Buy Hold Sell: 3 of Australia's hottest stocks (and 2 actual buys)

Buy Hold Sell

Livewire Markets

According to those who act with the utmost decorum, there are three subjects that should never be breached at the dining table: religion, politics, and stocks. 

Why? Well, the first two have been widely covered. As for the last subject on that list, by the time your dinner guest, co-worker, and neighbour are talking about a stock, most of the good news is probably (definitely) baked in. 

So in this episode, Livewire's Ally Selby was joined by Hayborough Investment Partners' Ben Rundle and Medallion Financial's Michael Wayne for their analysis of three stocks the market can't stop talking about right now (for all the wrong and some of the right reasons).  

Plus, our fundies also name one underrated stock that you should probably be talking about instead. 

Note: This episode was filmed on Wednesday 12th October 2022. You can watch the video, listen to the podcast or read an edited transcript below.

Edited Transcript

Ally Selby: Hey, how are you doing? And welcome to Livewire's Buy Hold Sell. I'm Ally Selby, and today we have a little bit of a fun one for you. We're going to be discussing the hottest, the most discussed stocks in the market, plus we'll also be talking about two stocks that you probably should be looking at instead. To do that, I'm joined by Ben Rundle from Hayborough Investment Partners and Michael Wayne from Medallion Financial. 

There's nothing hotter than lithium at the moment, so we better start there. We're going to be talking about Allkem. Michael, over to you. Is it a buy, hold or sell?

Allkem (ASX: AKE)

Michael Wayne (BUY): Going to go buy on Allkem. It's been on a very good trajectory of late. The lithium price has been incredible over the past 12 months, up 300-400% or so. And what I like about AKE is the fact that it's producing a lot now, but it's also got a lot of projects coming online over the next couple of years, which will continue to supply that lithium market as demand grows in the years to come. And I think AKE is well positioned to produce and capitalise on the high prices that should be forthcoming.

Ally Selby: You mentioned there that it's been on quite a good trajectory. Its share price has lifted around 76% over the past year. Ben, over to you. Is it a buy, hold or sell?

Ben Rundle (HOLD): I'll say hold. As Michael says, the lithium price has just gone berserk over the last couple of years and at the current prices, this company is absolutely printing cash. So if it stays there, then the price is going a lot higher. The price so far has been very demand driven. There will be a supply-side response to that at some point. I don't think that'll be so great that it quashes demand, but I don't have enough conviction that it won't. So I'll say hold. But look, if that lithium price stays anywhere close to where it is, then they'll have their market cap in cash pretty soon.

Appen (ASX: APX)

Ally Selby: Next up, we have Appen. It’s actually been talked about for all the wrong reasons. Ben, can you take us through it and is it a buy, hold or sell?

Ben Rundle (SELL): Yeah, I think Appen is still a sell. Deteriorating earnings quality and huge customer concentration risk. I think people have worked out pretty quickly the hard way that this doesn't have the same sort of earnings quality as what you would see in a traditional SaaS business. I'm also very aware of companies that put out long-range earnings guidance and I think they've put out guidance for FY26. They can't even hit their short-term guidance. So I still think it's a sell despite the move lower.

Ally Selby: Okay, over to you Michael. Its share price has moved 70% lower over the past 12 months. Is it a buy, hold or sell?

Michael Wayne (SELL): It's a sell. It's been a fallen darling in every sense of the word. I can't even keep up with how many times they've missed earnings forecasts in recent times. And the business is a lot more capital-intensive than many people would understand. It often is basketed together with all the tech businesses, but there are a lot of people in a room marking different things and inputting data into the computers so that machines can learn. 

They've got a very big contract book. They've actually got more projects in the pipeline than ever before. It's just that those projects are for a lot lower margins compared to some of their old projects. So for whatever reason, a lot of their large customers, although they might be giving them the occasional project or contract, are just not converting at the same margins as in the past. 

And because the management team keeps changing their earnings outlook, it's a good indication that no one in that company really has a good grasp of exactly what's going on. So we remain very, very cautious on Appen. The long-term outlook is very clouded and those former heady share prices are something of the past. So I'm going to keep a sell on that.

Whitehaven Coal (ASX: WHC)

Ally Selby: So both our fundies are avoiding Appen. Next up we have Whitehaven Coal. Coal is having a bit of a moment right now and our readers are loving this stock as well. Michael, over to you. Is it a buy, hold or sell?

Michael Wayne (SELL): I'm going to go a sell on Whitehaven Coal. And it's a difficult thing to say with a company on such a good momentum trajectory, but the fact of the matter is, the long-term outlook for coal still remains clouded. I get the narrative that there's not a lot more supply coming online. Coal companies find it very difficult to get projects over the line, and in the case of Whitehaven, they are doing a share buyback as well. So although I have a long-term sell, in the short term, I wouldn't be surprised if momentum is higher. But I am conscious of the very cyclical nature of the coal price. There's also a difference between thermal coal and coking coal. Whitehaven does have exposure to coking coal, which is used in the production of steel. And I am conscious of the fact that if the global economy does fall into a deep recession, steel prices will probably struggle a fair bit. So I'm going to go a counter-cyclical sell on that.

Ally Selby: Okay, over to you Ben. Its share price has lifted 224% over the past 12 months. Is it a buy, hold or sell?

Ben Rundle (BUY): I'm going to take the other side of that trade and call it a buy. Look, Michael makes some fantastic points. The price of coal has had a huge rally and there are questions on whether it'll stay there at the current price. The company is just absolutely making so much cash flow. I think that, unlike what we talked about with the lithium names, there's no supply-side response coming in the coal market. So I think that price stays a lot higher for a lot longer. They've announced a 25% buyback of the company. So I think that supports the share price and despite the move, I still think it's a buy.

Aussie Broadband (ASX: ABB)

Ally Selby: Wow. Okay. So those are three stocks that a lot of the market is talking about right now. I want to learn about a stock that no one really is talking about. Maybe they've missed it. What stock have you brought for us today?

Ben Rundle (BUY): Aussie Broadband. I feel like I'm sticking my neck out a little bit with this company because it's trading like it's faced a monster downgrade. I really like businesses that have higher levels of customer satisfaction and Aussie Broadband has that in its residential broadband segment and therefore it's taken a huge amount of market share. They've pushed into the commercial side of their market and I think if they apply the same model, they'll have the same level of success. At the moment, we're in a bit of a transition phase where nobody's really seeing the fruits of that yet. Hence the share price has derated quite significantly from where it has been. It's quite cheap for what I think it is. It's a founder-led business that has a fantastic management team. So I think that it's offering a pretty good opportunity to buy it here.

XRF Scientific (ASX: XRF)

Ally Selby: Okay, over to you Michael. What's your underrated gem?

Michael Wayne (BUY): XRF Scientific. It's a smaller business, but it's quite mature. Basically what it does is it provides testing kits to large mining companies in order for them to test their core samples. But once they've sold the machines to those mining companies, they then have to sell the consumables part of that, which is the chemicals to conduct those tests. In recent years, they've developed that technology quite nicely. They've sold a lot of machines to a lot of mining companies, but the fastest-growing part of the business at the moment is actually the consumables part. That's got the highest margins and it's growing the quickest and we expect that momentum to continue. So the earnings growth's been very, very good. The dividend on this one's about 3-3.5%, and it's been a growing dividend at about 20-25% per year. So it's a high-quality small cap if you like. So it's a good buy for us.

Ally Selby: Okay. Well Michael brought along XRF Scientific and Ben brought along Aussie Broadband, but we'd like to know if there's a stock you think the rest of the market has missed. Let us know in the comments section below. If you enjoyed that video, give it a like and subscribe to our YouTube channel. We're adding new content every week.

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Buy Hold Sell is a weekly video series exclusive to Livewire. In each episode two fund managers give their views 'Buy, Hold or Sell' on five ASX listed companies. Not recommendations, please read the disclaimer and seek advice where appropriate.

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