James Gerrish

Some high valuation growth stocks have caught our eye over the last few days, specifically the top-performing stocks that were sold off yesterday. We are happily absent from the high-flying growth stocks, but if they are flogged too hard, a couple will become interesting. Here we share our view and conclusions on six of them.

Aristocrat Leisure (ALL) $30.22

Yesterday ALL tumbled -67c / 2.2%, which is not as bad as many of the stocks we are looking at today, but again making our list of covered stocks because we remain keen at lower levels.

ALL is trading on an Est P/E for 2018 of 25.1x while yielding 1.3% fully franked.

MM remains a buyer around $29.25, or another ~3% lower.

Xero Ltd (XRO) $45.97

Yesterday XRO fell -5.7% taking its decline from recent highs to -6.6%. Technically we are targeting the $43 area for XRO, another ~6% lower.

XRO is trading on a huge valuation based on expected 2019 earnings. MM may consider XRO as an aggressive play around $43.

Treasury Wines (TWE) $18.21

TWE has fallen close to 8% over the last 2-days but from a technical perspective it will not become interesting to us until closer to $15, another 17% lower – remember never say never in this market, its all about preparation if something out of the box does eventuate. For example, the concerns around a glut of wine in

China could again resurface. this is one stock we will only consider into panic. TWE is trading on an Est P/E for 2019 of 28.9x while yielding 1.76% fully franked. MM is neutral TWE with interest around $15, or a significant 17% lower.

Cochlear (COH) $204.19

One of the market darlings, COH fell over 6% yesterday taking its recent correction to almost 8%. Technically COH will look interesting between $185 and $190, another 7-8% lower.

COH is trading on an Est P/E for 2019 of 42.9x while yielding 1.37% fully franked. MM likes COH between $185 and $190.

CSL Ltd (CSL) $217.16

CSL may have slipped -4.5% yesterday but remains up over 60% for the year making it one of the best performing stocks on the bourse. Technically this quality stock is very hard to read and closer to the $200 mark looks a better risk / reward entry area.

CSL is trading on an Est P/E for 2019 of 35.9x while yielding 0.87% unfranked. MM is interested in CSL around $200-205, or ~6% lower.

Afterpay Touch Group (APT) $16.00

APT has been smacked over 30% since its blow off top in August. Technically the $14-15 area should offer good support for APT but we find its valuation very scary at this stage of the cycle.

APT is trading on a huge P/E of 160x based on expected 2019 earnings, however as with many of these growth stocks, the market is simply looking past earnings (for now), and concentrating on growth rates either in terms of users, or revenue or merchants in the case of APT. APT may be considered as a trading buy under $15 but it’s unlikely to be for us.

Conclusion

MM feels our forecasted unwind in the top performing predominantly high valuation / growth stocks is well and truly underway. Our views on the 6 stocks covered today are as follows:

1. We like ALL around 3% lower.

2. We like XRO, COH and CSL around 6-8% lower.

3. We only like TWE around $15, or 17% lower.

4. APT may interest the aggressive trader below $15 as a trade but its unlikely to be for us.

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