17 stocks the WAM analysts rate and 11 they don't

Wilson Asset Management

Wilson Asset Management

As we attempt to settle into the new 'normal' post lockdown, there is a light at the end of the tunnel with the Australian stocks powering ahead, with some sectors of the share market pushing all-time highs. 

That said, these Wilson Asset Management analysts see better outcomes from certain sectors - particularly in the realms of commodities, education, retail and healthcare - as the country pulls away from recession fears and industries adapt to a new sense of freedom. 

In this 'Buy, Hold, Sell' episode of the WAM Vault series, Will Thompson and the team of analysts at Wilson Asset Management take a look at the stocks they think will benefit from the reopening - which include prominent plays South32, Ramsay and IDP Education - as well as a few names which could struggle in the current climate.


Edited Transcript

Will Thompson: Hello. I am Will Thompson and welcome to our second Buy, Hold, Sell Analyst Forum. Today I am joined by my colleagues, Sam Koch, Shaun Weick, Will Liu, Anna Milne and Cooper Rogers.

We are going to start today with Shaun with Marley Spoon (ASX: MMM). It has been topical over the last little period. Buy, hold or sell?

Shaun Weick: Marley Spoon is a sell for us. The company has benefited significantly throughout the pandemic as consumers have stayed home with meal kits. Going forward, we think the demand environment is increasingly challenged with the reopening and we think the market will struggle to find a base for what the new normal is. It is a sell for us.

Will Thompson: Anna, South32 (ASX: S32). Made a move into base metals. Buy, hold or sell?

Anna Milne: South32 is a buy. South32 is in the process of transitioning to a low carbon future. We really like its recent foray into copper with its interest in the Sierra Gorda copper mine in Chile. It is offering a double digit dividend yield. It has a strong balance sheet and it is an inexpensive way of gaining exposure to the green energy transition.

Will Thompson: Sam, Ridley (ASX: RIC). Buy, hold or sell?

Sam Koch: Ridley is a buy. Ridley is one of Australia’s largest animal stock feed processors. What the market is missing there is the fact that the new Chief Executive Officer has made a number of changes operationally and also divested some assets in highly competitive markets. We believe that this in turn has increased margins, increased return for shareholders, and it is not reflected in the current share price. Ridley is a buy.

Will Thompson: Will, what about Facebook (NASDAQ: FB), or Meta as it has now become. Buy, hold or sell?

Will Liu: Facebook is a sell for us. If you look at Mark Zuckerberg, he had 28% of Facebook at its initial public offering (IPO), that has come down to 14%. The environmental, social and governance (ESG) issues are very well known now. If you look at the latest internal leaked documents, we have seen teenagers move away from their platform in the US and we think that is quite telling. Facebook is a sell.

Will Thompson: Cooper, Monadelphous (ASX: MND). Buy, hold or sell?

Cooper Rogers: Monadelphous is a hold for us. It is an engineering group that is going to benefit if Mark McGowan ever opens the borders to Western Australia again. I am hoping that happens before Christmas so I can see my Mum. It is currently trading on five-year lows. Given the fact that Mark is going to eventually have to open the borders, we think that this half represents the low-end margins. These will improve in subsequent years. It is a hold.

Will Thompson: Anna, what about Wesfarmers (ASX: WES). I have spent a lot of time in supermarkets recently. Buy, hold or sell?

Anna Milne: Wesfarmers is a hold for us. Bunnings is widely known as the best business in Australia. We think the Kmart Group will benefit as its smaller competitors are disproportionately impacted by stretched supply chains and stretched balance sheets going into the Christmas period. However, it is still trading at close to all-time highs and the stock is not without risk. For us it’s a hold.

Will Thompson: Will, Intel (NASDAQ: INTC). Buy, hold or sell?

Will Liu: Intel is a sell. Intel is an integrated device manufacturer for computer components. We have question marks over management’s capital allocation strategy. They are spending $20 billion to go into the manufacturing of semi-conductors and we don’t think that is a sound strategy, given it is significantly behind its competitors, TSMC (NYSE: TSM) and Samsung (KSE: 005930), and we don’t think we are going to see commensurate returns on invested capital flowing through. Intel is a sell.

Will Thompson: Shaun, ALS (ASX: ALQ) had a really good run this year. Buy, hold or sell?

Shaun Weick: Just wanted to say Anna, Bunnings snags are definitely a buy.

ALS is a buy for us. Ahead of its first half FY2022 update in November, the backdrop for commodity exploration remains very strong. The company is increasing its capacity by 15%. You are seeing price increases go through and you are also seeing the mix evolve towards the junior miners. We think the operating leverage in this business is underappreciated. We also think the peers are providing a good read from the life sciences side which we think will also benefit from bolt-on mergers and acquisitions (M&As). That one is a strong buy for us.

Will Thompson: Cooper, Mincor Resources (ASX: MCR). Buy, hold or sell?

Cooper Rogers: Mincor is a buy. One of our favourites. It is a soon-to-be nickel producer with upside risk for exploration. It is located just down the road from BHP’s (ASX: BHP) nickel concentrator and their smelter. Its strategic location provides it with strategic value as well. It is a buy from us.

Will Thompson: Sam, Bravura Solutions (ASX: BVS). Buy, hold or sell?

Sam Koch: Bravura is a sell for us. Industry feedback suggests that its end markets are slowing. The recent wage inflation is really impacting that business. The demand for technology and engineers is huge. We think that margins are coming down at a time when sales are slowing. It is a sell for us.

Will Thompson: Will, Dollar General (NYSE: DG). Famous for selling very cheap products in the US. Buy, hold or sell?

Will Liu: Dollar General is a hold. We really like the business. We really like the management team. They have an exceptional track record in increasing the store footprint whilst delivering same store sales growth. We think that it sees a number of headwinds right now due to inflation, from both the product and wage side of things, and it is starting to cycle some strong comparable sales.

Will Thompson: Cooper, Karoon Energy (ASX: KAR). The energy names had a really good run this year. Buy, hold or sell?

Cooper Rogers: Karoon for us is a buy. It is a pure oil play based in Brazil. As you mentioned Will, energy and oil names are very hot property at the moment and they are very well-liked by the market. This also fits our investment process because it has upcoming catalysts. It has a well intervention program that is due for the second quarter next year. It also has endless M&A opportunities as Petrobras continue to divest their assets in Brazil.

Will Thompson: Shaun, Lovisa (ASX: LOV). Buy, hold or sell?

Shaun Weick: Lovisa is a hold for us. It is a buy on any pullback. We really like the business. Obviously the departure of the current Chief Executive Officer and Founder Shane Fallscheer was disappointing. But the incoming Chief Executive Officer Victor Herrero looks very capable. He has executed on global roll-outs in multiple markets that you are seeing Lovisa look to expand into. Going forward, we think it will be a strong beneficiary of that reopening trade and there is capacity for the store base here to more than quadruple. If you look at the incentive package of incoming Chief Executive Officer Victor Herrero it suggests that the growth outlook for this business is very strong. We are a hold for now, but we will be buyers on any pullback.

Will Thompson: What about Westpac (ASX: WBC) Anna? Buy, hold or sell?

Anna Milne: Westpac’s underperformed its peers recently but we think there is further to go so it is a sell.

Will Thompson: Sam, Reece (ASX: REH). One of the great family businesses on the ASX. Buy, hold or sell?

Sam Koch: It is. Reece is a hold for us. We believe that their recent inclusion in the ASX top 100 companies has pushed the valuation beyond where we think is reasonable at this time. Obviously it is a high quality business as you said. It is a buy on any pullback.

Will Thompson: Anna, Ampol (ASX: ALD). Buy, hold or sell?

Anna Milne: Ampol is a buy. We think as New South Wales and Victoria reopen there is going to be an increase in retail fuel volumes and jet fuel volumes as we get on planes more. We also really like its recent acquisition of Z Energy, a great New Zealand company. It is strategically sound, and is mostly debt funded, so very accretive on an earnings and free cash flow basis. It is a buy.

Will Thompson: Shaun, Accent Group (ASX: AX1). Buy, hold or sell?

Shaun Weick: Accent Group is a buy for us. It is also a buy for the office in general with the amount of sneakers that are getting round here these days. We think demand is going to bounce back really strongly as the stores reopen. If you have a look at the footprint projections for this business, you have 10% to 15% growth per annum in the footprint, and then you have some of the newer less mature concepts, like Stylerunner, that are driving the roll out from here. We also think the acquisition of Glue provides a lot of potential upside through a turnaround. You have Brett Blundy on the register now. He has done it before with Universal Store. We think there is a blueprint in the place there. It is a buy for us.

Will Thompson: Cooper, Imdex (ASX: IMD). Buy, hold or sell?

Cooper Rogers: Imdex is a hold. Imdex is a global leader and it is a mining technology company. It has significantly improved its earnings over the last few years into a high quality bracket. But as a mining technology company, it is commanding a very high multiple. It is a hold for now.

Will Thompson: Will, Ströer (ETR: SAX). Buy, hold or sell?

Will Liu: Ströer is a buy. Ströer is a German marketing advertiser. It is the largest in Germany operating over 300,000 advertising sites. The opportunity with Ströer is that as mobility increases it will be a key beneficiary. It is rolling out their digital advertisement screens and these digital advertisement screens have four times the revenue of the traditional advertising sites and we think it is still early on its penetration. Ströer is a strong buy from us.

Will Thompson: Sam, Netwealth Group (ASX: NWL). It has been a busy few weeks in the news. Buy, hold or sell?

Sam Koch: Fortunately we have benefited through Praemium (ASX: PPS) as well. Netwealth is a hold for us at this stage. Obviously it is part of those independent specialist platform providers that are taking aggressive share from the likes of IOOF Holdings (ASX: IFL), AMP (ASX: AMP) and Westpac-owned BT Panorama. What is happening in the market in terms of the consolidation of the sector highlights that there is a lack of meaningful organic growth from here, and that has not been reflected in the current share price. It is a hold for us.

Will Thompson: Will, what about Lowe’s (NYSE: LOW). Buy, hold or sell?

Will Liu: Lowe’s is a buy on the theme of Bunnings. It has quite a similar business in the US. It is the second largest home improvement retailer in the US. The key thing for us is we highly rate the new Chief Executive Officer Marvin Ellison. He has done a fantastic job in terms of turning around the business and driving same store sales growth. He has implemented new systems for supply chain management, inventory and pricing. We are starting to see those margin tailwinds come through. Lowe’s is a strong buy from us.

Will Thompson: Sam, DGL Group (ASX: DGL). It IPO’d earlier in the year. It has been flying. Buy, hold or sell?

Sam Koch: DGL is a buy for us. DGL is a chemical manufacturing and logistics company which recently IPO’d. It is a business out of New Zealand and it raised a $100 million and the Founder didn’t sell a single share. We like that a lot at Wilson Asset Management. They raised that money for a number of accretive acquisitions, and it is deploying that into a highly fragmented market. When you back out the property from the valuation at this stage, we believe it is still trading on a compelling value. We see a re-rate coming as it deploys those proceeds into further acquisitions and upgrade prospectus forecasts. Buy.

Will Thompson: Shaun, what about e-commerce retailer, Redbubble (ASX: RBL). Buy, hold or sell?

Shaun Weick: Redbubble is a sell for us mate. Looking at the first quarter FY2022 update its sales were down approximately 30%. This is a coronavirus beneficiary. We are reopening now, hopefully we won’t be wearing masks for too much longer which they had a significant benefit from. Redbubble is a sell.

Will Thompson: Cooper, Metcash (ASX: MTS). Buy, hold or sell?

Cooper Rogers: Metcash is a sell. Again it has been a coronavirus beneficiary. It had a pull-through in earnings as everyone has had to stay at home. It now trades on a lofty multiple of 17 times. Although it is one we will keep a close eye on. It is getting leveraged to the booming Australian housing market by increasing its hardware segments. We are going to keep a close eye on that.

Will Thompson: Will, Amadeus IT Group (BME: AMS). Buy, hold or sell?

Will Liu: Amadeus is a hold for us. Amadeus is a beneficiary of the travel recovery which we are still very bullish on. The key thing for us is that corporate revenues represent 30% of the business. We think that is going to be slower to recover. We still like the travel exposure. We have talked about Booking.com as our preferred exposure in the past. Amadeus is a hold.

Will Thompson: Anna, what about Ramsay Health Care (ASX: RHC). It has had a turbulent year. Buy, hold or sell?

Anna Milne: Ramsay is a buy. You are exactly right it has been a difficult couple of years given the on and off suspension of elective surgeries globally. However looking forward it now has an unprecedented back log of surgeries and we think volumes are going to be stronger for longer. We also think it is compelling from a valuation perspective. Similar to what Sam said, when you back out the land portfolio it has around $8 billion Australian land portfolio, which implies that the operating business is trading on eight times earnings before interests, taxes, depreciation and amortisation (EBITDA) and for a defence company like Ramsay that is extremely cheap. We see opportunity for both earnings upgrades and a valuation re-rate from here. Ramsay is a buy.

Will Thompson: Sam, MyState (ASX: MYS). Buy, hold or sell?

Sam Koch: MyState is a buy. MyState is a bank out of Tasmania rapidly growing their presence across the East Coast of Australia. We recently participated in a capital raising that the business did. It is looking to deploy those proceeds in a way that will grow the loan book over time and we think it could almost double the loan book over the next couple of years. MyState is a buy.

Will Thompson: Cooper, what about Super Retail Group (ASX: SUL). A lot of time been spent outdoors recently. Buy, hold or sell?

Cooper Rogers: Super Retail is a sell. It is a business that again has experienced a massive pull-forward in demand through coronavirus. We think this will subside in the later years. It even holds my favourite store Boating, Camping and Fishing, and I am still not recommending it because I for one know that I am going to be swapping my camping purchases for plane tickets next year.

Will Thompson: Shaun, Credit Corp (ASX: CCP). Buy, hold or sell?

Shaun Weick: Credit Corp is a buy for us. Purchased debt ledger (PDL) volumes have been depressed as a result of the pandemic but we think as the economy reopens and the stimulus benefits unwind you will see a pickup in credit growth activity. Management have done a great job through the pandemic in the US in terms of growing flow share which has more than tripled. As those volumes recover we can see a very strong growth trajectory for that US business. We have that one as a buy.

Will Thompson: Anna, what about Scentre Group (ASX: SCG). Buy, hold or sell?

Anna Milne: Scentre Group is a hold for us at the moment.

Will Thompson: Will, NASDAQ listed ICE (NYSE: ICE). Been a crazy few months for it. Buy, hold or sell?

Will Liu: Intercontinental Exchange is a buy for us. They are one of the largest exchange providers for global commodities and financial products.

Will Thompson: Cooper, Jumbo Interactive (ASX: JIN). Buy, hold or sell?

Cooper Rogers: Jumbo is a hold for us. While this online lotteries re-seller is benefitting from the gradual movement from physical to online purchases of lottery tickets, we still have Jumbo as a hold. It is yet to prove out its software as a service (SaaS) model as it is licensing its ticketing platform to overseas operators. It is a hold for us for now.

Will Thompson: Sam, Novonix (ASX: NVX). Buy, hold or sell?

Sam Koch: Novonix is a sell for us. Last time I checked, because the share price has been rallying, it has a $4 billion market capitalisation and it printed $2 million of revenue last quarter. The valuation is extreme. It is a sell for us.

Will Thompson: Shaun, a2 Milk (ASX: A2M). Had a funny little period. Buy, hold or sell?

Shaun Weick: Very divisive stock. I hate to say, but hold. The recent strategy day did see management significantly rebase expectations. We think they have set a bar that they will be looking to beat going forward. We just think a2 Milk is lagging peers by about a quarter in terms of rebalancing those inventory levels and then seeing the underlying sales trajectory improve. So we think the incremental data points from here will show the business is on a more positive trajectory. The return of Daigou or international students to Australia is upside from here. We think it is a hold for now.

Will Thompson: Will, Trigano (PAR: TRI). Buy, hold or sell?

Will Liu: Trigano is a sell. Trigano is a French manufacturer of recreational vehicles, RVs. We really liked the business for a long time. It has been an astounding performer in our portfolio. But leading up to its latest earnings result we became concerned about the shortage of auto components and inflation, whether they could pass that through in terms of pricing. We have since exited the position. Trigano is a sell from us.

Will Thompson: Shaun, City Chic (ASX: CCX). Buy, hold or sell?

Shaun Weick: City Chic is a buy for us. This business has transformed itself into a global plus size retailer house of brand strategy. If you look at what is happening in the US at the moment the volumes across the websites are significantly accelerating and we think that is a strong lead indicator for this business as Australia progressively reopens. The company has done a great job in terms of expanding their marketplace strategy, recently rolling out on the likes of Target, Amazon and Walmart. Going forward we think that aspect of the business is underappreciated. We have this one as a buy.

Will Thompson: Anna, Qantas (ASX: QAN). Buy, hold or sell?

Anna Milne: Very keen to get back, but the flying kangaroo is a hold. We do expect it will clearly see a significant benefit as borders reopen but it is in the price.

Will Thompson: And what about Coles (ASX: COL). You said Wesfarmers was a hold. Buy, hold or sell?

Anna Milne: Similar to what Cooper said with Metcash. We just prefer to play the supermarket exposure, we think we only need one, and we play it through Woolworths. Woolworths is better on almost every metric. They are gaining market share and they are a lot further along in the e-commerce journey. We prefer Woolworths. Coles is a sell.

Will Thompson: Will, SAP (NYSE: SAP). Buy, hold or sell?

Will Liu: SAP is a hold. SAP is a German software company. They are transitioning their business model right now from licences to Cloud. We think the management team is very competent and they can probably achieve their long-term ambitions. However, it is trading at the top end of its valuation range. Operating profits are expected to be flat over the next couple of years. We just don’t think it looks very interesting right now.

Will Thompson: Cooper, another mining exposed company, Austin Engineering (ASX: ANG). Buy, hold or sell?

Cooper Rogers: Austin Engineering is a buy. Austin designs and manufactures dump truck bodies. They reduce fuel emissions, reduce decarbonisation efforts for these miners and increase overall efficiency for these miners. It has multiple catalysts coming up. It has a three stage strategy. One is cost out, the next is a move to flow manufacturing and then an increased focus on new technology and products. This is all led by David Singleton who is the ex-Austal Boats Chief Executive Officer. We back him to improve this company. It is a buy for us.

Will Thompson: Sam, what about Lifestyle Communities (ASX: LIC)? Buy, hold or sell?

Sam Koch: Lifestyle Communities is a hold for us. Similar to what I said on Reece, Lifestyle Communities is a cracking company, but it has benefited from recent index inclusion in the ASX top 200 companies of Australia. As a result, the valuation is higher than it normally is. We believe it is a hold, but a buy on any weakness.

Will Thompson: Shaun, what about IDP Education (ASX: IEL). Buy, hold or sell?

Shaun Weick: IDP Education is a buy for us. The recent industry feedback suggests a very strong bounce in demand from students in some of their key placement markets in the UK and Canada, which we think presents a very strong lead indicator as we look into Australia, where hopefully into calendar year 2022, our borders will be reopened and see significant intakes of students. If you look on the International English Language Testing System side of the business, management have done a great job acquiring the Indian British Council testing business at the bottom of the cycle. Going forward, we think there is still significant consolidation to play out here in terms of the global distribution of testing. We think this one is a buy.

Will Thompson: That is all we have time for today. Thanks for joining us in the special edition of Buy, Hold or Sell.

Want more content like this?

Check out Wilson Asset Management's Vault Series, to hear more about how our investment team are positioning their portfolios throughout the rest of 2021, the opportunities they see in the current market environment, and their outlooks for 2022".


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