Ten most tipped stocks: +50% for 2019

The results of our next survey will be a telling indicator of your thoughts on this matter, and I can't wait to see what you say on it. 

Growth names of CSL and Aristocrat moving the needle

If the 3 WAAAX stocks were flat, which stocks in the group moved the dial from 45% to 50% over the quarter? 

The biggest driver was CSL (ASX:CSL), which resumed its traditional ‘bottom-left to top-right' trajectory. The price soared from $235 to $282 since our last update, increasing the YTD total gain from 30% to 60% over this time.

Rudi Filapek-Vandyck from FNArena has followed this stock closely for years, recently summarising his observations in ‘25 years of CSL: What can we learn’. He started by making the point that the stock listed at the equivalent of 76.7c, which means that it has increased in price by more than 367 times since then! Or in Rudi’s words, “the investment return from owning CSL shares over the period has been nothing short of ‘ginormous’”.

The other stock that moved the dial significantly this quarter was Aristocrat (ASX:ALL), which surged last month on strong results, increasing the YTD total gain from 44% to 55%. Stuart Jackson at Montgomery summarised the results nicely in Aristocrat continues to churn out the profits saying that: “Recently reported results were impressive, to say the least. Free cash flow was up 16 per cent. Dividends rose 22 per cent. And debt was down”.

Continued performance in stocks like Aristocrat and CSL is not what you see when growth is passing the baton to value, so the jury may still be out there as to whether this is happening just yet. 

We did, however, see a pick-up in the more value-oriented mining and energy stocks on the list: BHP, Rio and Woodside, which have all crept higher over the quarter.

David Poppenbeek from K2 Asset Management shared his thoughts on BHP (ASX:BHP) and Rio Tinto (ASX:RIO) with us last week, nominating them as two stocks for a value renaissance, pointing at their average PEs of 13 times, return on capital of 18-20% and dividend yields of over 6%. 

By coincidence, on the same day, Peter Gardner from Plato Investment Management also made a case for the same stocks in Holding cyclical stocks through the best bit of the cycle. So there you have two experts concurrently calling for the big miners. 

We also recently had Sudhir Kissun from Allan Gray in the studio, and while not talking Woodside (ASX:WPL) specifically, he was making a compelling case for the energy sector being the most contrarian sector in the market.

Macquarie up, Commonwealth down

While comparing Mac Bank and Comm Bank is admittedly like comparing apples and oranges, I'll take whichever piece of fruit has the better ROE trajectory every time. 

Chris Hall from Ellerston Capital summed it up for both stocks in 'Macquarie smashing the big four' when he said: 

A consequence of this is structurally lower return on equity (ROE) generation, which has a direct influence on bank valuations. ROE’s for the major banks have declined on average by around 500 bps since 2011, reflecting their inability to grow earnings and deliver any growth in dollar dividend generation. This has resulted in a paltry major bank dividend CAGR of only 1.4% since 2011... When looking at the ROE trajectory of Macquarie Group, it represents a total contrast to the major banks. MQG’s ROE has expanded from 8.5% to 16.5% since 2011, an 800 basis point improvement. The resultant earnings generation has seen dividend per share CAGR of 15%. 

Macquarie has had another great year, with a total gain of over 30% YTD, which includes a respectable 5.6% yield (once the 2nd dividend is paid next week). 

David Poppenbeek from K2 also shared his thoughts on Macquarie in '3 golden tailwinds for the silver doughnut' when we caught up last week. In this interview, he laid out the three key drivers of the stock’s continued success. These included: 

• A rotation of capital from mature to earlier-stage, higher-return assets; 
• Growth in traditional banking; and 
• Improving productivity.

I know which ASX20 financial I think belongs in the 'Most tipped for 2020', but it's up to you to decide in the next survey of course! 

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