Viewpoint: Bullish
MSFT is trading up over 5% in the after-market following its result this morning at 8am, the company beat estimates on the EPS (earnings per share) front even while revenue missed slightly. The market appeared happy that MSFT are investing $10bn into ChatGPT Maker OpenAI believing that Artificial Intelligence remains the future for many industries.
The big change in the portfolio this week was the scrip takeover of Pendal (PDL) which sees Perpetual enter the portfolio. After the acquisition, Perpetual now run $200b in assets alongside an attractive and stable Trust business. Perpetual announced further outflows from their funds over the December quarter, however, the bulk of the redemptions…
Gold has rallied along with risk assets on optimism that the inflation genie will be successfully put back in the bottle by central banks although we expect another couple of optimism/pessimism cycles will unfold on this front through 2023/4.
The US S&P500 Value Index is less than 5% below its all-time high while the Growth index continues to languish a painful 28% below its equivalent milestone. We may have seen the likes of Netflix (NFLX US) double in 6 months but they remain significantly below their late 2021 high. As subscribers know with interest rates soaring from their ultra-accommodative levels post Covid to arguably the new norm investors shouldn’t be surprised by the market rerating of the growth stocks.
SFR +0.8%: the copper miner put out a reasonable set of 2Q production numbers today helping to support the stock. Copper production came in at 20kt for the quarter, almost 30% below 1Q23, however, they remain on track to hit guidance of 82-91kt for the full year given more than half of that is in the bank already. Zinc production was flat while Lead and Gold fell, though guidance was maintained again. Costs were the main concern at $US1.77/lb, above guidance of around $US1.74/lb, though the second quarter is a seasonally lower period of production which lifts average costs. MM recently trimmed our position in Sandfire, though we still remain long across 2 portfolios.
Insurance broker AUB continues to trade strongly having rewarded investors who backed its $350mn capital raise at $19.50, back in June, to fund the acquisition of Tysers for $880m. The company continues to deliver and in August they forecast that organic growth would help drive NPAT up ~20% for FY’23 compared to FY22
Technical testing stock ALQ has performed strongly post-COVID including growing revenue by 24% in FY22, considering its performance a valuation of 20.4x FY23 earnings isn’t too prohibitive while an estimated 3.5% yield is supportive. This company provides essential testing, inspection and certification for other companies including the mining industry which MM is bullish about over the coming years.
GUD Holdings Limited owns a portfolio of companies in the automotive aftermarket and water products sectors, they downgraded earnings last June and the stock hasn’t recovered since in line with the trend through 2022 where the market simply didn’t tolerate earnings misses. At the time supply chain issues and the slowing new car market was blamed so, in theory, this should be improving which is why the stock has crossed our radar.
US stocks and especially the influential tech stocks are starting to enjoy a return to calm in bond markets as inflation expectations recede. Very early 4th quarter company results show that US stocks are on track to miss expectations by only 1% which isn’t too bad considering the decline in most pockets of the index i.e. stocks are pricing in worse.
MM is currently long Seek (SEK) and REA Group (REA) looking for a recovery in tech stocks, both of which are looking ok however another play on a similar theme would have been CAR which rallied +1.6% yesterday, it looks very capable of testing its 2021 all-time high.
