Finding the sweet spot in Australia's share market

The problem with an international best-seller such as James O'Shaughnessy's What Works On Wall Street is that a reader in Australia can wrestle their way through nearly 700 pages of fine print, charts and tables, and still be left with that one crucial question: how much of all this actually works on the ASX?

That's why my recent online presentation was titled: What Works In Australia? You can view the video here:

One of the key observations is there is a sweet spot on the Australian share market in the second half of the ASX100 — the group of stocks numbered 51-100 has traditionally crowned itself as the basket of outperformers.

So which stocks are responsible for this segment crowning itself the best performing in Australia post-GFC?

My first suggestion would be ResMed (ASX:RMD). The stock has recently been elevated into the ASX50, but its steady climb through the ranks of Australia's sub-top in terms of market capitalisation automatically implies ResMed's relative outperformance has been a major contributor.

I remain of the view ResMed's longer-term growth story is far from finished, but, alas, further outperformance from here onwards will no longer be contributing to the overall performance of the ASX's sweet spot.

There are, of course, 50 other stocks that still make up the best hunting ground on the stock exchange, and among these one finds plenty of growth and potential:

  • Ansell (ANN)
  • Carsales (CAR)
  • Charter Hall (CHC)
  • Domino's Pizza (DMP)
  • Fisher & Paykel Healthcare (FPH)
  • IDP Education (IEL)
  • NextDC (NXT)
  • Orora (ORA)
  • Seek (SEK)
  • WiseTech Global (WTC).

I haven't done the hard yakka on data and total performance analysis, but I think we can safely assume the above mentioned 10 stocks, plus the likes of ResMed, Amcor (AMC) and Afterpay (APT) — which disappeared from this segment for the best reason possible — have made this segment the best performing on the ASX throughout the decade past.

Then we have those with a more cyclical bend:

  • ALS Ltd (ALQ)
  • BlueScope Steel (BSL)
  • Downer EDI (DOW)
  • Harvey Norman (HVN)
  • Incitec Pivot (IPL)
  • JB Hi-Fi (JBH)
  • Orica (ORI)
  • Reece (REH)
  • Reliance Worldwide (RWC)
  • Washington H Soul Pattinson (SOL)
  • Worley (WOR).

There is also the basket with question marks that need to be overcome:

  • Altium (ALU)
  • Magellan Financial (MFG)
  • Nine Entertainment (NEC).

For good measure, this particular basket also includes:

  • AMP (AMP)
  • Challenger (CGF)
  • Crown Resorts (CWN)
  • Link Administration (LNK)
  • Star Entertainment (SGR).

As per always: past performance is no guarantee for consistent returns in the future, but looking at the stocks mentioned above, I think this segment best remains on investors' radar.

FNArena offers impartial and independent share market analysis, accompanied by proprietary data, tools and applications for self-managing and self-researching investors. The service can be trialed for free here.

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