Our Q&As are emailed in our Saturday Morning Report, find the answer to this question below.
Hi guys, Once again, thank you for all your reports and insights. After the surge CAT and WTC have experienced recently, do you think there is still gas to go higher in the short term? What would your price targets be for each one? Do you see more upside potential on other tech stocks at this stage?
Hi Dario,
The short-term outlook for the broader tech sector remains bullish into Christmas, supported by a combination of falling oil prices and declining bond yields. The semiconductor and data centre space is a little more clouded, however, with the Democrats now controlling the House and Senate, alongside key states such as Texas, where around 30% of planned future data centre construction was expected to take place.
Software stocks, on the other hand, look considerably more straightforward in our view. Pro Medicus (+10%), Xero (+10%), CAR Group (+9%) and WiseTech (+4%) – all MM holdings – powered higher on Thursday following their respective mid-term results. It’s a very different picture to the past 12 months, when sentiment towards the software sector was considerably more subdued.
Ultimately, earnings will determine the performance of individual stocks, but at a sector level, we believe the software names are well positioned heading into Christmas.
Turning to the two stocks you’ve highlighted, CAT and WTC, our specific targets are as follows:
Catapult (ASX: CAT)
We remain fans of the business as it continues to grow revenue while, importantly, beginning to convert that growth into stronger earnings and cash flow. This is an encouraging combination and one we believe the market should increasingly reward.
WiseTech Global (ASX: WTC)
We continue to like WiseTech as a quality business, underpinned by 95% recurring revenue, substantial margins and the strategic importance of its CargoWise platform. However, for the stock to achieve a meaningful further rerating, we need to see a reversal in the slowdown in organic growth.
Overall, we remain constructive on both stocks, although WiseTech needs to demonstrate a clearer improvement in organic growth to unlock its next leg higher.
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