Buy Hold Sell: 6 ASX stocks in the doghouse - which will bark back in FY27?

With me are Hugh Dive from Atlas Funds Management and Jason Teh from Vertium Asset Management. But before we dive in, a quick heads up, Livewire Live is back this September. If you'd like to find out more, you'll find a link in the description below. All right, starting with you, Hugh, you've been tracking the dogs of the ASX since 2011 and last year's cohort actually returned 59%.

But other ones we've seen, for example, with WiseTech announced in May, one of their largest customers, the Danish freight forwarder DSV announced they'd vibe coded some software in-house and they are replacing Xero as their software provider. Even though they recognised that it probably wasn't going to do as good a job as Xero, the $150 million saving was to be a good move. So there's a very uncertainty about the tech name and elsewhere in there we've got Cochlear and CSL, high P/E healthcare names that have disappointed. When you're on a P/E of 10 and you disappoint or don't quite hit the profit numbers, you don't see much share price reaction. When you're at a P/E of 30, different story.

The other type of stock is where there are pressures on its core business models. These type of stocks can tend to have three or four more earnings downgrade when the stock looks cheap. So even if a stock's on a P/E of 10 and comes up with three or four more earnings downgrades, it can still trade on a P/E of 10, but on a lower earnings number. Those are the ones I would consider value traps. Investors should obviously try to understand business and obviously avoid these type of companies, but keeping your head and understanding how temporary pressures or structural issues impact a business is how you can differentiate these two types of stocks.

Wisetech Global (ASX: WTC) 

Its competitors are actually taking market share away from that core business that they have in the US. On top of that, Hugh touched on it earlier, the other third of the business is driven by CargoWise. One of its major customers have decided to pull back on the IT spend that's related to CargoWise. And if they can do it, why can't other large logistic players with the means, especially with AI nowadays, and with the balance sheet to actually vibe code in-house? So there's two structural issues happening with WiseTech that could put pressure on its earnings for the foreseeable future.

Probably also beneficiary from AI in that helped matching in some of the accounting. However, early on this week it was revealed that the CEO sold every bit of stock that she owns. And when it's trading at five-year lows, even the best resource fund manager or specialist tech analyst in the world is not going to know more about that company than the CEO. Hard to bet against the CEO and knowledgeable insiders when they're selling. It's got to be a sell for us. We stopped doing work on it when we saw that piece of information.

Now, in terms of that Melio acquisition versus e2open, which I talked about earlier with Wisetech, Melio is still growing very nicely. They're not losing market share in that space. Structurally, I think they're still in a good spot. Now, they haven't hit breakeven profits yet, but they're still aiming to. So time will tell whether that can be achieved by the year 2028. That's Xero's promise. And in terms of its core products, accounting software, very hard to displace is what Hugh just mentioned just then. Very cheap. You can't vibe code your way out, especially when it's so cheap.

It probably represents two-thirds of their albumin sales, that could half. And remember, I said 2025, that just started. They're ramping up production. So there is a target for the Chinese government to displace 50% of albumin sales from in-country production. Guess where CSL sales are going to go? It will disappear. Synthetic albumin is priced at a cheaper price point as well. So not only would you lose volume, you could lose in price as well. So that's albumin sales. The other one is US IVIg sales, which is the bulk of their revenue base, their last result highlighted that they had excess inventory that they had to clear. And it was very uncanny in terms of what they said because the industry volume growth is still very healthy, high single digits. CSL did not grow. One of its competitors, Grifols, grew at 15%. And they only attacked one of their products, Privigen.

Grifols has another product in phase three which they want to get approved by the FDA. If it's approved, it will attack CSL's Hizentra product in a CRDP market. CSL has 60% market share of the CRDP market. If that gets approved, it will crimp earnings again. And that's your highest margin product. So that will not play out until 2028, but something to be watchful of. And currently, we talked about the CEO selling out of, Hugh mentioned about Xero, CEO selling out of stock. Well, there is no CEO running CSL with all these competitive pressures happening. So that's why it's a sell. And you want to watch and wait and work out where the earnings bottom. And I don't think it's there yet.

They get an incredible CEO coming in. They guide to 5% to 6% earnings growth for next year in August. We'll see the stock start to move. We've already started to see it move in June. There's very low bars to jump over. Ultimately, what they sell is not as a non-discretionary health product, unlike, say, Cochlear, which is trading on a much higher thing. A lot of their IVIg products you need to live. We've seen vaccine rates tend to increase after a very terrible flu season last year over the northern summer. I think there's a very low bar for this to jump over and see it rip. And that's historically what it's looked for in the dogs. They've done something slightly better and after massive, massive falls, they'll come back.

And then the third issue they're facing or the third issue, Chinese demand. Historically, selling Penfolds has been a very high profit margin, particularly to China. There's changing Chinese wine taste. They're drinking a lot more domestic wine and then less of it. And going to the big banquets, Xi Jinping is not encouraging people to buy bottles of Grange for the banquet and to give as gifts. That's not being sold within the six to nine months. It's a bit too hard for us. I think there's easier places to make money and the debt level is just way too high. They're in a difficult space.

It's been around for a long time here in Australia, very dominant position. It's about 50% of his earnings, but CAR today versus 10 years ago offers more growth versus where it was 10 years ago. It has Trader Interactive, which is a US RV business. They are expanding more into the boat vertical. And then you got the South American business that's growing very fast. Its last result grew at 30% per annum and also the South Korean business as well. CAR effectively, from an execution point of view, is replicating what they have done very well here in Australia into those outside geographies. In the US, they're trying to replicate the media business here that they have done very well. Here in Australia, media represents about 15% of their total revenue, in the US by 5%. Of course, the US market's very big and they can actually ratchet that up further.

They can actually capture more of that revenue share. And in the Latin American market, they have imported their depth model, higher tier, premium tier, to extract more yield out from the customer base, which is part of the reason why they're growing very fast in their market. So 20 times P/E, 4% yield with double-digit growth is a good starting base.

Amcor (ASX: AMC )

They pass on the resin. They've come out with quarterly numbers. They've hit those targets every time. The market still doesn't like it. In May, they came out with their March numbers where they were still going for 12% growth. It's dirt cheap trading on 12 times with a 6% yield paid quarterly, which is quite tasty. I think they'll come through. The market's very much ignored it, but I think it's a very solid basic company, not impacted by vibe coding and packaging isn't going away. Your medicines aren't going to be delivered in brown paper bags. I think it's very undervalued and very under researched. Had a rough year and the management had a lot of experience in the past in integrating businesses and they've been quite successful, but the market doesn't believe them.