This time last year we surveyed our readers for their thoughts on some key market issues and also asked for their number one stock pick for 2019. Soon after, I published the list of the 'ten most tipped stocks' from the 2500 responses. I’ve been tracking this basket of stocks each quarter through 2019, and the performance has been nothing short of incredible.
With 2020 now just a few weeks away, all ten stocks are up by double digits, seven have outperformed the market, the average yield was 4.0% before franking, and the average total return is currently 50.3%.
In other words, Livewire readers have completely nailed it. And this was all done without punting on microcaps; all stocks are in the ASX200, and half are in the ASX20.
So, in this final round-up for 2019, we look at which stocks moved the dial this quarter and what the fundies have been saying recently about each stock.
I also want to give you a heads up that the next survey is running again soon - and that if you take part in it, you will the first to get the 'Most tipped for 2020' report.
I personally can't wait to see what you pick for next year, and find out whether market trends and events shape your selection. Do you think the WAAAX stocks have had their run for now? Will there be more of the high ROE names? Will you back a shift to value stocks? Will there be a few up and coming midcaps to join the list...
All will be revealed in the new year! In the meantime, let's put your 'most tipped' for 2019 up in lights!
As a group, Afterpay, Appen and Altium flat over the quarter
Interestingly, as a group, Afterpay (ASX:APT), Appen (ASX:APX) and Altium (ASX:ALU) have been flat over the quarter again. At a stock level, Afterpay has lost a bit of ground while the others have gained slightly.
This is not to overlook the astonishing contribution to the group over the year; the average total return for these three has been 95.5%, a near doubling of your capital in 12 months. In fact, if you take these stocks out of the group of the ten most tipped, the return for the remaining 7 comes down to 33%.
So these three WAAAX stocks are the real reason for the punchy headline numbers for the group. However, most of the performance came in the first half of the year. The question then is: What happens in 2020?
Will they defy gravity again and put in yet another year or mind-boggling returns? Will they continue to plateau while they grow into their lofty valuations? Or will their many vocal critics finally be proven correct as the crash back to earth?
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.
Mining and energy stocks add a tailwind
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.
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!
Ten most tipped... or The three most tipped?
Something worth noting is that as per the results of the survey I posted in January, CSL, Afterpay and BHP were the 3 most frequently tipped of the ten (with 15.9% of votes between them as reported).
The average gain across these names was an even punchier 70.4%. Exactly the same names also comprised the three most tipped in 2018 and they went on to gain an average 52% in that year.
If you then short-list the 2 most tipped, the results are 96% (this year) and 62% (last year).
While this feels like rampant 'cherry-picking' of the data, and that I'd caution strongly against expecting a continuation of this pattern, I'll be sure to include the distribution of votes in the 'Most tipped for 2020' report again.
Survey now open!
If you want to be the first to read about 'The most tipped for 2020', you just need to participate in our new survey, which you can do by clicking here.
Excellent work, keep it up guys.
A great piece of analysis Alex, and well done to our readers! Can’t wait to see their 2020 choices.
Thanks Alex, I cant wait to place my tips so here are a few early ones. Saracen and St Barbara both currently undervalued and on the smaller side I like Aurelius Metals and Alkaine Resources.
Thanks Gents. Livewire readers did the hard work of putting a killer 'portfolio' together!
Thanks kindly Alex. Nice to see such a great result for the 2500 investors that put the time and effort into responding to the survey. Likewise livewire for creating the forum to accomodate this. Wishing all at livewire and contributors the best for the forthcoming festive season.
Nicely wrapped up Alex and I agree with Neil that it was great to have so many Livewire readers respond to the survey. Look forward to another fun and interesting survey for 2020.
Cant wait to contribute Alex. Already know what's at the top of my Christmas wish list!
Thankyou all, I have learnt so much this year, I should have known 25 years ago. Have a great Christmas, Ray
Thanks Alex Loving these segments guys absolute Gold in Knowledge and Learning.
Thanks Alex and Live Wire.
Clean sweep. Missed them all! Hahaha. Dear oh dear. Excellent work.
I tried to register to participate in 2020 top 10 and hyperlink took me to the top fundie questions?
Andrew it is the third question in the survey.