally, UBS is expecting to see earnings ‘beats’ from Navigator Global Investments, Magellan Financial, Perpetual, and Hub24.
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UBS‘ desk of real estate analysts retains a positive view for the year ahead, irrespective of RBA rate hikes. 2026 is not a repeat of 2022, is their motto.
Buy-rated large cap names are:
Buy rated small caps:
- Arena REIT ((ARF))
- BWP Group ((BWP))
- Centuria Industrial REIT ((CIP))
- HomeCo Daily Needs REIT ((HDN))
- RAM Essential Services Property Fund ((REP))
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UBS‘s preference among engineers and contractors is with:
Peers at RBC Capital, however, prefer Downer EDI ((DOW)).
They recently downgraded Ventia Services on valuation grounds and also believe Monadelphous’ (MND)) result better be perfect, or else.
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From Bell Potter:
“We have upgraded Australian equities from slightly underweight to neutral. While the RBA could hike rates further, our outlook for moderate domestic growth and a bull market in commodities provides index-level support.
“Elevated valuations keep us from getting more positive.”
Bell Potter’s retail sector analysts see the highest gross margin risk for:
Deemed to be operating at noticeably lower risk:
- Propel Funeral Partners ((PFP))
- JB Hi-Fi ((JBH))
- Universal Store Holdings ((UNI))
- Lovisa Holdings ((LOV))
- Nick Scali ((NCK))
- Harvey Norman ((HVN))
- Adore Beauty ((ABY))
Key sector picks:
Peers at RBC Capital recently downgraded Domino’s Pizza ((DMP)), Inghams Group ((ING)) and Guzman Y Gomez ((GYG)) to Underperform.
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Shaw and Partners has highlighted the following from its Large Cap (ASX100) Portfolio:
Among Emerging Companies (smaller caps) the following Buy-ratings have recently been highlighted:
Behind The AI Threat Narrative(s)
The persistent de-rating of global technology stocks is far from the only trend that has characterised the past eight months of ASX price action, see for example the spike in volatility in prices of gold, silver, bitcoin and uranium.
On Monday, as I am writing this week’s Weekly Insights, share prices are rallying from pricing levels that are well down from levels recorded mid last year.
I am not confident that what we are experiencing is a bottoming out in a nasty and prolonged bear market for businesses that previously could do little wrong.
I do note sector analysts and savvy investors are starting to push back against the market’s indiscriminate de-rating of companies linked to software, AI or technology broadly.
This might well prove the first embryonic step in countering what appear to be overly simplistic narratives that currently weigh on affected share prices.
The fact Car Group’s ((CAR)) half-yearly result simply met consensus forecasts and its share price rallied by double digits on the day is one extra source for optimism.
In contrast, the early beginnings of the local results season saw no net benefit for a market-beating financial performance by ResMed ((RMD)) and a swift harsh punishment for REA Group ((REA)) post a market update that ‘missed’ on a higher tax rate and slightly lower growth guidance for the second half.
Car Group management also reported steady progress on AI with several of its portals now enriched with conversational search.
More investing automatically translates into (some) margin pressure, but management seems confident it can control this dynamic without any nasty outcomes on the horizon.
It certainly drew praise in an early assessment from analysts at Citi, who see potential for the strong operational momentum to offset headwinds from a stronger AUD in the current financial year.
Despite the firm rally on Monday, Car Group shares are trading nearly -50% below FNArena’s consensus price target in a sign of just how savage the selling has been for this type of potential future AI victim.
Room For Optimism, But…
Market strategists at Macquarie continue to describe Car Group & Co as “falling knives”, suggesting any respite in the selling is likely to prove temporary at best, at this stage.
I agree with the implicit suggestion there doesn’t yet seem to be a circuit-breaker on the horizon, with sentiment worried about what could possibly go wrong at some point in the future if AI, indeed, turns out to be kryptonite for platforms such as REA Group’s and Car Group’s.
If current doom scenarios prove correct, investors have plenty of examples from the recent past to reflect on.
Take IDP Education ((IEL)), for example, whose market momentum got stunted, then destroyed by a global push back against immigration. Supported by covid-inspired momentum, those shares were trading near $40 in 2021.
Today, IDP Education shares are changing hands around $5.50, only having stabilised around that level (-86% below the peak) in the past six months or so.
The share market can truly punish hard when the tide turns for growth companies trading on elevated multiples. Every single rally along that trajectory was simply a brief pause en route to a price level once considered inconceivable.
As some of you might remember, IDP shares had previously been included in the FNArena/Vested Equities All-Weather Model Portfolio.
Apart from underestimating how severe its de-rating ultimately would become, and thus hanging on for too long, the Portfolio made two positive decisions:
-it did not average down or added more money to the flailing share price
-it ultimately sold and didn’t hold on until last year’s bottom
Back in 2023, the All-Weather Portfolio experienced a complete opposite scenario with ResMed ((RMD)) shares, which, at that time, ended up in a similar quagmire as are Car Group, REA, & Co today.
Back then the narrative was that GLP-1s would dramatically change the world and make respiration masks and treatments such as produced and marketed by ResMed obsolete.
By late 2024 those shares reached $40 from a bottom near $20 at the peak of GLP-1 selling.
I am by no means predicting this will be the exact course ahead for Car Group & Co, but I certainly see a lot of similarities as extremely simplistic disruption narratives are being applied across the board.
If I have to choose between these two opposing outcomes, I’d be inclined to think the future outcome for Car Group & Co will most likely resemble ResMed’s experience more than that of IDP Education.
But there’s no timing attached, and this process will simply have to run its course.
Are All Businesses Equal?
Without getting too much entangled in theoretical possibilities, and this versus that scenarios, I believe in many cases of the companies I feel familiar with, current narratives over-emphasise the importance of writing computer code becoming so much faster and easier, and under-appreciate the fact successful businesses offer security, compliance, governance, reliability, distribution, client bonding, prohibitive switching costs, and possibly even more.
Will some businesses be made obsolete through new developments? Most certainly.
But if anyone genuinely believes government departments will switch to internal coding simply because they can, they have no idea.
TechnologyOne ((TNE)) should thus remain relatively insulated, though that’s not what its share price is reflecting since the release of FY25 financials late last year.
I’d also nominate WiseTech Global ((WTC)), albeit founder Richard White remains both a force and a liability.
None of the companies de-rated are likely to report AI disruption in the present results season. Instead, Car Group and REA Group have been sharing insights about their progress on and implementation of AI.
Expect Goodman Group ((GMG)) and NextDC ((NXT)) to talk about strong demand continuing for data centres.
It is most certainly possible none of any of this matters in the short term, as narratives, sentiment and external market forces could hold the upper hand.
The current context has turned yesterday’s Growth Champions into today’s value propositions, but only if one believes the ResMed outcome is more likely than what happened to IDP Education.
Alas, no watertight guarantee can be provided.
Analysts Are Starting To Push Back
Multiple analyst teams have offered their five cents’ worth in recent days. Below is a short overview.
Ord Minnett has zoomed in on the smaller caps and believes the following business models look Highly Defensive in light of possible disruption:
The following business models look Defensive:
Considered most at risk:
Analysts at RBC Capital have highlighted the following for moats with better protection:
- Pro Medicus ((PME))
- TechnologyOne
- REA Group
- WiseTech Global
Citi analysts make the point that agentic coding tools could make it easier for adviser groups to build their own platform; but existing platforms –Hub24 ((HUB)), Netwealth Group ((NWL)), Praemium ((PPS))– are regulated products with significant compliance and trustee obligations.
In addition, recent remediation requirements arguably raise barriers to entry for self-build and new entrants.
Online classifieds portals are considered relatively less exposed compared to software given their strong market position as well as two-sided network dynamics. Car Group is Citi’s top pick in the space.
More AI means more compute means more demand for data centres. Citi continues to see a strong outlook for companies including NextDC ((NXT)) and Megaport ((MP1)).
Online travel agencies could be ripe for disruption, which would affect SiteMinder ((SDR)) but Citi counters cheaper-priced channel managers have not impacted Siteminder’s growth materially to date.
Jarden has nominated WiseTech Global ((WTC)) as possibly offering the most protection against AI disruption, but overall argues all Australian companies under coverage have protections and appear to be pro-actively investing in AI capabilities.
Top Picks are Seek ((SEK)) and Xero ((XRO)). Car Group, TechnologyOne and WiseTech Global are Overweight rated. REA Group has a Neutral rating.
Jarden also believes insurance brokers, Steadfast Group ((SDF)) and AUB Brokers ((AUD)), could suffer greatly from AI disruption, but any risks in the short to medium term appear manageable and that makes present share prices “cheap”.
Barrenjoey specifically makes the point management at REA Group sees AI as an opportunity to accelerate product development, both on the front end and the back end of its platforms. Apparently less than 1% of traffic is AI related, and has declined recently.
Chatbots might be facing an uphill batlle if they want to replace REA’s offering, with the company building digital twins (virtual replicas of properties) as it accumulates more and more proprietary data.
On the demand side, the company has access to unique consumer behavioural data within a scale that is difficult to replicate.
This debate is far from concluded. February won’t be able to answer all questions.
Rudi Interviewed: February Is Less About Earnings
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
Is Higher Volatility Now A Permanent Feature?
At times, it’s the most difficult question to answer: if it’s such a great company, how come its shares keep falling?
That question has become even more prevalent as some companies whose share price is under pressure did not disappoint with their market updates. In some cases, their operational numbers proved better-than-expected, including guidance for the year(s) ahead.
The question has been asked multiple times over in the first seven weeks or so of calendar year 2026 as growth and technology stocks are experiencing true bear market conditions.
With technical indicators suggesting heavily oversold conditions for many by last week’s end, share prices are having a better session on Monday. But one swallow most definitely does not a summer make.
Realistically, nobody knows how far this will go or when exactly the selling will stop.
On my observation, the way investors perceive what is going on in today’s share market is almost exclusively linked to where their portfolio’s exposure and thus personal interest are concentrated.
Those who are on board the resurgent commodities trade, see the downfall of AI, technology and growth as simply the natural re-adjustment after years of outperformance and exuberance. Those who witness their portfolio taking a big dive can hardly believe their eyes.
Equally noteworthy: we humans, we live by the narratives of the day and many of today’s narratives suit the underlying trends in share prices.
There are currently so many narratives going around, there’s not even a genuine consensus on why the relentless selling for WiseTech Global ((WTC)), TechnologyOne ((TNE)) and the likes has taken place (they might be conveniently grouped together under the label of ‘future AI threatened’).
One thing is certain: the machines are heavily involved. Continuous AI development, and availability, has made sure everyone with time and determination can now master his/her own automated proprietary trading machine and indications are such algorithmic trading is heavily involved in 2026.
But by no means, don’t look at your neighbour who happens to run a successful trading robot on the side. The world’s big boys are onto this now, and they are as active in Australia as they’ve been in the past.
See also some fresh insights on this matter published by the AFR on Monday, involving Two Sigma and Susquehanna under the title High-frequency hijack makes ASX like a casino.
On Macquarie’s assessment, results releases in the first half of February have triggered on average a share price decline of -22% in case of disappointment.
The share market is seldom kind to companies that fail to meet expectations, but that number is a lot higher than what Australian shareholders and local business leaders had become accustomed to.
And so the trend of higher volatility, in particular to the downside, for ASX-listed companies has simply accelerated onto a higher gear in 2026. I wouldn’t bet this extreme bout of volatility will not continue over the two weeks remaining, when things get genuinely busy.
For good measure: positive momentum is now with commodities, cyclicals and yesteryear’s laggards –the so-called value segment of the market– and thus far financial results are underpinning the market’s newfound heroes.
The first 53 assessments in FNArena’s Corporate Results Monitor have generated 18 upside surprises (34%) against 14 disappointments (26.4%).
Many of those outperformers are enjoying their newfound status of reborn heroes, including AGL Energy ((AGL)), GPT Group ((GPT)), James Hardie ((JHX)), News Corp ((NWS)), and Origin Energy ((ORG)).
Even Aurizon Holdings ((AZJ)) managed to deliver a positive surprise on Monday morning. Banks are thus far the positive surprise package this season, with many A-REITs equally confirming analysts’ positive views beforehand.
For companies labeled software, technology, or growth the headwinds are a whole lot harder to overcome. And as yet again proven by Bravura Solutions ((BVS)), even if the initial share price reaction is positive, the gains booked can disappear just as quickly in the days following.
Last week, I compared this year’s experience with those experienced with IDP Education ((IEL)) and ResMed ((RMD)) in recent years.
Even if the end outcomes lay somewhere in the middle between those two experiences, it’s difficult not to conclude today’s beaten down share prices look too bearishly priced for what possibly awaits on the horizon, including further improvement in AI development.
But this doesn’t by any means imply share prices cannot go lower. These stocks trade on higher multiples with no dividend support. Which, I believe, also made them ideal targets for international hedge funds and shorters, through automated algorithms or otherwise.
In the current context there’s no incentive for institutional investors to start buying either (assuming they too aren’t selling to keep their performance numbers out of the quagmire).
So, apart from owning cyclicals and value stocks, what does one do?
If you’re still on board those sectors for which the momentum pendulum has swung hard in the opposite direction, the big question is always: what if I sell close to the bottom?
You will berate yourself if some time after your decision, the market calms down and share prices put in a strong recovery rally (some are doing exactly that on Monday).
The solution doesn’t need to be black or white. Portfolios can also reduce holdings to stocks that are currently under the pump and that cash can always be re-allocated back down the track.
Nobody enjoys seeing their investments shrink day after day. The ability to sleep at night should never be underestimated.
One subscriber asked me why price targets by brokers are reducing by much smaller percentages in comparison with the heavy falls in share prices. The answer is two-fold.
Current forecasts and price targets are not incorporating the same magnitude of disruption that is currently being priced in. So we’re effectively talking about two different worlds.
One implies business as usual, with maybe, potentially, a little bit of negative impact. The other scenario is one of near annihilation, or at least severely impacted business models.
The second reason is that analysts have no idea what to put through their models in case of worst-case outcomes, which are far less certain than some commentators would have us believe.
For good measure: most analysts are not even contemplating such horror scenario outcomes.
Here’s a snippet from Bell Potter:
“The recent software sell off was indiscriminate, but we see this as overblown and do not believe AI will displace every company.
Instead, we see an AI-augmented future for many software companies.”
Bell Potter’s number one favourite –with conviction– is WiseTech Global. See also last week’s Weekly Insights:
https://fnarena.com/index.php/2026/02/11/behind-the-ai-threat-narratives/
There’s more on this discrepancy in the local share market further below.
February Results, Early Notes
Results seasons in Australia have a slow, elongated warming up phase, as also illustrated by the fact FNArena’s Corporate Results Monitor has only 53 results covered to date (on Monday):
https://fnarena.com/index.php/reporting_season/
The early numbers do look encouraging –more ‘beats’ than ‘misses’– with the banks having mostly surprised to the upside.
But consider by early September the Monitor will consist of something like 380 result assessments, so there’s a lot more to come over the two weeks ahead.
Looking ahead, commodities analysts at UBS see outperformance potential for each of BHP Group ((BHP)), Rio Tinto ((RIO)), and Fortescue ((FMG)).
Specifically for BHP (due to report on Tuesday) UBS anticipates earnings and dividend could beat consensus by 5% and 10%, respectively, reflecting strong realised copper and gold prices.
Elsewhere analysts also provided some background as to why ResMed ((RMD)) shares might have been under pressure recently, observing a high “level of commitment” by the CEO of Philips in the Netherlands to get Respironics’ devices back into the US market, where it competes with ResMed.
As with so many other analysts who cover ResMed and the industry, UBS analysts expressed their confidence ResMed is well positioned to manage this challenge, but in this market no such confidence prevents the sell orders from being executed first.
On Monday, telecom analysts at Citi re-interated their confidence in positive momentum continuing for Aussie Broadband ((ABB)) and Superloop ((SLC)), having analysed app download statistics for January.
In Defence Of Online Classified Portals
Analysts at Wilsons have jumped to the defence of Australia’s two leading online classified portals, REA Group ((REA)) and Car Group ((CAR)).
Both share prices have been under relentless selling pressure and Wilsons argues rapid progress in frontier AI (and investor anxiety about AI disintermediation) has driven a sharp de-rating across tech and online classifieds globally, irrespective of the quality in these businesses.
The AI bear case for classifieds is that AI chatbots become the first stop for search by aggregating listings, reducing the platforms gatekeeper role (with some 80% traffic currently direct).
If direct traffic falls, lead quality/pricing power could weaken especially pay-for-prominence and depth-based ads while referral fees and marketing costs rise, pressuring margins and return on invested capital (ROIC).
Wilsons’ counter-view is that business moats are under-appreciated and under-priced. These include:
(1) brand trust,
(2) deep proprietary datasets,
(3) integrated ecosystems embedded in agent/dealer workflows (high switching costs).
Last week’s report notes the vast majority of traffic remains direct and less than 1% currently originates from ChatGPT.
Wilsons highlights both REA and CAR are embedding AI largely within existing cost envelopes. Examples at CAR include 2x lead uplift from AI search in Brazil and -50% inspection time reduction in Korea, plus a newly announced global AI hub.
The research re-affirms the expectation of low- to mid-teens EPS growth over the medium term remains intact. CAR is preferred.
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A global oriented research exercise by Morgan Stanley, across more than 3,600 companies, acknowledges the overall environment for companies with AI exposure is changing and businesses need to show proof of return on investments made.
While financial markets are trying to identify Winners and Losers, Morgan Stanley analysts lament the indiscriminate selling that is taking place during this process.
Morgan Stanley believes the following stocks are currently mispriced (i.e. too cheap):
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UBS has reviewed the AI traffic debate for online classifieds and run scenarios wherein LLMs become a material referral channel and start charging platforms for traffic.
Important to note: this is not UBS’s base case.
In Australia, UBS estimates some 70% of traffic is direct/app (more protected), circa 25% stems from organic search (most exposed to AI interception), and 5% is paid/other. AI chatbots make up some 0.5% of web traffic today (or 0.3% including apps).
Why this matters now: UBS points to rising app/LLM partnership announcements offshore and notes both Car Group and REA Group have flagged their Australian apps being available through ChatGPT (UBS expects Seek ((SEK)) to follow).
The outcome from UBS’s research exercise is that if -10% of total web traffic shifts to LLMs and is monetised via pay per visit, the estimated average margin erosion would be to the tune of -2ppts by FY30; at 40% share, -7.8ppts average.
The worst case scenario implies up to -12ppts impact for REA.
On cross-stock read-through, REA looks most defensive on direct traffic with currently the lowest AI chatbot share, but the property platform screens as the largest downside in the charging scenario because it has “more to lose” and the highest implied cost per incremental visit in A&NZ.
UBS stays constructive on sector moats and sees scope for a re-rate on the proviso that AI headwinds prove manageable (which it currently expects).
The Weakening USD
One other factor for ASX-listed stocks this year is the weakening trend underneath the US dollar.
Tim Murray, Capital Market Strategist in the Multi-Asset Division at T. Rowe Price, sent the following into the FNArena inbox last week:
I believe there are four primary reasons the US dollar is likely to continue weakening after nearly 16 years of steady appreciation. The recent decline reflects a combination of structural and cyclical forces, suggesting the move may have further to run rather than representing a short-term correction.
First, fiscal concerns are increasingly weighing on the currency. The sheer size of the US national budget deficit is adding pressure to the dollar as debt levels continue to rise.
Second, monetary policy expectations are turning into a clear headwind. Markets are increasingly pricing in the possibility of further interest rate cuts from the Federal Reserve, particularly under the assumption that the incoming Fed chair nominee, Kevin Warsh, may adopt a more accommodative stance than the current Fed chairman, Jerome Powell.
With most other major central banks already nearing the end of their easing cycles, the resulting narrowing in interest rate differentials is causing the dollar to weaken.
Third, political dynamics are influencing foreign demand for dollar assets, as shifts in US foreign policy approaches have led some countries to gradually diversify reserves toward other currencies and gold.
This diversification trend is structurally reducing demand for the dollar, even as it remains the worlds dominant reserve currency.
Finally, global capital flows are acting as an additional drag. When equity markets or asset values outside the US outperform, capital naturally shifts toward those regions.
Gold has also been a key beneficiary of this rotation. From a longer-term perspective, central bank allocations to gold remain below historical highs, suggesting there is still scope for further diversification away from traditional reserve assets.
However, from a valuation standpoint, the dollar also remains elevated relative to its own history and against most major currencies. Even after recent weakness, it is still expensive by historical standards.
More Surprises, Led By CBA & BHP
At face value, the February results season is generating plenty of signals indicating the Australian economy is doing just fine, thanks for asking.
One might even conclude results from the first 107 companies reporting vindicate the RBA’s decision to crank up the official cash rate earlier in the month, with possibly more to follow.
Look no further than analysts continuing to upgrade their forecasts for the year(s) ahead. As reported by UBS earlier this week, ASX200 earnings growth has now reached 12.1% for FY26.
This is up from 11.7% projected a week earlier and just 3.0% six months ago.
A reminder to everyone: that number had been negative for each of the preceding three financial years in Australia.
So corporate Australia is staging a Big Bang comeback in terms of a sizeable earnings upswing, which likely has further to run too.
The past 20 trading sessions (early results were released in late January) have offered plenty of examples of companies that previously, as a matter of speech, couldn’t put a dent in a soggy pack of butter but whose financial performance this time around proved of much improved magnitude and quality.
AGL Energy ((AGL)), Aurizon Holdings ((AZJ)), the ASX ((ASX)), Baby Bunting ((BBN)), Magellan Financial ((MFG)), Orora ((ORA)) and Viva Leisure ((VVA)) are just a few of the names for which investor interest might well have re-awoken.
But things are not necessarily as rosy as those face value observations suggest. Look more closely underneath the share market’s bonnet and we’re left with the conclusion that outside of banks and resources, that newfound momentum in profitability is not widespread.
As a matter of fact, take out those two sectors and corporate earnings growth in Australia looks a whole lot less ebulliant. As strategists at Wilsons observed this week:
“The market’s earnings upgrade cycle remains narrowly concentrated within the Materials sector, with Mining companies continuing to account for the vast majority of positive EPS revisions. Outside of Resources, revision momentum remains subdued.”
The good news remains many of the major representatives for both key sectors for the Australian bourse continue to support this month’s positive vibes, with both sector leaders CommBank ((CBA)) and BHP Group ((BHP)) releasing results that surprised to the upside.
Gold miners are equally no longer testing investor nerves with disappointing financial updates. Retail landlords seem back in a strong negotiating position (REITs are equally among the stand outs this season), while the report thus far for the healthcare sector and consumer companies is more mixed.
If there’s one obvious warning signal to point out it is that retailers are seeing their pace of growth slowing down in 2026. This might be an initial response to the RBA’s rate hike, which had been well flagged in advance.
Increasingly the prospect of more USD weakness, and thus a stronger AUD, is creeping into investors’ awareness, which might keep a lid on overall enthusiasm for foreign earners outside of resources this season.
For what it’s worth, the abovementioned strategists at Wilsons are keeping the faith in:
The latter failed to upgrade FY26 guidance from 9% EPS growth with its project pipeline now 73% made up by data centres. Within the current macro context, that combination was not well-received and Goodman shares encountered more selling pressure today.
Goodman Group is part of what many market commentator would describe as the large cap Quality basket on the ASX. Think also REA Group ((REA)), for example, and TechnologyOne (yes, it’s in the ASX50) ((TNE)).
It would not have escaped anyone these stocks have been heavily under the pump this year, having already encountered more selling pressure in the second half of last year.
Investor fears about what AI development could possibly inflict on such business models is but one factor behind their relative underperformance.
Strategists at UBS believe it remains yet too early to comfortable assume the Quality end of the ASX has by now seen the worst of its fall from grace.
UBS’ historical data analysis has revealed previous periods of such an extreme leadership reversal saw quality stocks continuing to fall, and underperforming the ASX200 by -12% on average over the following six months.
With the number of companies reporting accelerating, starting today (Thursday), UBS has quickly lined up those companies for which its analysts see potential for upside surprise (all are Buy rated too):
- Coles Group ((COL))
- Cleanaway Waste Management ((CWY))
- Domino’s Pizza ((DMP))
- Flight Centre ((FLT))
- IDP Education ((IEL))
- Navigator Global ((NGI))
- Qantas Airtways ((QAN))
- Sigma Healthcare ((SIG))
- WiseTech Global ((WTC))
UBS had also selected some of the companies that have already reported with Universal Store Holdings ((UNI)), GPT Group ((GPT)) and HomeCo Daily Needs REIT ((HMC)) indeed delivering on their promise, while Goodman Group is punished for the reason explained.
Stocks where UBS analysts see downside risk include:
- Accent Group ((AX1))
- Guzman y Gomez ((GYG))
- Monadelphous ((MND))
- Scentre Group ((SCG))
- Super Retail ((SUL))
- TPG Telecom ((TPG))
- Woolworths ((WOW))
Here we must conclude it’s much easier to predict upside surprises (UBS had also picked BHP Group ((BHP)) as the likes of Aurizon Holdings, Bendigo & Adelaide Bank ((BEN)), JB Hi-Fi ((JBH)), Mirvac Group ((MGR)) and Stockland ((SGP)) had been selected too and they all stood up to the challenge.
Reliance Worldwide ((RWC)), Iluka Resources ((ILU)) and Treasury Wine Estates ((TWE)) had been identified correctly, while UBS wasn’t happy about Deterra Royalties’ ((DRR)) result either.
On Thursday, February 19th, the FNArena Corporate Results Monitor comprises of 107 results, of which more than 40% have been assessed as better-than-forecast (result plus guidance).
Historically, if that percentage holds (still a big if at this stage) this would be the third best February season since 2013, only marginally bettered by February seasons of 2021 and 2022, when similarly strong earnings recoveries followed the covid outbreak of 2020.
25 results, 23.40% to date, have been marked down as disappointing (a ‘miss’). Were this percentage to remain by month’s end, it would rank among the lowest in this series.
FNArena’s corporate results monitor, with a day-to-day calendar, is updated daily until early March:
https://fnarena.com/index.php/analysis-data/consensus-forecasts/stock-analysis/?code=SGP
Big Result From The Big Australian
The February reporting season is still relatively young, in terms of absolute numbers of companies reporting, with many more results still forthcoming but there’s little doubt when the final balance follows in March, BHP Group’s ((BHP)) interim performance will be included with the season’s highlights.
It does not happen every year the second largest corporate giant on the ASX pulverises analysts’ forecasts by some 16% with its first dividend announcement for the fiscal year.
The big surprise was not solely built on higher commodity prices, though a much better price for copper –now BHP’s main bread and butter selling point– does help, of course. But analysts knew this beforehand as base materials trade on public markets, which is also why they, correctly, had anticipated BHP’s result was poised for a positive surprise.
At face value numbers, the Big Australian duly performed on that promise. I won’t repeat the numbers. They were generally accepted as first class, and better-than-forecast.
The bonus stand out positive surprise was an extra US$6bn raised through two separate asset deals. The board intends to use the extra cash to fund higher-returning growth projects as well as capital returns for shareholders.
FNArena joined other media in a conference call with Chief Financial Officer Vandita Pant after the result release on Tuesday when she was quite adament the two deals generating US$6bn should not be seen as “asset divestments”, but more as “unlocking value” from the company’s wide and diversified portfolio.
“We have a big capital base and lots of assets. So the way we think about this is that if there is any asset or capital that we have which some other party will give us more value for, we should do that because it maximizes value for our shareholders.”
The deal with Wheaton Precious Metals is the world’s largest streaming transaction ever done for a precious metal, and as the CFO explained, silver is mined along with copper in Antamina, in which BHP owns a 33.75% stake.
The benefit seems pretty straightforward: silver doesn’t get valued in BHP’s portfolio, it’s a non-core asset and analysts don’t ascribe any value to it when then they model the group’s assets, future cash flows and valuation.
In addition to the upfront payment, Wheaton will also pay BHP an ongoing 20% of the spot silver price per ounce delivered.
Hence, the deal combined with the WAIO inland power network transaction announced in December, paints BHP as a savvy manager of assets, being able to unlock extra value when opportunity presents itself.
The silver streaming deal pulls in US$4.3bn in cash upfront, on top of the US$2bn from the December infrastructure deal.
A second noteworthy milestone is that copper now contributes more than 50% of EBITDA. BHP management remains adament in its forecast for a structural copper deficit outlook to 2035, even after accounting for projects already in the pipeline; they estimate the world still needs circa 10 million tonnes of additional copper.
No hedging is taking place on the view that shareholders are buying the stock for direct commodity exposure.
While it is easy to relegate BHP’s copper achievement as simply a result of the general resurgence in commodity prices over the past six months or so, the miner did manage to increase production by some 30% over the past two years while many peers experienced difficulties in maintaining existing volumes.
Codelco, Anglo American, Glencore; they all have seen total output slide, but not Rio Tinto ((RIO)), it has to be said. Maybe Australian investors don’t know by half how lucky they are?
BHP, in case this still needs to be pointed out, is the world’s largest producer of copper and this week’s interim result equally touts the future potential of its Vicuna asset in Argentia, at an estimated cost of -US$17bn.
Bottom line: gone are the days of BHP effectively operating as a leverage on iron ore. Now it’s up to investors to amend their perception.
CEO Mike Henry used this week’s opportunity to highlight BHP is also a Top 20 gold producer (in particular in South Australia) and Olympic Dam supplies some 5% of the world’s uranium.
BHP is equally proud it is the only producer in the Pilbara whose inflation-adjusted iron ore costs have come down since 2022.
A Touch Of AI
As one of early adopters of “machine learning”, now universally referred to as AI, BHP remains as enthusiastic as ever about the technology’s usefullness and operational advantages.
The CFO thinks investors should think of AI in terms of reducing costs and improving safety:
- AI is used for hazard identification, supporting safer operations.
- AI helps optimise concentrator settings so that given ore characteristics, the plant can achieve maximum recovery/output.
- AI is used to schedule equipment, drivers, and movements in a tightly coupled supply chain, leading to better-quality decisions than manual scheduling.
- Geophysical data is digitised and fed to machine-learning models to detect patterns and targets for more focused exploration drilling.
Positives From February Results
With less than one week left of February, we’re only about half-way through the local results season in terms of companies reporting.
In terms of market capitalisation, however, some 80% of the ASX has by now shared its financial performance for the six months to December 31st.
On Monday, the FNArena Corporate Results Monitor has assessed 173 results. That number will still grow by around 200 over the coming days (on our methodology, the Monitor is one day behind on actual result releases).
Hence, a lot can still change, but there is a lot to like so far.
Renewed economic momentum domestically is generating considerably more positive news as also illustrated through the near 40% in positive surprises thus far (results plus guidance) on FNArena’s assessment.
It had been a while since local corporate market updates had such an overwhelming skew towards positive outcomes. And while more than one-in-four results (27.7%) still fails to meet expectations, the extreme volatility that had been anticipated (including by myself) has equally been biased to the upside.
Sure, share prices in Alliance Aviation ((AQZ)), Audinate Group ((AD8)), Inghams Group ((ING)), Intelligent Monitoring ((IMB)), Lovisa Holdings ((LOV)), MA Financial ((MAF)), Megaport ((MP1)), PolyNovo ((PNV)), and Zip Co ((ZIP)) have experienced double digit declines on the day of reporting, but many more results have been rewarded through double digit rallies, often after share prices had been sold off prior on a variety of narratives and concerns.
There’s a class of market participant who considers price action equal to divinity –you know: the market is always right– but a multitude in upwards correcting share prices this month puts a big question mark over that kind of logic. My personal take is also: who’d like companies to update and report less frequently?
That’ll only give false narratives and misguided sentiment an opportunity to inappropriately impact for longer. See also TechnologyOne’s ((TNE)) AGM update this month. That could’ve hardly been timed any better. Those shares went up 21.50% last week.
Having said so: renewed strong selling for growth and technology stocks on Monday equally signals market sentiment has yet to turn in a major fashion for this market segment. This is how Bear markets operate; they offer hope, then squash it again.
Companies that enjoyed strong share price gains last week include Austal ((ASB)), Electro Optic Systems ((EOS)), Hansen Technologies ((HSN)), Hub24 ((HUB)), IPH Ltd ((IPH)), Magellan Financial ((MFG)), Netwealth Group ((NWL)), and Telix Pharmaceuticals ((TLX)).
In some cases, like for Australian Finance Group ((AFG)) for instance, those initial gains disappeared just as quickly, but in most cases strong selling pressure beforehand has proved a solid platform for an eye-catching rally on better-than-speculated financial health and prospects.
It is also not always obvious why a given share price rallies or tanks post financial update. Read Morgans’ and UBS’ assessment of MA Financial’s ((MAF)) interim report and you’d be scratching your head as to why that share price has been punished so dearly.
Goodman Group ((GMG)), on the other hand, did not upgrade its FY26 guidance and with data centres now representing around 73% of work in progress, the market wants to see announcements involving new customers and financial partnerships. Sometimes patience is in short supply.
Shares in G8 Education ((GEM)) have been on a sharp slide south throughout the past twelve months and on Monday the childcare centre operator’s market update revealed bad news can still transition into something much worse. Occupancy has now declined to 54.4%, down -7.5%pts from the same period last year.
To illustrate how negative those numbers actually are, RBC Capital pointed out on the day, even during covid pandemic days, occupancy remained above 60% and never saw a decline more than -4.5%pts.
No surprise, that share price is now below the depths of covid-outbreak days, having wiped out everything gained post 2011, ex dividends.
Outlook Is King
Unexpectedly, maybe, there’s actually a public debate taking place whether financial results this month are genuinely as great as share price responses suggest.
On Morgan Stanley’s number crunching, for example, ‘beats’ and ‘misses’ seem almost perfectly balanced, while for UBS there are many more positives than otherwise.
The missing link might well be provided by Macquarie where analysts observe this month’s price action remains closely correlated with outlook statements provided by the companies.
FNArena’s Monitor combines the two –financial result and outlook– and on that basis, as also indicated earlier, the current season is shaping up as possibly the best since corporate profits peaked in 2022.
One of the eye-catching features is many companies surprising with their dividend payouts. On Macquarie’s observations, dividends have been topping forecasts by 7% while 10% of reporters announced new or expanded share buybacks.
Mining companies are happily contributing to the extra spoils for shareholders, see also Evolution Mining ((EVN)), Perseus Mining ((PRU)), Ramelius Resources ((RMS)), and others.
While, understandably, a lot of attention goes out to miners and banks, Macquarie points out the real winners this season are local defensives. Their results are beating forecasts by 10% on average, which, helped by the fact there’s usually no threat of imminent AI disruption either, provides support for defensive share prices.
Think Telstra ((TLS)), for example, but also AGL Energy ((AGL)), BWP Trust ((BWP)), and nib Holdings ((NHF)).
All else remaining equal, the broker suggests this trend might bode well for the likes of Coles Group ((COL)), Ramsay Health Care ((RHC)), and Woolworths Group ((WOW)) that report later this week.
The worst experience thus far is reserved for the local healthcare sector with shareholders’ pain extending far beyond CSL ((CSL)) and Cochlear ((COH)). ResMed ((RMD)) and Telix Pharmaceuticals ((TLX)) are exceptions, though it doesn’t necessarily protect their share prices in the short term.
For retailers and consumer-facing businesses, the report card thus far is rather mixed with the RBA rate hike seemingly creating a well-defined demarcation between winners and losers.
While share prices for growth companies remain under a large cloud, below the surface their growth prospects are eroding. Macquarie reports this is the only segment in Australia this month that is thus far reporting net ‘misses’.
Think Pro Medicus ((PME)), but also Aussie Broadband ((ABB)), Megaport ((MP1)) and Zip Co ((ZIP)).
February (Thus Far) In Brief
A few observations stood out for me:
- BHP Group ((BHP)) is clearly in much better shape than rival Rio Tinto ((RIO))
- Not all banks are the same. Big is still much better than small, with Bendigo & Adelaide Bank ((BEN)) providing yet more evidence of the divide in quality and resilience. Judo Capital ((JDO)) is the key exception
- The improvement in overall conditions in H2 last year is helping some long-time strugglers to bend the negative trend, including Aurizon Holdings ((AZJ)), Baby Bunting ((BBN)), Magellan Financial, and Orora ((ORA))
- Companies still in struggle street: Cochlear ((COH)), CSL ((CSL)), Fletcher Building ((FBU)), G8 Education, Healius ((HLS)), Inghams Group ((ING)), Lendlease ((LLC)), Lifestyle Communities ((LIC)), Medical Developments ((MVP)), Sky City Entertainment ((SKC)), Treasury Wine Estates ((TWE)) and IPH Ltd, despite the latter’s share price rally
- Not all retailers are equal; an observation that stretches much further than the current season, placing JB Hi-Fi ((JBH)) and Universal Store Holdings ((UNI)) above the rest, but also Breville Group ((BRG))
- The market is equally selective with its rewards towards contractors and engineers, with the likes of Imdex ((IMD)), NRW Holdings ((NWH)) currently representing the local gold standard
- Technology and growth companies remain in great shape, though any form of disappointment is frowned upon. It’s market sentiment that remains the main bugbear. See also Bravura Solutions ((BVS)), Hansen Technologies ((HSN)), Kinatico ((KYP)) and Superloop ((SLC))
- REITs and property managers are back on the up, see also GPT Group ((GPT)), Mirvac Group ((MGR)), and Stockland ((SGP))
- But also: CommBank ((CBA)), you’ve done it again!
Additional positive highlights:
A Season Of Large Cap Winners
February 2026 was hands down the best corporate results season in Australia since the post covid-peak in 2022.
It has inspired already positive-minded UBS strategist Richard Schellbach to lift his year-end target for the ASX200 to 9400 from 8900 prior.
Many key statistics for the season support such positive sentiment; the number of result ‘beats’ outnumbered ‘misses’ by two-to-one, while guidance upgrades outnumbered downgrades by three-to-one. Aggregate EPS growth for the ASX200 has risen to 13.6% from 11.3% at the end of January.
Six months ago those forecasts stood at 3%. The last time aggregate EPS growth had been positive in Australia was mid-2022. All three subsequent fiscal years ended with a net negative growth outcome.
Large Cap Winners Dominate
Australia’s key index, the ASX200, gained 3.7% throughout February, carried by mostly positive results from banks, led by CommBank ((CBA)), and by the broader mining sector, led by BHP Group ((BHP)). Both sector leaders –and local market heavyweights– saw their forecast-beating performances rewarded with rallying share prices.
February’s most obvious milestone was a fresh all-time record high, set at 9198.60, just before US and Israeli bombs landed on Tehran, on the final day of the month. Underneath that achievement is the observation the combined index weight of CommBank and BHP has never been higher than it is today (20%-plus).
That will make some investors a bit more wary.
Equally worth highlighting: the season’s key metrics have been largely carried by larger cap companies, including those two market heavyweights. FNArena’s Corporate Results Monitor had been suggesting a near 40% in positive surprises (result plus guidance) throughout most of the month, but as the final week is mostly populated with smaller cap companies, that percentage fell to 35% by month’s end.
That observation is backed up by the Monitor’s statistics for respectively the ASX50 and ASX200. The first index (all large caps) has generated 44% positive surprises and 35% negative outcomes. For the much broader ASX200 the corresponding numbers are 43.5% ‘beats’ and 29.5% ‘misses’.
As stated, for the 361 companies combined (more than double the 163 members of the ASX200 that reported financials in February) the Monitor assessed 35% as a ‘beat’, 31% as a ‘miss’ and the remaining 34% as in line.
For good measure: that 35% is still the best outcome since 2022 and historically in line with the better February result seasons, but that 31% in disappointments is relatively too high and probably indicative of the fact today’s polarised economic conditions are far from ideal for smaller sized businesses.
Analysts at Macquarie have made a similar observation in that ASX100 Industrials have posted net ‘beats’ of 23% in combination with a very low rate of ‘misses’ (only 7%). In contrast, smaller cap industrials only ‘beat’ by a net 8% and their ‘misses’ ran up to 21%.
Little surprise, on Macquarie’s number crunching, the return spread in February between large and smaller cap industrials measured 2.7% in favour of the larger sized cohort. Think Telstra ((TLS)), AGL Energy ((AGL)) and Woolworths Group ((WOW)) versus Reliance Worldwide ((REH)), Inghams Group ((ING)) and Aussie Broadband ((ABB)) (in a broad sense).
Defensives & AI
While it seems straightforward to assume February belonged to financials, energy and the mining sector –with large positive contributions to earnings forecast upgrades and upside for the index– the title of absolute top performing section of the market goes to local defensives.
As Macquarie points out, defensives contributed with a net positive EPS surprise of 10%, triggering 6% in net upgrades to EPS forecasts and the largest sector outperformance in share price rallies. Given defensives have equally been in strong demand globally, it is more than likely other factors have played a role as well.
Think general fears about global liquidity and valuations, not to mention the concerns about AI threats and disruption from which most defensives (at least at this stage) remain insulated.
Now that we’ve mentioned the “magic word”, both UBS and Macquarie highlight February was the first season during which AI has exerted itself as a tangible and clearly distinguishable factor. In short: companies have started to communicate their first AI successes, and they have been rewarded for it.
On Macquarie’s assessment, companies building AI generated the most upside surprises (23%) and the most upgrades (27%) during the season. Such companies have outperformed those companies that are AI disrupted by circa 20% over the month.
Macquarie’s conclusion: “AI passed a tipping point during results. AI Exposure is now a key macro factor that will drive earnings expectations and valuations.”
UBS wasn’t among AI enthusiasts up until last month but now also concludes the Rubicon has been crossed as household names including CommBank, Telstra, Breville Group ((BRG)), Seek ((SEK)), Superloop ((SLC)), WiseTech Global ((WTC)), Woolworths, Coles Group ((COL)) and IDP Education ((IEL)) have started to highlight quantifiable impacts from AI on the productivity and profitability of their businesses.
Concludes UBS: “How this ultimately plays out we do not know, but the period of intrigue, questioning, and related share price volatility, is set to continue.”
Plenty Of Disappointments
As per always, there are a few candidates, but the title of biggest disappointment of the February results season is reserved for autoparts distributor Bapcor ((BAP)).
Years of continuous underperformance and management failure to straighten the ship culminated last week in a capital raising that will significantly dilute remaining shareholders as the cap raise will almost double total capital in the business (up 98%).
The most logical way to avoid such instant capital destruction is, of course, by taking up more equity –i.e. allocating more funds into a failed strategy– and most institutional investors will do exactly that. But more money doesn’t mean this busines has now left all bad news behind it.
Citi analysts responded as follows:
“While Bapcor should be a relatively simple business and the industry structure is reasonable, from our perspective after three false starts from different CEOs trying to execute a Bapcor turnaround, we think it is prudent to wait to see some sustained signs of traction prior to recommending that investors buy the stock.”
Citi has downgraded to Sell.
It does act as a warning signal to investors there’s no natural limit to how bad things can get when a company loses its ability to perform constructively. Bapcor has been in struggle street for years and no doubt its “cheap” looking share price would have attracted the attention of at least a few bargain hunters.
When this business listed as Burson Group in late April 2014 things looked a lot different back then. As Australia’s premier multi-channel aftermarket distributor of automotive replacement parts and workshop equipment, Burson seemed destined for an exciting future.
The first seven years as an ASX-listed public company seemed to deliver on that promise, with the share price peaking above $8 in 2021. On Friday, coming out of their trading halt, the shares plunged by nearly -30% to 87c. On Monday, more selling followed, dragging down the share price to 77c.
Ord Minnett had already downgraded its price target to 75c.
It’s not every day investors get to witness a near -90% destruction in shareholder wealth in less than six years. Slater & Gordon comes to mind, but also Freedom Foods Group, nowadays trading as Noumi ((NOU)). There are, of course, plenty of examples of companies that went belly up, which still is a lot worse an outcome for shareholders.
It’s probably difficult to imagine today, but Bapcor once featured in my personal research as a potential All-Weather Performer. My interest was piqued because demand for car parts is largely non-discretionary and price-insensitive; if your car breaks down, you want to have it fixed — presto.
A lot of that demand is covered under insurance too. As the local market leader, you’d expect Burson group (Bapcor) to exhibit all the characteristics that have made companies like ResMed ((RMD)) and Wesfarmers ((WES)) such a pleasure to own throughout the past two decades or so.
At first that same scenario certainly appeared to unfold with Bapcor shares a positive contributor to the FNArena-Vested Equities All-Weather Model Portfolio, until resilience, reliability and dependable performance went out the window. Of course, things had already started to change with the advent of electrical vehicles, which require almost no parts, but this by no means explains the pain shareholders are experiencing today.
Super Retail’s ((SUL)) Super Cheap Auto is competing in the same space and, judging by its interim report from last week, nowhere near in the same quagmire. What Bapcor’s example shows investors is that market leadership, industry dynamics and track records from the past are only part of a company’s story.
Successful business models can still stumble or, as has happened in the case of Bapcor, they can change their core qualities altogether. Sometimes bad management takes hold. Sometimes external dynamics force change. Sometimes it’s not quite clear what exactly is responsible for the changes that occurred.
Reporting Seasons’ Red Flag
Years ago, when I queried what exactly had gone wrong with iSentia, yet another sad story on the ASX, I noticed this company had build up a track record of mostly disappointing during results seasons. There was always something. Sometimes of a smaller nature, later on disappointments became much larger in nature.
I concluded back then, as I do today, such repeated disappointments are a red flag that should be on investors’ radar.
Simply put: a company in great shape is most likely in a position to outperform, rather than disappoint. A company for whom the tide is turning is more likely to underperform and resort to excuses for why this or that is not quite up to scratch.
Such business momentum fluctuates, of course, and one ‘beat’ or ‘miss’ by no means tells the full longer-term story. That’s not what I am referring to. When disappointments follow in succession, that’s when risk management alarm bells should be ringing and tougher questions need to be asked.
One of the most prominent disappointers on the ASX is CSL ((CSL)), for whom the tide most definitely has turned. Gone are the days of the ever shining halo that hung over Australia’s most successful biotech and that made CSL temporarily the largest constituent of the ASX200 back in 2020.
Since then, things have only gone backwards, as also illustrated by a share price that has more than halved since 2024. A lot has happened and impacted on CSL over the past five years, but there’s one red flag that should have attracted my attention much earlier; those repeated disappointments when releasing financial market updates.
I think it’s only fair to state CSL today is but a shadow of its former self. And it remains anybody’s guess when exactly this business will or even can rediscover its former strength and market leadership.
I have decided to remove CSL from my selected lists of High Quality businesses on the ASX. It had been branded ‘with question marks’ for a while, to indicate risks had increased and confidence had been eroded, but time has come to say goodbye (arguably long overdue).
Ramsay Health Care ((RHC)) too once was part of the selection, until it no longer deserved to be. Cochlear ((COH)), also in the healthcare sector and still included in my research, has now equally built up a track record of repeated and successive ‘misses’ during results seasons. Consider it a red flag.
Strugglers Turning Into Winners
Against the background of all of the above, February results have put many of long-time struggling businesses in the limelight.
Some have finally broken their negative operational trend. Think Aurizon Holdings ((AZJ)), but also Baby Bunting ((BBN)), Orora ((ORA)), Pexa Group ((PXA)), Sonic Healthcare ((SHL)), and Woolworths.
The challenge for investors is to not get hoodwinked by one lucky strike and separate out those businesses that are genuinely turning around and worth holding on to. The All-Weather Porfolio owns Woolworths shares and is delighted things have finally picked up. It has been a long wait and our patience relied on the strong underlying fundamentals that support supermarket operators in this country.
Others have stuck to the familiar script and asked for more patience from shareholders.
Think Inghams Group and Lendlease ((LLC)), but also ARN Media ((A1N)), Domino’s Pizza ((DMP)), Endeavour Group ((EDV)), G8 Education ((GEM)), Healius ((HLS)), Seek ((SEK)), Sky City Entertainment ((SKC)), Step One Clothing ((STP)), and Treasury Wine Estates ((TWE)).
My style of investing is not to rummage through cheap-looking, underpriced, weak and vulnerable businesses in the hope that one day some positive development puts a rocket underneath the share price. Every time one of these names puts in a firm rally I feel like congratulating those on the shareholders registry, but I never feel jealous as I know of plenty examples that cause heart- and headaches for much longer.
Inghams Group shares fell by yet another -15% in February, and so did shares in Treasury Wine Estates. And those are but two examples that spring to mind.
Volatility & Retailers
As anticipated, volatility in share prices was yet again well above observations and trends from before last year.
Consider on the day when WiseTech Global’s market update inspired a double-digit percentage rally in its share price, shares in supermarket operator Woolworths rallied even harder.
Yet again, for mega-punishments in case of major disappointment, the focus was firmly on smaller cap stocks. Bapcor shares lost nearly -60% in February. Shares in G8 Education lost -50%. For Botanix Pharmaceuticals ((BOT)), the drawdown was -49%.
With the RBA believed to deliver another one or two rate hikes this year, discretionary retailers, REITs and domestic cyclicals remain the subject of public debate.
For UBS, all seems honky dory, with the local economy on firm footing and retailers seemingly enjoying solid spending momentum.
UBS thinks those companies can withstand more rate hikes without too many dramas.
Over at Macquarie, however, the observation is many retailers have reported slowing momentum in February and that picture is unlikely to improve with higher rates.
Of course, all of the above has now quickly been superseded by the outbreak of war in the Middle East.
Looks like, for the short term at least, the general context for the Australian share market will remain fluid and unpredictable.
TACO Time?
It has taken exactly one week since Tehran became the target of Israeli and US bombs. While Iran’s leadership was swiftly decapitated on day one, with Supreme Leader Ayatollah Ali Khamenei killed alongside multiple senior regime and security officials, the regime’s vicious retaliation has surprised by causing significant damage to US assets throughout the region, as well as to the growth outlook for the global economy through a spike in energy prices.
The Strait of Hormuz –bottleneck for roughly 20% of the world’s oil transports– is effectively closed, irrespective of US’ intentions to the contrary, and the longer this remains the case, the greater the damage to economies and financial markets, the US included.
At first, markets focused on the potential for higher inflation, but in today’s world dynamics change quickly. Within the space of one week markets’ worry has shifted to global growth.
That shift in momentum explains why shares in BHP Group ((BHP)) have swiftly changed course from rallying towards $60 to now trading around $50 on Monday, and dragging the local index with it.
The world has changed dramatically over the decades past, but the last time the price of oil doubled within a relatively short time –in mid-2008– the global economy still faced a recession, even though other factors contributed as well (think the demise of Lehman Bros).
In December, only four months ago, WTI crude oil traded around US$55/bbl. On Monday, futures rallied beyond US$100/bbl. It’s not difficult to see why stunted growth and oil-vulnerability are now in focus.
Put on your worst case scenario hat and the world is staring at a come-back of the 1970s –low growth in combination with high inflation– a surefire recipe for disaster.
Not making things any easier is asset prices in 2026 are substantially higher-priced than back then.
Offsetting all of the above is today’s US President might well be the most sensitive to adverse developments in financial markets.
Up until the weekend, markets reflected confidence this outbreak of hostilities would not last long, and by doing so they were granting Trump & Co the opportunity to do whatever, whenever, however, and for as long as it takes.
That dynamic has changed now, as it is intended by Tehran’s strategy. So when’s Trump ready to TACO and call it “the greatest victory the world has ever seen” and pull up stumps?
(To those not familiar with the acronym, TACO refers to ‘Trump Always Chickens Out’ in reference to his art of the deal strategy by first declaring the worst proposition, and then scaling back to something more palatable).
Or is this really a diversion tactic over the Epstein files or an even more nefarious intent regarding the upcoming midterm elections?
Most investors not sitting into cash and/or energy-leveraged assets will be keeping their fingers crossed this is not the one time Trump decides to ignore the pressure building from financial markets (and from allies the world around).
Lessons From History
Plenty of historical precedents are available to suggest the world can deal with a temporary disruption to oil supply and a spike in energy prices.
Strategists at UBS last week published an overview reaching all the way back to the Yom Kippur war in late 1973 up until Israel’s 12 day war with Iran in June last year. With exception of only four examples, equity markets were trading higher twelve months later.
Of those four examples, three involved economic recessions including Yom Kippur, 9-11, and the Saudi oil drone attack in September 2019 (covid followed next) while the Arab Spring in 2011 preceded Europe’s Grexit crisis.
The first gulf war in August 1990 kept equities down in double digits for the following six months.
History does show such outcomes are more exception than rule. When relying on less negative outcomes, the rule of thumb seems to be that temporary oil supply disruptions are remedied within the space of circa four months.
Financial markets too tend to normalise within such period.
One key problem at this stage is there are no signals or indications about an imminent victory or cease-fire. As analysts at RBC Capital put it:
“Given the course of events, it is unclear whether the administration built an exit on its way into this latest military entanglement.”
History does suggest whenever human decision-makers and financial markets move in diametrically opposed direction, it’s usually the former who, eventually, is forced to change.
When Trump suggested the idea of taking Greenland by military force, it was suggested he abandoned that idea because financial markets were signalling they didn’t approve.
But how much damage/pressure needs to occur before “the greatest peace-maker of all time” gets the message and responds accordingly?
A Binary Set-Up
All of the above suggests today’s set up in financial markets is binary.
Today’s winners –think Woodside Energy ((WDS)), but also Ampol ((ALD)) and Viva Energy ((VEA))– will instantly face a Wile E Coyote fall from grace if/when the situation clears up around Iran and the Strait of Hormuz.
Which is why some strategists are preaching caution; i.e. take some profits, buy into dips, rather than chasing today’s energy exposures.
One quick look at share prices for the likes of Woodside and Santos ((STO)) shows shares are now trading above FNArena’s consensus targets, even with analysts upgrading energy pricing forecasts.
This suggests these share prices require a (much) higher-for-longer outcome to still offer great value at today’s prices.
While such an outcome does remain a real possibility, history also suggests expensively priced oil eventually kills itself via reduced demand, even without an economic recession on the horizon.
Just look at what happened after energy was the best performing sector throughout 2022.
Equally worth pointing out: share prices in secondary beneficiaries such as Ampol and Viva Energy are trading nowhere near consensus price targets.
The market might not be as confident about motorists’ resilience?
Strategy Adjustments
Anticipating what happens next is not for the foolish and/or the over-confident. Especially in today’s market context, the momentum pendulum can switch instantaneously, and without warning.
UBS’ in-house Aussie economist George Tharenou has now added one additional RBA rate hike to his forecast for 2026. This means; two more are forthcoming.
On this basis, strategists Richard Schellbach and Lily Huang have made some adjustments to their recommended equity sector exposures for Australian portfolios.
Industrials have been upgraded to Overweight, alongside Mining and small caps.
Banks and Energy have been upgraded to Neutral, joining consumer discretionary, healthcare, insurance and Technology and Telecom. Both insurance and TMT have been downgraded from Overweight.
Real estate and consumer staples have been downgraded to Underweight, where they join infrastructure and utilities.
Important to note: these adjustments suggest worries about higher inflation are set to over-rule economic growth concerns.
If this proves not the case, or it changes shortly, most of these changes might prove ill-advised even though small caps, for example, have already quickly and decisively de-rated against larger caps in Australia.
UBS believes this quick de-rating now insulates small caps in Australia from the current geopolitical environment.
UBS also points out in case of persisting global inflation fears, the Australian share market tends to outperform most international peers.
Wilsons’ Model Portfolio too is Overweighted resources, with a slight underweight positioning regarding Australian banks, but with an overwhelming skew toward large caps.
February Results
The general context post a more-positive-than-anticipated February results season has rapidly changed, but this still doesn’t mean all falling share prices are equal.
Portfolio managers and analysts are still using February results to separate true winners and better quality businesses from others, which can be useful input for investors using the current share market turmoil to recalibrate their strategy and portfolio.
Strategists at stockbroker Morgans put it as follows:
“While macro sentiment has created near-term noise, the underlying result fundamentals remain the strongest we have seen in three years – and that matters for patient, conviction-led investors.”
Among the changes made is stockbroker Morgans adding the following inclusions to its selection of Best Stock Ideas in Australia:
- Sigma Healthcare ((SIG))
- Generation Develoment ((GDG))
- GemLife Communities ((GLF))
- Judo Bank ((JDO))
The following have been removed:
The full list will be included in Thursday’s Rudi’s View update.
In their final review of the February season, Morgans strategists identified opportunities having emerged in some of their favoured high conviction names including:
- Sigma Healthcare ((SIG))
- Aristocrat Leisure ((ALL))
- Car Group ((CAR))
- REA Group ((REA))
- Generation Development ((GDG))
- Pinnacle Investment Management ((PNI))
- Eagers Automotive ((APE))
- Amcor ((AMC))
- Judo Capital ((JDO))
- Pro Medicus ((PME))
- Sonic Healthcare ((SHL))
Analysts at Citi have added data centres operator NextDC ((NXT)) to their Pan-Asia Focus List.
For more: see Rudi’s View on Thursday.
More On February
Strategists at Bell Potter found the February results season a “good one”, but also quite unforgiving as any hint of disappointment tended to see share prices weaken by -5% on average and with the average positive surprise only rewarded by circa 1%.
The three themes that are believed to determine the direction of share prices from here onward are:
- the RBA back in hiking mode
- AI transitioning to an earnings driver
- A structural capex cycle sustaining commodity prices and keeping domestic inflation elevated
The FY26 EPS growth forecast has accumulated to 14%, but is largely supported by miners and commodity pricing increases. At current spot prices, Bell Potter points out, there remains further upside on the horizon.
This broker’s base case is that commodity prices will broadly hold around these levels.
The past season also marks a fundamental pivot in the AI narrative, with Bell Potter commenting:
“The market is starting to reward companies that can use AI with tangible benefits. Household names like CBA, Telstra, Woolworths are now quantifying measurable improvements in profitability from their AI investments, a step change from the prior two years where AI was discussed but not demonstrated.”
Stocks currently Overweighted in Bell Potter’s Model Portfolio include:
- Life360 ((360))
- Amcor ((AMC))
- ANZ Bank ((ANZ))
- Bega Cheese ((BGA))
- BHP Group ((BHP))
- Car Group ((CAR))
- Challenger ((CGF))
- Capricorn Metals ((CMM))
- Cedar Woods Properties ((CWP))
- Dalrymple Bay Infrastructure ((DBI))
- Develop Global ((DVP))
- Evolution Mining ((EVN))
- Flight Centre ((FLT))
- Generation Development ((GDG))
- Goodman Group ((GMG))
- Harvey Norman ((HVN))
- Light & Wonder ((LNW))
- Macquarie Group ((MQG))
- News Corp ((NWS))
- Rio Tinto ((RIO))
- ResMed ((RMD))
- SGH Ltd ((SGH))
- Sonic Healthcare ((SHL))
- Santos ((STO))
- Woolworths ((WOW))
- WiseTech Global ((WTC))
Some interesting statistics were published by stockbroker Morgans suggesting MidCap stocks have both been rewarded and punished more than larger cap and smaller cap peers in February.
On the broker’s data, the average punishment for Midcap disappointment was -13% (ouch!) versus positive surprise being rewarded by 7.5%.
For smaller cap companies the comparable numbers are -8.6% (disappointment) and 5.1% (positive surprise).
‘Beats’ and “misses’ for ASX50 companies saw share prices on average moving by respectively -10.2% and 5.8% on results day.
Viewed through a different lens, Midcap Growth crowned itself the surprise winner, led by the likes of Hub24 ((HUB)), Netwealth Group ((NWL)), IDP Education ((IEL)), and Reliance Worldwide ((RWC)).
The worst performing segment for the season were large cap cyclicals, on the back of weakening share prices in Qantas Airways ((QAN)), Computershare ((CPU)), and Treasury Wine Estates ((TWE)).
The season’s pain trade was reserved for retailers with only two companies beating expectations against savage market responses following disappointments from Adore Beauty ((ABY)), Temple & Webster ((TPW)), and Nick Scali ((NCK)).
Healthcare, travel, US housing and technology all sat in the naughty corner in February.
One metric that defines February as one of the best seasons in a very long time is 69% of dividend-paying companies increasing their distribution in February.
Morgans reports this is a meaningful ‘beat’ from the prior 55%. The offset is the ASX200 exited the month at a 24% premium versus its 10-year PE average.
The latter is rapidly correcting since.
Post-February Conviction Calls
One of the key dynamics that characterised the February results season is investors/traders seemed of the intent to sell certain market segments, no matter what, and a good or even excellent result release was only slowing down that process.
It hasn’t gone unnoticed. Datt Capital, in a press release delivered into the FNArena inbox, suggests investors should pay attention, and treat such behaviour as longer-term opportunities.
This too shall pass?
The asset manager assures a time will come when fundamentally sound companies will again start trading in line with their profits and fundamentals. The divergence currently occurring should be seen within such framework.
“What surprised us most this reporting season was the clear divergence between the underlying earnings delivered by companies and the way markets reacted to those results.”
Another snippet worth highlighting:
“Businesses with structurally strong earnings drivers were not necessarily rewarded in the short term. In our view, that has opened a broader opportunity set for disciplined investors. Over time, markets will once again differentiate between companies with durable competitive advantages and those facing deeper structural challenges.”
One of the themes that has kept a firm lid on technology and software companies in particular is the threat of industry disruption through AI development. Datt does not hesitate to take the opposing side of the public debate:
“(…) many technology companies remain strongly positioned as they possess access to proprietary or regulated data sets that cannot easily be replicated. These data sets effectively form a structural moat that is hard to compete against.
“Many of these businesses also operate under multi-year contracts with customers, creating a stable revenue base.
“As AI tools improve productivity, operating margins can actually expand significantly over time.”
Equally interesting is analysis by UBS has come to the conclusion AI will actually increase (not decrease) demand for software developers, and for software applications too. Peers at Citi have formed the same conclusion with regards to data centres and AI-supporting hardware and infrastructure.
As reported multiple times over in my writings, many a clear-headed sector analyst has nominated global logistics infrastructure services provider WiseTech Global ((WTC)) as one prime candidate whose share price punishment (if we can call it that) seems overcooked, even if there is no short-term relief on the horizon when Iran, Hormuz, inflation, bond yields and RBA tightening continue to dominate investors’ mindset.
Datt too has nominated WiseTech Global as structurally “well positioned”, in contrast to the steep weakening that has pulled down the share price to circa $47 from $115-plus in July last year.
Another trend highlighted is an increase in M&A for smaller cap companies, equally seen as yet more evidence current market sentiment is too short-term focused.
And yes, history does show this too shall pass, eventually.
Conviction Calls & Best Buys
Let’s start with the first (or second) most important sector for the local market:
Morgan Stanley on Australian banks:
“Despite a good February 2026 reporting season, we think the combination of high expectations and high multiples indicates the probability of underperformance vs the ASX200 in 2026 is greater than the likelihood of another year of outperformance.”
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RBA rate hikes are ‘a-comin’. Better not to expect any miracles from retailers and companies reliant on discretionary household spending.
Macquarie has lined up its sector favourites:
Remain Least Preferred:
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Sector analysts at stockbroker Morgans have two key picks:
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Peers at Jarden much like:
- Sigma Healthcare
- Woolworths Group ((WOW))
- Coles Group
- Harvey Norman ((HVN))
- JB Hi-Fi ((JBH))
- Temple & Webster ((TPW))
- Flight Centre Travel ((FLT))
- Beacon Lighting Group ((BLX))
- Helloworld Travel ((HLO))
Junk food, erm sorry, quick service restaurant operators and those in the liquor business are considered “most challenged” and thus least preferred at Jarden.
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UBS has Buy ratings for:
- Breville Group ((BRG))
- Coles Group
- Domino’s Pizza
- Guzman y Gomez ((GYG))
- JB Hi-Fi
- Metcash ((MTS))
- Premier Investments ((PMV))
- Sigma Healthcare
- Universal Store Holdings
UBS’s one and only Sell rating is reserved for:
Treasury Wine Estates ((TWE)).
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When it comes to online classifieds, Macquarie analysts might well be the most hesitant to call the local sector an opportunity. Too early to call whether AI will prove a threat or a blessing remains the in-house non-conviction.
On that basis, most risk is seen with jobs platform Seek ((SEK)), while Car Group ((CAR)) and REA Group ((REA)) are equally classified as under “lack of identifiable re-rating catalysts”.
Elsewhere, Macquarie’s favourites among ASX-listed contractors are identified as:
Here one can sense a retreat in overall enthusiasm, generally speaking, among analysts for Worley ((WOR)) after a particularly disappointing February result release.
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The healthcare sector, yet again, could not deliver the goods in February. It has been a tough experience for investors in this sector post-covid lockdowns stimulus.
And it most certainly is not just because the local leader CSL ((CSL)) is having its own set of persistent challenges.
The good news, according to healthcare analysts at stockbroker Morgans, is February results did not provide evidence of structural deterioration for CSL & Co.
To the contrary, these analysts argue revenue growth was widespread, while also acknowledging the debate about sustainability rages on.
Morgans considers the sector undervalued, but admits share price performance now directly correlates with actual deliveries. February was not the season for that, alas (unlike a few examples such as ResMed ((RMD)), Sigma Healthcare ((SIG)), Fisher & Paykel Healthcare ((FPH)) and –maybe– Ramsay Health Care ((RHC)).
Sector analysts at Wilsons point out there remain pockets of strength inside the sector, with both ResMed and Fisher & Paykel Healthcare continuing to operate inside an earnings upgrade cycle.
Morgans currently has positive ratings on:
Wilsons highlights the sector overall is now trading on de-rated valuations not seen in many years, which also explains why its Model Portfolio is overweighted the sector.
Specifically highlighted are:
- ResMed
- Cochlear
- Telix Pharmaceuticals ((TLX))
- CSL
In case anyone wonders: Wilsons is of the view that ongoing challenges for CSL are now priced-in through a very cheap valuation.
Over at Morgan Stanley, positive ratings rule for:
- Telix Pharmaceuticals
- CSL
- ResMed
- Fisher & Paykel Healthcare
Least liked:
- Ramsay Health Care
- Cochlear
Macquarie’s sector Top Picks:
Least picks:
Jarden’s favourites:
- Ramsay Health Care
- ResMed
- CSL
With ongoing risks seen for:
- Cochlear
- Sonic Healthcare
UBS: “We believe that Healthcare stocks show the most compelling valuation story amongst ASX sectors.”
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Citi’s order of preference for Australia’s diversified financials is:
All are rated Buy, followed by:
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Morgan Stanley’s Australia Macro+ Focus List has remained unchanged since September last year, with the following ten constituents:
- Aristocrat Leisure ((ALL))
- AMP ((AMP))
- ANZ Bank ((ANZ))
- BlueScope Steel ((BSL))
- GemLife Communities Group ((GLF))
- Goodman Group ((GMG))
- Iluka Resources ((ILU))
- Seek ((SEK))
- The Lottery Corp ((TLC))
- Xero ((XRO))
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Morgan Stanley’s Australia Macro+ Model Portfolio:
- ANZ Bank ((ANZ))
- CommBank ((CBA))
- National Australia Bank ((NAB))
- Westpac Bank ((WBC))
- Macquarie Group ((MQG))
- AMP ((AMP))
- Generation Development Group ((GDG))
- Suncorp Group ((SUN))
- GemLife Communities Group ((GLF))
- Goodman Group ((GMG))
- Scentre Group ((SCG))
- Stockland ((SGP))
- Aristocrat Leisure ((ALL))
- Domino’s Pizza ((DMP))
- The Lottery Corp ((TLC))
- Wesfarmers ((WES))
- Xero ((XRO))
- James Hardie ((JHX))
- REA Group ((REA))
- Orica ((ORI))
- Qube Holdings ((QUB))
- Seek ((SEK))
- Coles Group ((COL))
- Sigma Healthcare ((SIG))
- CSL ((CSL))
- ResMed ((RMD))
- Telstra ((TLS))
- Transurban ((TCL))
- Tuas ((TUA))
- BHP Group ((BHP))
- BlueScope Steel ((BSL))
- Iluka Resources ((ILU))
- Newmont Corp ((NEM))
- Rio Tinto ((RIO))
- PLS Group ((PLS))
- South32 ((S32))
- Santos ((STO))
- Woodside Energy ((WDS))
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As reported in Monday’s Weekly Insights, stockbroker Morgans added the following inclusions to its selection of Best Stock Ideas in Australia:
- Sigma Healthcare ((SIG))
- Generation Develoment ((GDG))
- GemLife Communities ((GLF))
- Judo Bank ((JDO))
The rest of the selection:
- CSL ((CSL))
- Sigma Healthcare ((SIG))
- Amcor ((AMC))
- Woodside Energy ((WDS))
- GPT Group ((GPT))
- Goodman Group ((GMG))
- REA Group ((REA))
- Pinnacle Investment Management ((PNI))
- ALS Ltd ((ALQ))
- Orica ((ORI))
- ARB Corp ((ARB))
- Lovisa Holdings ((LOV))
- Universal Store Holdings ((UNI))
- Judo Capital ((JDO))
- Elders ((ELD))
- Flight Centre Travel ((FLT))
- Aristocrat Leisure ((ALL))
- ResMed ((RMD))
- TechnologyOne ((TNE))
- Generation Development ((GDG))
- Megaport ((MP1))
- Pro Medicus ((PME))
- MA Financial Group ((MAF))
- EBR Systems ((EBR))
- Newmont Corp ((NEM))
- Ramelius Resources ((RMS))
- Capstone Copper ((CSC))
- Dalrymple Bay Infrastructure ((DBI))
- GemLife Communities Group ((GLF))
- LGI Ltd ((LGI))
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Stocks currently Overweighted in Bell Potter’s Model Portfolio include:
- Life360 ((360))
- Amcor ((AMC))
- ANZ Bank ((ANZ))
- Bega Cheese ((BGA))
- BHP Group ((BHP))
- Car Group ((CAR))
- Challenger ((CGF))
- Capricorn Metals ((CMM))
- Cedar Woods Properties ((CWP))
- Dalrymple Bay Infrastructure ((DBI))
- Develop Global ((DVP))
- Evolution Mining ((EVN))
- Flight Centre ((FLT))
- Generation Development ((GDG))
- Goodman Group ((GMG))
- Harvey Norman ((HVN))
- Light & Wonder ((LNW))
- Macquarie Group ((MQG))
- News Corp ((NWS))
- Rio Tinto ((RIO))
- ResMed ((RMD))
- SGH Ltd ((SGH))
- Sonic Healthcare ((SHL))
- Santos ((STO))
- Woolworths ((WOW))
- WiseTech Global ((WTC))
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Another disappointment in February has –finally one might say– led to the removal of Bapcor ((BAP)) from Morningstar’s list of Best Stock Ideas in Australia & New Zealand.
Remain selected:
- AGL Energy ((AGL))
- Auckland International Airport ((AIA))
- Amcor ((AMC))
- ASX ((ASX))
- Domino’s Pizza ((DMP))
- Dexus ((DXS))
- Endeavour Group ((EDV))
- James Hardie ((JHX))
- Ramsay Health Care ((RHC))
- SiteMinder ((SDR))
- Spark New Zealand ((SPK))
- Woodside Energy ((WDS))
- WiseTech Global ((WTC))
Paying subscribers have 24/7 access to my personally curated lists, including All-Weather Performers, at: https://fnarena.com/index.php/analysis-data/all-weather-stocks/
Oil, Inflation, Growth & Stagflation
Whether we like it or otherwise, but financial markets are being held hostage by the Strait of Hormuz and the related spike in prices for oil and gas.
The uncertainty about what comes next and how quickly, or not, the global energy supply bottleneck might be resolved is keeping a firm lid on equity markets, with Australia’s major indices now down thus far for calendar year 2026.
All in all, and to the surprise of more bearish inclined market observers, the global response on markets has remained relatively muted.
No doubt, this reflects a general view the US administration is not prepared to risk the mid-term election later in the year over this ill-thought out full-frontal attack on the Iranian regime.
But a quick resolution is, of course, by no means guaranteed. A staunchly defiant new Iranian head of state is testament to that statement.
How Much Damage?
Even if this war will be over within the next number of weeks, as suggested by the US administration, today’s relative calm on equity markets might well severely underestimate the damage to supply and the world economy that is in place by then.
A recent assessment by analysts at UBS put it as follows:
-
The Strait of Hormuz remains closed to the end of March (two more weeks); this might see oil priced at US$120/bbl
-
Under a scenario whereby there’s no let up until late April, oil could well be priced above US$150/bbl
For good measure, there is but a valid argument to be made US president Trump is already laying the foundations for a signature TACO move, whereby he declares ‘mission accomplished’ and ceases further hostilities, but maybe things aren’t that easy and straightforward anymore?
Last week’s oil markets assessment by ANZ Bank yet again emphasised the risk for much larger damage to supply is rising and not reflected in today’s markets, be they fixed interest, commodities, energy or equities, and the clock is ticking.
By late March, ANZ analysis suggests, well shut-ins will start emerging on the back of interrupted access to electricity, water and gas, not to mention the risks for staff employed throughout the region.
Once wells are shut-in, bringing them back online is neither immediate nor guaranteed.
So the risk is real that what are at face value temporary disruptions can quickly turn into longer-lasting supply losses, even if the war ends or security conditions stabilise.
The release of emergency inventories, as already announced by the International Energy Agency (IEA) and locally the Australian government, will have a tempering impact, but it doesn’t solve the underlying problem.
And thus energy prices will then remain higher-for-longer.
The longer the disruption persists, the higher the price will rise to restore the market’s balance, ANZ predicts.
The key message from that assessment is higher oil prices are no longer solely the result of rather extreme outcomes, such as an extended closure of the Strait of Hormuz.
ANZ Bank has now made US$100/bbl its base case scenario for Q2, with the additional warning investors should not be complacent about ongoing risk to the upside.
Not A Rerun Of The 1970s
Modern day economies are by no means directly comparable with the situation throughout the 1970s.
Average oil usage has dropped by some -70% since, but oil remains important and in today’s context average household spending was already under pressure from the cost-of-living crisis.
Last week’s economic data in the US were noticeably weaker than anticipated. As pointed out by economists at National Australia Bank, US January real personal consumer spending was up just 0.1% m/m and has averaged that meagre pace for the past 3 months.
Q4 GDP growth was revised down from 1.4% q/q to just 0.7% q/q.
With such low markers, it doesn’t take much for markets to start contemplating the effect from pricier oil and gas, and other consumer expenses, and from higher bond yields, as markets respond to higher inflation forecasts, on economic growth.
The longer this situation remains unresolved, the louder the voices that warn stagflation is on the horizon.
Stagflation Has Many Faces
Let’s start with the bad news: if the world were to revisit the original stagflation definition from the 1970s, i.e. negative growth in combination with elevated inflation, there will be very few, if any, places to hide in equities.
Contrary to popular misconception, not even the energy producers themselves managed to protect their shareholders from the big bear market downswings throughout the 1970s.
That stark reality-check was once again backed-up by last week’s historical research conducted by UBS.
There won’t be many forecasters around to confidently predict the world is about to relive the oil shocks from the 1970s, but then stagflation doesn’t have to be an exact copy of back then.
Low growth and high inflation is also addressed as stagflation, and such a potential outcome is by no means fanciful.
See also: last week’s US economic data, households under multiple pressures already, equity markets trading at sizeable premia against their own historical averages.
The message for investors is that, so far, markets (and central bankers) are predominantly focused on oil’s impact on inflation, backed by widespread confidence there’s a TACO on the horizon, albeit without knowing the exact timing of it.
The longer energy markets remain disrupted, the higher the lasting impact and thus markets will, at some point, shift their focus from inflation to lower growth.
If and whenever that happens, the changes in money flows and in momentum could be nothing less than dramatic.
To prove that point: some of your traditional defensives –think REITs and infrastructure stocks– are out of favour today because higher bond yields (inflation) are depressing their valuation.
But their operational momentum might stay relatively unaffected during times of economic duress, not to mention the opposite effect from falling bond yields (lower growth).
A similar observation can be made about the technology sector, which remains under severe pressure from all kinds of narratives this year, including rising bond yields.
But once the focus shifts to dependable and reliable growth, many of those companies will instantly look a whole lot more attractive again (in particular since they’ve already sold off so much).
The pendulum switch will equally hit today’s inflation beneficiaries; miners and energy producers, in the opposite direction.
Lessons From History
Last week’s historical research by UBS confirms the above, but it also suggests there remains room for lots of in-between scenarios.
Consider, for example, history shows when economic growth is low and inflation high (above 4%) the best performing sectors are Telecom and Technology (TMT), gold miners and construction companies, with the energy sector at the bottom of the performance ranking, together with mining and banks.
But when growth is low and inflation only medium high, gold miners sit with insurance and construction companies among worst performers and energy, TMT and Industrials make up the top three of best performers.
These rankings shift quite dramatically in each variation of higher growth and lower inflation.
For obvious reasons, it’s one hell-of-a-task to identify those stocks most likely to protect investors in the months/year ahead — we don’t actually know what will be the actual context and/or market’s focus (or when that focus switches).
UBS analysts have offered their picks under two different scenarios:
-under a period of ‘hard stagflation’ for the Australian economy (i.e. negative growth (recession) and elevated inflation), UBS seeks refuge among food staples production and retailing, including:
- Amcor ((AMC))
- Coles Group ((COL))
- Rural Funds Group ((RFF))
- Region Group ((RGN)), and
- Woolworths Group ((WOW)),
as well as infrastructure-like businesses, including:
- APA Group ((APA))
- Aurizon Holdings ((AZJ))
- Cleanaway Waste Management ((CWY))
- Transurban ((TCL)),
- and Telstra ((TLS)),
plus companies with heavy exposure to government/defence and utility maintenance, including:
-under a milder version of stagflation, with low/sluggish economic momentum and still high inflation, investors should expect leading and quality businesses to shine because of their relative resilience. Think:
but UBS also includes Santos ((STO)) and Woodside Energy ((WDS)), as well as BHP Group ((BHP)) and South32 ((S32)).
Other companies mentioned include Aristocrat Leisure ((ALL)), Collins Foods ((CFK)), JB Hi-Fi ((JBH)), Scentre Group ((SCG)), Sigma Healthcare ((SIG)), and TPG Telecom ((TPG)).
-UBS analysts emphasise most stocks will suffer under stagflation, even in a milder form, but some stocks are likely to suffer more, such as companies exposed to the residential property cycle, including:
as well as companies like Nine Entertainment ((NEC)) and Seek ((SEK)) that would be hit through job losses and week property (advertising) markets.
Consumers trading down could well negatively impact the likes of:
- Bega Cheese ((BGA))
- Breville Group ((BRG)),
- and Treasury Wine Estates ((TWE)), and also:
- Adairs ((ADH))
- Harvey Norman ((HVN))
- Super Retail ((SUL)),
- and Temple & Webster ((TPW)),
as well as travel companies, including Flight Centre ((FLT)) and Qantas Airways ((QAN)).
Note that historical precedents of hard stagflation scenarios have seen the Australian share market lose -50% of its value (hence we are all hoping that scenario remains firmly off the table).
Defence & Rare Earths
As per always, there is a lot more going on in financial markets than energy and inflation. On Monday, Ord Minnett released a special report on counter-drone and rare earth opportunities for local investors.
The investment thesis is the current battlefield in Iran is highlighting the significance of drones versus much more expensive rockets and missiles, as well as the strategic importance of rare earths.
Ord Minnett highlights the following:
- Electric Optic Systems ((EOS)), rating Speculative Buy, target $12.95
- Viridis Mining & Minerals ((VMM)), Speculative Buy, target $4.70
- Meteoric Resources ((MEI)), Speculative Buy, target $0.40
- Brazilian Rare Earths ((BRE)), Speculative Buy, target $7.50
- Northern Minerals ((NTU)), Speculative Buy, target $0.05
In addition, Ord Minnett analysts have added the following two to their Analysts’ Conviction List:
Top Picks & Conviction Buys
With global equities dominated by the war in Iran and its impact on energy prices, a strong relief rally could well be triggered by any sign of cease-fire or negotiations taking place.
You can pick your preferred alternative too: the Iranian regime crumbles, an international alliance secures the safety of the Strait of Hormuz, Iran runs out of missiles, et cetera.
In case such a relief rally eventuates, Macquarie strategists‘ favourite strategy is to own stocks that have fallen by at least -10% since the dropping of the first bombs, but that should have been supported by upgrades to forecasts coming out of the February results season.
Among ASX100 companies, these characteristics belong to:
- Sandfire Resources ((SFR))
- ALS Ltd ((ALQ))
- James Hardie ((JHX))
- Hub24 ((HUB))
- Downer Edi ((DOW))
- Brambles ((BXB))
- Qantas Airways ((QAN))
- Charter Hall ((CHC))
Macquarie strategists do also warn the sudden change in energy pricing dynamics is already changing the context for central bank policies with rate hikes rather than rate cuts becoming more likely.
See also the RBA’s two recent meetings locally.
The strategy team at Macquarie has been among the more hawkish when it comes to central bank policies, on my observation.
Further out, such a change in general context will redirect money flows into defensives, Macquarie reminds.
Defensives that came out of February supported by positive momentum and EPS forecasts, include:
- Woolworths Group ((WOW))
- a2 Milk ((A2M))
- Ramsay Health Care ((RHC))
- Telstra ((TLS))
- Aurizon Holdings ((AZJ))
Another reminder from the same team: Value and Resources tend to outperform after rate hikes, but by less than they do before hikes. Gold, Utilities, Infrastructure & Energy often outperform after hikes start.
Technology is the number one underperformer.
Elsewhere, analysts at UBS have reminded investors if/when oil prices are now to remain above US$100/bbl there’s only one sector on the exchange that should see an increase in forecasts and sentiment, and that is the energy sector.
Sectors that should see no direct impact are Commercial Services & Supplies, Insurance, Media, Pharma, Real Estate, Software & Services, and Utilities.
Conviction Calls and Best Buys
Morgan Stanley‘s global strategy preference is to remain overweighted US equities, with emphasis on Quality, large caps over small caps, and cyclicals over defensives.
Fed policy (no hikes), corporate and consumer tax breaks (OBBBA), fading headwinds from tariffs, and more deregulation are all still seen supporting an acceleration in economic momentum for the US economy this year.
Morgan Stanley is equally expecting the first clear signs of AI productivity improvement to emanate from the corporate results season in May.
While ‘AI Bubble’ talk is keeping a lid on valuations, Big Tech could still have another good year in store, Morgan Stanley predicts.
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Strategists at T Rowe Price has move modestly Overweight Australian equities on the belief that earnings momentum is improving.
They do acknowledge the price of oil is a risk.
Their allocation to US equities is Underweight as valuations continue to be assessed as ‘stretched’ in combination with risks around AI and inflation.
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UBS‘s real estate analysts are worried a replay of 2022 might be on the cards as inflation is back on the rise and bond markets and central bankers are paying attention.
The good news is most REITs today are in a better position than back then.
UBS’s sector favourites are:
- Vicinity Centres ((VCX))
- Charter Hall ((CHC))
- Goodman Group ((GMG))
- Arena REIT ((ARF))
- Region Group ((RGN))
- Centuria Industrial REIT ((CIP))
Least preferred are:
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Stockbroker Morgan‘s Key Buy picks among diversified financials are (in order of preference):
- MA Financial ((MAF))
- Pinnacle Investment Management ((PNI))
- Generation Development ((GDG))
- Tyro Payments ((TYR))
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While the Australian banking sector is expected to sustain EPS upgrades this year, which may support continued outperformance of bank share prices in 2026, UBS‘ sector analysts retain a cautious stance, only preferring two Top Picks:
Sector analysts at Citi continue their preference for ANZ Bank ((ANZ)).
Their explanation:
“ANZ’s strong balance sheet further enhances its appeal in volatile market, while we think ongoing progress on costs and efficiency will help re-rate the stock in time.”
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Retail sector analysts at Jarden believe 2026 is a bottom-up stock pickers market for that sector; those with the right product, right price, at the right time will come out on top.
Favourable themes are:
Defensive growth:
Tech & AI super cycle:
Structural growers:
Market share winners:
Jarden sees Quick Service Restaurants and liquor as most challenged due to structural decline in consumption and store growth outpacing demand.
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Post the February 2026 reporting season, UBS‘s most preferred smaller cap stocks in Australia are:
- ARB Corp ((ARB))
- Collins Foods ((CKF))
- Dicker Data ((DDR))
- Hansen Technologies ((HSN))
- IDP Education ((IEL))
- Imdex ((IMD))
- Megaport ((MP1))
- NextDC ((NXT))
- SiteMinder ((SDR))
- Superloop ((SLC))
- Service Stream ((SSM))
- Web Travel Group ((WEB))
Only one prior inclusion was removed: Kelsian Group ((KLS)).
All of ARB Corp, Imdex, Megaport and Siteminder are new additions.
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Analysts at Morgans are of the view that indiscriminate selling of SaaS and other technology companies before, during and after the February season has created opportunity for investors. Their favourites are:
Technology:
Media:
Telecommunication
- TPG Telecom ((TPG))
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Ord Minnett‘s Analysts’ Conviction List now consists of:
- Alkane Resources ((ALK))
- Brazilian Rare Earths ((BRE))
- Breville Group ((BRE))
- Cuscal ((CCL))
- Energy One ((EOL))
- Lindsay Australia ((LAU))
- Qoria ((QOR))
- Regis Healthcare ((REG))
- Service Stream ((SSM))
- Shape Australia ((SHA))
- SiteMinder ((SDR))
- Zip Co ((ZIP))
****
Finally, Canaccord Genuity‘s assessment of healthcare stocks post February has identified the following candidates poised for potential re-rating over the coming six months (goes without saying, this assessment dates from before the war in Iran):
Candidates for potential re-rate over the next twelve months:
Other than that, pretty much all healthcare stocks under coverage are Buy-rated at Canaccord Genuity, with Alcidion Group ((ALC)) and Monash IVF ((MVF)) the only Hold ratings.
That’s probably an indication of how much this sector has been de-rated ever since the peak in covid-related lockdowns.
Make Today’s Crisis Your Opportunity
Last week, I was reminded by FNArena team member Mark Woodruff about Roman Emperor Marcus Aurelius’ sage advice:
“You have power over your mind, not outside events. Realise this, and you will find strength.”
Easier said than done, of course, with the war in the Middle East enforcing maximum uncertainty for the world economy and financial markets.
I am by nature not a gambler, but I am willing to bet most investors are coping by not looking at their equity holdings.
The share market can be a brutal place, sometimes.
At the same time, every crisis, big or small, long or short, creates opportunity for those who can stay level-headed, and this year’s challenging context should be no different.
The fact more than 66% of all ratings for individual ASX-listed companies from the seven local stockbrokerages monitored daily by FNArena is Buy-equivalent rated — more than during the GFC Bear Market in 2008, leaving only 26.6% for Neutral/Holds and 7.5% for Sell ratings, might as well be seen as one big indicator of that.
Sure, forecasts might have to come down, which also impacts on valuations and price targets, but so many household names are already trading at significant gaps to analysts’ assessments, this makes it virtually impossible not to see significant opportunities emerging, unless the world is truly on the precipice of another GFC-alike thunderstorm, for which there is no valid indication to date.
In fact, while financial markets are losing their patience with the notoriously mercurial and unreliable US President, there remains a genuine possibility hostilities might cease sooner than anyone is expecting, which would ceteris paribus (all else equal) also limit the damage done to oil supplies and the global economy.
But, yes, the other scenario looks just as valid right now in that Israel and this US administration might well be prepared to endure greater sacrifices in order to achieve indisputable victory.
And even under the first scenario outcome, there’s no reliable guessing just how low share prices might still go.
The opportunity for investors remains the same, though. Whether one is sitting on a pile of cash or still fully exposed to day to day share market shenanigans, the ultimate goal should be to bend this serious challenge to our own benefit, as much as we can.
Upgrading The Portfolio
As I have time and again advocated during similar crisis situations in the past –including covid and the great bond market reset of 2022– these are ideal conditions to get the broom out and sweep through our portfolio (assuming you’re not hiding in cash).
The idea here is to trade in your disappointing choices –and we all have those– for much better alternatives: those high quality performers we’ve always wanted to own, but for a variety of reasons we don’t.
The idea itself is not 100% new and I am most definitely not the only voice in support of such strategy.
Ellerston Capital sent out a press release on Monday morning, allowing Jack Briggs, portfolio manager of the Ellerston Australian Micro Cap Fund to declare the ASX is now offering “compelling opportunities for active stock pickers” as “Indiscriminate, sentiment-driven selling can create dislocations between price and underlying earnings trajectories”.
The first sector that comes to Ellerston’s mind is the local technology sector, which seems far from an outrageous suggestion to make.
FNArena’s consensus price targets are showing many share prices are trading at levels -40% and much more below target already.
Even if those targets will reset lower, one must adopt a very bearish worldview to suggest updated forward-looking valuations and targets will end up at or below today’s beaten down prices.
This is apart from the fact many of such technology companies remain poised for ongoing robust growth numbers in the years ahead.
And falling bond yields (at some point) and interest rate cuts from central banks (when economies are in need of extra support) should benefit these higher-multiple stocks down the track (all else remaining equal).
Short-Term Defensives
Shorter-term, institutional investors who cannot shift substantially into cash and have to stay invested in the market, will try to identify defensive options and park their money there.
Freshly released historical research by UBS has identified the obvious safe havens we are all too familiar with, ranging from Metcash ((MTS)) and Woolworths Group ((WOW)), to APA Group ((APA)), Telstra ((TLS)), Transurban ((TCL)), Ampol ((ALD)), and Brambles ((BXB)).
Most of the share prices identified have performed relatively well in recent weeks. The FNArena-Vested Equities All-Weather Model Portfolio owns shares in Telstra and Woolworths, which has most certainly compensated somewhat for the falls elsewhere.
However, a big chunk of the funds that are today hiding in these share prices is only temporary a fan and share prices in many cases are looking relatively fully valued as a result of said portfolio rotation.
These are no longer the stocks to chase when putting new money into the market.
In addition, UBS’s research has simply looked at the past. Its list includes a number of healthcare stocks that this time around have not been the same safe havens from the past.
Hence, all of ResMed ((RMD)), CSL ((CSL)), Cochlear ((COH)), Ramsay Health Care ((RHC)) and Sonic Healthcare ((SHL)) have experienced ongoing share price weakness since the start of the war (and prior).
The same observation applies to Computershare ((CPU)). Iress ((IRE)) is also on UBS’s historical list, as is the ASX ((ASX)).
The one key counter-argument to this observation is the market’s first focus has preferenced inflation over weakening growth, and this was also expressed through a strong Aussie dollar.
If the war goes on for longer, and oil supplies remain significantly disrupted, a shift in market focus could well re-ignite interest in higher-multiple defensives that offer less risk operationally.
Stock pickers at Ellerston prefer to ignore the market’s short-term flight to defensive safety and focus instead on “high-quality companies with resilient balance sheets, clear pricing power and multiple drivers of sustainable growth”.
Ellerston’s press release only mentions one recent addition to the Micro Cap Fund; Queensland’s construction materials provider Wagner’s ((WGN)).
Having traveled through hell and back (proverbially) before and after covid, that share price has remained on a firm uptrend since the third quarter of last year.
More All-Weathers Exposure?
When it comes to high quality companies with ongoing strong growth prospects, I’d of course recommend everyone take a peak at my curated lists on the website.
https://fnarena.com/index.php/analysis-data/all-weather-stocks/
Most have had a terrible time over the past nine months or so and it happens quite regularly that I am truly shocked by how low share prices have fallen.
Then again, it’s not the first time the market’s momentum pendulum has switched into the opposite direction and it probably won’t be the last time either.
A properly diversified portfolio should be able to much better cope with these sharp swings in fund flows, unlike the All-Weather Portfolio which has its restrictions in this regard.
To those who might not have read my Weekly Insights from early March, prior staple in my All-Weather selection, CSL ((CSL)) is no longer included.
This does not mean today’s share price doesn’t look ‘cheap’ or this company will never again experience better times, but I now believe the moniker of ‘All-Weather’ has become a misnomer when applied to this truly struggling Australian icon.
Many more companies have been removed since I started my research in the later stages of the GFC, back in 2008-09.
Names that come to mind are Ansell ((ANN)), Ramsay Health Care, and Seek while today’s car crash business (pun intended) Bapcor ((BAP)) was once selected as a potential future All-Weather stock.
Things change, even without covid, AI and/or oil affected by war in the Middle East.
I have also used the opportunity to add two new names to my list of Emerging New Business Models. Of course, I do think both Energy One ((EOL)) and Generation Development ((DGD)) should be on investors’ radar.
Energy One, with a market cap of $400m-plus, is to date only included in two key local indices; the All-Ordinaries and All-Tech index.
This company provides end-to-end software, outsourced operations, and advisory services for wholesale energy, environmental, and carbon markets, serving over 450 customers across 30-plus countries.
Its core advantage is a flexible, fast-to-implement one-stop-shop platform that simplifies complex energy trading and operational requirements. Analysts believe growing renewable penetration increases system volatility and complexity, strengthening demand for Energy One’s mission-critical tools and services.
Equally important: it seems quite difficult to envisage how AI can destroy its business case. Instead, management is applying AI to accelerate productivity gains and development of new tools and applications.
There has been cyberattack vulnerability in the past and management has since spent -$2m over roughly two years to achieve ISO 27001 certification, the main international standard for an information security management system (ISMS).
Currently, the stock is covered by three brokers inside the FNArena universe and all have positive views, backed up by price targets well above today’s share price.
As a small cap, market sentiment needs to improve noticeably before this share price is likely to ever close the current gap.
But as a wise man once said: nothing lasts forever, especially in financial markets. Patience seems but the necessary ingredient.
Generation Development has gone through a major transformation in recent years, not dissimilar from Energy One’s, and this also explains that big bump on share price charts up until September last year.
The trajectory since has been nothing but brutal.
Make a note: small caps will break your heart during the tougher times on the market. Now the share price is so far below valuations and price targets, it is almost impossible not to see this as a great opportunity (though patience might still be required, just as with Energy One).
For those not familiar, Generation Development is the number one player locally for investment bonds, a niche for which demand is helped by tax and retirement tailwinds, plus growing interest in tax-effective and longevity solutions.
Acquired Evidentia is the local market leader in managed accounts. The third engine, Lonsec, provides research and ratings to investment professionals.
The big announcement was a strategic alliance with BlackRock to co-design retirement solutions, with BlackRock taking a $25m minority stake on a five-year lock-up.
As shown in recent result releases, there is constant risk for not quite meeting high expectations, but the current share price should take care of that, plus some.
That assessment is backed up by seven Buys out of seven brokers currently available through Stock Analysis on the website.
I believe both small caps have potential to grow above the mainstream and offer investors a slice of ‘special’, similar to what the likes of ResMed, TechnologyOne ((TNE)) and WH Soul Pattinson have done over multiple decades, and what I hope a company like Sigma Healthcare ((SIG)) will be able to achieve in the decade(s) ahead.
Keep believing there will be better times ahead, exact timing as yet unknown, and make this crisis your next best opportunity.
(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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