15 Macquarie analysts name their top ASX stock pick for FY23

Hans Lee

Livewire Markets

We've all heard the thesis before - this is an active investor's market. Index picking is not good enough, and it could be argued that sector picking just doesn't work right now. The same could be said for bonds, currency, and even alternatives investors. But when only individual stocks will do, how does one separate the good, from the bad and the ugly?

Here in Australia, we also have an extra layer of complexity to deal with, given the ASX 200's market capitalisation is heavily weighted to the banks and resources sectors. 

So which stocks will make the grade, and which ones will be left in the dust? The team at Macquarie Group asked their top equity analysts to provide them with some insights on exactly that. This wire is the compilation of those views - a smorgasbord that they say is designed to weather the intense volatility which is coming.

Wait, more volatility?

The following list has a very important caveat in it - it's a list designed to weather more volatility and wild intraday moves ahead. The core view of the Macquarie equities team could be summarised as "opportunistic but not bullish". 

In their recent ASX 200 note, they made three key points for why the broader market is still expensive:

    • Industrial equity P/Es are still high
    • The ASX is in the middle of an earnings downgrade cycle
    • Central bank tightening won't stop anytime soon - and a US recession is likely imminent

All this put together suggests that equities need to be given an underweight position in your wider portfolio, right? Not so say these analysts - of the 15 names in this list, 14 are rated an outperform. Their optimism suggests that volatility brings opportunity, so long as you know what you are buying.

The top 15 names

Source: Macquarie Group
Source: Macquarie Group

Highlights: The top end of town

The ASX top 100 list is a coveted one - the biggest names and most well-recognised companies in the country belong on that list. But just because Telstra is a top dividend payer again doesn't mean it's worth including. Having said that, all these picks are long positions bar one (Wesfarmers is a sell, for reasons we'll get into later). If you also look closely, you'll notice many of these companies also have double-digit upside to their share price. The highlight of these is James Hardie (ASX: JHX), which could see upside of 77%! 

Now that's bullish!

Some familiar names are on there and for familiar reasons. CSL (ASX: CSL) has been picked for what analysts believe is a looming recovery in plasma collections, benefits from the Rika platform, earnings from the recent Vifor Pharma acquisition, and contributions from pipeline products. 

Origin Energy (ASX: ORG), Santos (ASX: STO), and Worley (ASX: WOR) were all picked for their exposure to the energy supercycle. Electricity prices continue to skyrocket and crude oil prices have remained elevated in spite of recent pullbacks over concerns about Chinese demand. Plus, the energy transition is still a long-term theme, and Worley is often flagged as a company on the cutting edge of all that.

But there are other names getting a mention, including IDP Education (ASX: IEL) which has been tagged as a company with a high return on invested capital and plenty of cash at the bank. If more students also return to the country's university campuses following the pandemic, that will be a big boost for IDP's place in the market. 

The only sell: Wesfarmers (ASX: WES) 

The one sore spot on this list is consumer-centric conglomerate Wesfarmers. And just by me saying that, you almost already know why this stock may be on an underperform rating. Analyst Ross Curran argues that rising rates and biting inflation will take their toll on the consumer over the medium term.

Wesfarmers revenues are skewed to ‘mortgage belt’ Australia, leaving it exposed to reduced consumer spending in the event of an economic slowdown. The industrials business could offset some of this risk, but Ross believes these are lower quality earnings.

Highlights: The small(er) end of town

Not all opportunities reside in the big end of town, and we know that from your love of small and micro-cap content on the Livewire website. While these selections aren't exactly "small", they are emerging names that the team has hand-picked for this part of the cycle. 

The two immediate themes that stick out in this list are the evolution of travel in the post-COVID-19 era as well as the dominant names emerging in the resources space.

On travel, Auckland International (ASX: AIA) and Kelsian Group (ASX: KLS) immediately stand out. In the case of AIA, analyst Warren Doak argues that the airport's stock has earnings momentum, shareholder momentum, and most crucially, traveller momentum. The passenger forecasts are looking very healthy through the end of FY23 into FY24, where its pre-COVID-19 peak will likely be eclipsed. Meantime, Kelsian is not just a travel play, it could also be an M&A target with analysts arguing that the company can hedge its costs (especially on those all-important bus routes) while raising prices on its marine offerings. 

In the resources sector, it's a bevy of options ranging from Gold Road (ASX: GOR) (mining the historic safe haven), Centaurus Metals (ASX: CTM) (mining new-age nickel), and Coronado Global Resources (ASX: CRN) (which harnesses the ongoing bull market for coal). The one thing they all have is that they are all highly leveraged to their respective commodity spot prices. While that's not true for gold in recent times, that is particularly important for Centaurus Metals and Coronado Global Resources. In the case of CRN, analyst Jon Scholtz argues that the company could pay out - get this - a 50% yield.

And sometimes, you can't argue with the numbers.

The odd one out is an unusual one - Megaport (ASX: MP1) is the top pick of analyst Wei Sim, as the company moves to cash flow positive mode over the next few quarters. And as the free money rolls off, the race to make that happen is more important than ever.

My colleague Ally Selby actually covered MP1 for its full-year report, and you can read all about that in the link below:

The local tech darling growing faster than Amazon, Microsoft, and Google

So that's it...

15 names. 14 buys and one sell. I know, I hear you loud and clear, dear reader. Will any of these be checked and verified as the market rolls on and risks turn to uncertainty? Will sentiment change so much that some of the more defensive names on this list roll over? 

Stay tuned is my advice. 

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Hans Lee
Senior Editor
Livewire Markets

Hans leads the team's coverage of the global economy and fixed income. He is the creator and moderator of Signal or Noise, Livewire's multimedia series dedicated to top-down investing.

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