Rudi’s View: Small Cap Favourites, AI & More

Rudi's View | 5:32 PM

Freshly updated stock picked sector favourites, Best Buys and Conviction Calls in Australia.

By Rudi Filapek-Vandyck, Editor

Remember Charlie Aitken?

There have been times when his daily market commentary, written from the institutional desk at Bell Potter, was treated as gospel by just about everyone inside and outside the local investment community.

I am exaggerating, but not by much. The only equivalent that comes to mind is Richard Coppleson’s The Coppo Report, nowadays also produced at Bell Potter.

Charlie’s first attempt to monetise his widespread fan base involved starting an investment newsletter, but not enough subscribers signed up, so the project was quickly kiboshed.

Charlie turned himself into a fund manager next, but ultimately had to concede that life as a commentator on the sidelines is many times easier.

There would have been plenty of schadenfreude across the industry when that project, too, was foiled.

There was a lot of upheaval in Charlie’s personal life as well, but I’ll leave those details to the gossip columns in the mainstream media.

Eventually, Icarus was welcomed back to Bell Potter, but Charlie has since relocated to Regal Partners, where, as Group Investment Director, he is back to sharing investment ideas and market observations.

His endeavours, and life generally, might not have played out as planned, but with more than three decades of share market experience under his belt, Charlie still provides valuable insights for the average investor.

This week, his focus turned to the local share market, a source of persistent agony for so many investors (evidence: my daily feed on X).

I thought it worthwhile to share the core of Charlie’s advice:

“The hardest part of equity asset class investing is holding your conviction when short-term price action is against you.

“In a world where equities trade like ‘confetti’ on a daily basis due to market structure changes and high levels of retail investor (trader) participation, alongside unprecedented leverage being used by the major hedge fund platforms (traders), it’s not easy to hold your nerve when the consensus narrative is against you.

“However, when literally everyone is a ‘trader’, you have to be an ‘investor’.

“In 33 years of doing this, I can’t remember a ‘non-crisis’ period of single-stock volatility as extreme as what we are witnessing today.

“It is absolutely extraordinary, but that must mean there is genuine investment opportunity amongst this volatility for anyone with more than a one-day view.”

Charlie notes that current market dynamics have opened up a wide gap between large caps and smaller caps on the ASX, raising questions about the value of the relative safety ascribed to the top end of the index while the rest of the bourse is left languishing.

Not only is the smaller end of the ASX far cheaper, but its growth outlook also appears considerably more attractive, particularly, Charlie writes, among companies with a high percentage of global revenue.

Australian large caps, on the other hand, are currently seen as offering neither value nor growth, while a key risk is that they hit “air pockets” due to the high level of passive ownership.

Charlie’s conclusion:

“This is certainly not an easy period, but in my experience the seeds of future returns are planted in periods of high volatility, uncertainty and weak sentiment.

“That is right now in Australian small companies.”

Best Buys & Conviction Calls

Citi has a negative view on retailers, with the Fair Work Commission’s recent decision to increase FY27 retail store wages by 4.75% further depressing its forecasts for the sector.

Citi’s top pick for the sector remains JB Hi-Fi ((JBH)), with the fine print suggesting the company is least at risk of disappointing in August.

Citi retains a preference for Coles Group ((COL)) among supermarket operators, though a potential acquisition of Greencross is seen as a negative.

Over at Macquarie, the preference remains with Sigma Healthcare ((SIG)) and, for long-term upside, JB Hi-Fi ((JBH)).

Macquarie continues to see downside risk for Endeavour Group ((EDV)) and Inghams Group ((ING)) heading into the August results season.

The broker also prefers Coles over Woolworths and sees Greencross as a key risk for the Coles share price. Within staples, Macquarie’s favourite is Bega Cheese ((BGA)).

At RBC Capital, the three sector favourites are Coles Group, Super Retail ((SUL)) and Guzman y Gomez ((GYG)).