Buy Hold Sell: 3 stocks that smashed expectations (and 2 disappointments)

This just in. Investors across the country can be heard breathing a simultaneous sigh of relief as the all-important August reporting season comes to a close. 

We made it, and it wasn't at all as bad as many predicted. And while, sure, there could be some serious storm clouds gathering on the horizon for earnings over the next six to 12 months, some companies have now proved they have the balance sheets (and the chutzpah) to survive and even thrive in the foreseeable future. 

In this reporting season special of Buy Hold Sell, Centennial Asset Management's Matthew Kidman is joined by two powerhouse Aussie equities guests - abrdn's Michelle Lopez and First Sentier's David Wilson for their analysis of three stocks that smashed broker expectations (with the selection of these stocks thanks to Rudi Filapek-Vandyck of FN Arena). 

And because we know you all love a little dash of drama, our guests also name two stocks that seriously disappointed this reporting season too. 

Note: This episode of Buy Hold Sell was filmed on Wednesday, 30th August 2022. You can watch the video, listen to the podcast, or read an edited transcript below. 

Edited Transcript 

Matthew Kidman: Welcome to Buy Hold Sell, brought to you by Livewire Markets. My name's Matthew Kidman, and today I'm joined by David Wilson from First Sentier and Michelle Lopez from abrdn. Reporting season is over, and we’re going to have a look at what smashed, and we're going to have a look at a couple of stocks that crashed. FNarena has given us three stocks that we're going to look at that did exceptionally well, and then the team beside me is going to have a look at those ones that disappointed.

Start with you, David. WiseTech. Big technology, global logistics, crack of result, great outlook. Buy, hold, or sell?

WiseTech (ASX: WTC)

David Wilson (BUY): It's a buy. Top end of guidance. They continue to grow internationally. They've now got three of the top freight forwarding companies on with contracts and a great outlook.

Matthew Kidman: Michelle, it's on about a thousand times earnings, but it's been a terrific company, keeps growing. Buy, hold, or sell?

Michelle Lopez (HOLD): It's a hold for us for these reasons. I think this is one of the highest quality tech names, and they have executed impeccably. But on the valuation it's on today, it's a hold.

Sonic Healthcare (ASX: SHL)

Matthew Kidman: Let's get to healthcare. One of the older stocks did quite well, pathology, Sonic Healthcare. Buy, hold, or sell?

Michelle Lopez (HOLD): Sonic is a hold as well. This is a really well-run business, but they're facing some real headwinds from an earnings projection and trajectories down. The reason for that is the COVID-19 testing. That represents 25% of their revenue still, and it's a much higher margin than their underlying business. Unfortunately, they can't make it up, even as well as the company is run, so it's a hold at these levels.

Matthew Kidman: Great result, David, but bring back the good old days of COVID-19. Buy, hold, or sell?

David Wilson (SELL): I agree with Michelle. It's a very well run company, but we have it as a sell. We think that the earnings dip that they're going to take over the next year or two, because of the way the volumes were brought forward through COVID-19 means that the earnings will come under pressure. So for us, a sell.

Pinnacle Investment Management (ASX: PNI)

Matthew Kidman: Okay. Market sell off earlier this year, Pinnacle Investment Management got torched. Great result, bounced back. Buy, hold, or sell?

David Wilson (BUY): For us, it's a buy. One of the few fund managers that are actually getting inflows. They've got a well diversified group of portfolio managers on their team and they continue to getting inflows, both internationally and from retail in Australia. So for us, it's a buy.

Matthew Kidman: Incredible job. They just seem to pour that money into their managers. Buy, hold, or sell, Michelle?

Michelle Lopez (BUY): Well, it's a buy for us too. You're only as good as your last performance. Fortunately, it's a partial truism in our industry. But for Pinnacle, they've got their model to that point that there are different styles, there are different managers so that key risk around the performance of markets can be mitigated. The other thing I'd say is they've got a lot of capacity within their current affiliates that they can grow into. We're starting to see the flows come through. And that distribution platform, it's really unparalleled in our market, and they can export that offshore. So caveat being very volatile, I think there's a lot of leverage to beta in the market within that name. But if you can sail through, I think it's one to buy.

ASX Ltd (ASX: ASX)

Matthew Kidman: They're kicking into gear. Okay. We've heard the good times. What didn't do so well that worried you during reporting season?

Michelle Lopez (SELL): Look, I think the disappointment for us was ASX. ASX is one of those really high-quality defensive names, but it disappointed from a cost perspective, both OpEx and CapEx. They've got CHESS, which is the blockchain settlement system that they're trying to roll out. That got delayed again. And they've had some key management changes. You've had, in a very short space of time, the CEO, CFO, and head of listings all leaving the organisation at an already critical point. So we think just looking forward, there's a lot of risk factors that haven't played out yet, so that was the disappointment for us.

Coles (ASX: COL)

Matthew Kidman: David, sounds like even monopolies can have a bad go at it. What was the one that caught your eye that made you walk away?

David Wilson (SELL): I would also say that I agree with Michelle. We actually thought ASX was very disappointing as well, but even more disappointing for us was Coles. They continue to lag Woolworths in terms of market share. They're lagging behind them in terms of CapEx and the online development of their business. So for us, that was particularly disappointing.

Matthew Kidman: There's not a stronger word in the English language than disappointing. But luckily, those things were okay during reporting season. If you enjoyed listening to these two guests, David and Michelle, as much as I did, give it a thumbs up, give it a like, and don't forget to subscribe to our YouTube channel for heaps of more really interesting content.

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