Thoughts on REA, CAR, & WES please

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Question asked 03/02/2024

Thoughts on REA, CAR, & WES please

Acknowledging your views on moving down the risk curve and that REA, CAR and WES have rallied hard of late would these also be stocks you’d be looking to exit if they were in the portfolio? If rates begin to be cut over the coming 12 months this could ignite the property market resulting in more listings volume for REA, potentially creating a new leg higher. CAR and WES both very solid businesses but both valuations seem fully priced IMO.

Answer

Hi Scott,

As you say these are 3 stocks which have performed strongly over recent months although we are leaning towards your fully valued perception:

REA Group (REA) – we took profit in REA last year for our Active Growth Portfolio, again too early in hindsight but today it feels fully valued above $180. We will not be chasing it at these levels and agreed with the CLSA note this week which moved the stock to a sell rating.
CAR Group (CAR) – we haven’t owned CAR in recent times but believe it’s a quality business but it’s stretching its valuation ~$33.50. They are expanding internationally with solid metrics, having more success than say Seek (SEK), so they do justify a premium but currently, we think it’s a sell.
Wesfarmers (WES) – We sold WES in our Active Income Portfolio in late 2023 on valuation ground after an impressive run which has extended a bit further in-line with the ASX. We remain of the view that its still too expensive for the business that it is. At the time, we sold WES at ~$54 and bought ORA at $2.54, both are up about 9% from then, but we see more upside in ORA going forward (noting it’s a different business)

In line with our current defensive stance, we believe these 3 stocks are on the rich side, and we have no intention of chasing any of them, but we are also conscious that fighting strong trends too aggressively is tough, so further upside cannot be ruled out.

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REA Group Ltd (REA)

LAST UPDATED 02/02/2024 19:19

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