Equities

At the start of the year, we asked Livewire readers for a stock idea as part of our annual investor survey. With over 2500 responses, many stocks were tipped multiple times, so I focused on the ‘most tipped’ stocks from this list in my reports through the year, and some remarkable stats have emerged.

The list is an interesting mix with an average market cap of $50 billion, yielding 4% YTD and comprising a mix of big caps and a few high-growth midcaps adding the alpha. The group has largely held its ground overall since the last update to put in an average return of 45.7% (or 41.9% without dividends).

This 'portfolio', put together collectively by Livewire readers has completely smashed the market, and done it while paying a decent yield too. With one quarter to go, it's time to see what's been driving this and what the managers are saying about the stocks today. 

                                           * Total gain values include dividends

WAAAX stocks still up, but Afterpay doing the heavy lifting

The three top performers are from the WAAAX cluster again, though the order has switched around, with Afterpay taking the lead as Appen stumbles and Altium plateaus...

  • Afterpay (APT): +156.2%
  • Appen (APX): +68.7%
  • Altium (ALU): +59.7%

One of the most contentious stocks in the market, Afterpay (APT) has had an outstanding year and has sat near the top of the table at each quarterly update. Assuming it finishes the year there, this would be the 2nd consecutive year it has done so.

Having now increased more than five-fold in price since early-2018, perhaps it would be a tough act to follow again in 2020. While the business has incredible momentum, the stock has always been on extreme multiples.

Yet the growth potential from its inroads into the US and UK keeps the chart heading North-East, and I have a hunch that this stock will again be one of the ‘most tipped’ in our 2020 reader survey (watch out for that at the end of the year).

Most recently, Harry Dudley at Watermark made a bullish case for Afterpay following their results and he thinks the company is on track to beat the company’s 2022 sales target of $20 billion in Gross Transactional Value by a monster 70% on his base-case assumptions, or 100% in the bull case. We have a few years to see if this plays out, but would be in keeping with the company's habit of overdelivering. 

Also in the infamous 'WAAAX' cluster, Appen (ASX:APX) has had a rough quarter, slipping from leading the table with a 120% gain last quarter, to be up by 72%. In our recent results commentary, Henry Jennings at Marcus Today made the case for the sharp fall in as being a great opportunity to buy into a stock offering exposure to artificial intelligence, government contracts and Chinese growth.

In a recent Buy Hold Sell, Tribeca's Jun Bei Liu rated Altium (ASX:ALU) a ‘buy’ calling it ‘the best tech company around the India-Australia market’, pointing at its strong growth and more attractive valuation than other tech darlings such as Wisetech.

More recently, Vince Pezzullo at Perpetual threw cold water on the whole WAAAX cluster, and their gravity-defying metrics in this wire, using Wisetech as an example, writing that:

“Investors continue to reward many of the “hope” stocks in the WAAAX cohort (Wisetech, Appen, Afterpay, Altium and Xero) that just exceed guidance but have punished or largely ignored other businesses with similar results.

The market offered a perfect case study in August. Tech darling WiseTech delivered a profit of $54.1m vs expectations of $53.6m (Source: FactSet). How much was this $500,000 above expectations worth? About $3 billion according to the market which sent the stock surging from $27 to $37 since the result, or from $8.6 billion to $11.9 billion in market value. Sure, profits were up strongly, but the market had already factored this into the eye-watering P/E multiple. Such a small amount above expectations being so richly rewarded seems puzzling. WiseTech now trades at 211x earnings”.

Resources: Strong yield but losing ground 

  • RIO Tinto (RIO): 30.0%
  • BHP Group (BHP): +14.4%
  • Woodside Petroleum (WPL): 9.4%

 * Total return values include dividends

The three resource majors have lost ground this quarter, and the total YTD returns above are held up significantly by the unusually large dividend payouts this year. 

Rio Tinto (ASX:RIO) is the highest yielding stock on this list paying out a remarkable $8.97 this year, taking the total return YTD from 18.6% to 30.0%. BHP likewise paid out a strong dividend taking the total return from nearly 8.8% to 14.4%. Woodside's took it from 3.6% to 9.4%.

While the big miners are in the best financial shape they have been in for many years, these yields have been supported by one-off special dividends, so yields might not be as punchy this financial year. 

Looking to the year ahead, in his wrap of reporting season, Hugh Dive from Atlas cautioned on the effects of steep fall in iron ore, expected supply increases, trade tension, moderating Chinese demands, and rising costs.

While it has not shot the lights out this year, Woodside (ASX:WPL) is one of the high conviction stocks selected by Andrew Tang citing upside from long-term LNG demand, a compelling valuation, and potential oil market recovery, along with earnings margins of more than 70% and a 80% payout ratio. 

Aristocrat Leisure: +44.0%

Aristocrat Leisure (ASX:ALL) fell dramatically during the second half of 2018, so it was a brave call for the 51 readers (2.1% of votes) that tipped the stock. And it has bounced back this year, putting in a total return of 44.0% for the year (and up a lazy sixteen-fold over eight years). 

The stock came up recently in an interview we ran with Chris Hall, CIO at Ellerston Capital on hunting for Dividend Champions. Chris cited Aristocrat as a stock that, while not offering a huge dividend (it’s around 2%), this has been growing at around 20% per annum, which has compounded strongly over the years. He thinks this is sustainable, which may see the performance continue.

CSL: 29.9%

Chris also spoke with us separately about CSL in this interview discussing three mistakes for investors to avoid, using CSL as an example of why you shouldn’t sell your winners too early.  CSL, for example, kept on rising after it had already become a ten-bagger from its IPO, and today is more than a 100-bagger from its listing price.

Marcus Bogdan from Blackmore also spoke about CSL when I sat down with him recently in this interview. He had just returned from the UK where CSL's Sequirus business had impressed him, given it had turned around from losing circa $245 million USD back in FY'16, to be expected to earn around $200 million in FY 20, for an EBITDA margin of 20%.

Macquarie: +24.9%

Macquarie has been a solid performer this year and was amongst the preferred list in T.S Lim's recent Bank Notes report for Bell Potter as a resilient play given regulatory headwinds. He wrote that "We are well aware of this drag on the sector and our stock preferences therefore include those that are perceived to be more resilient"; this included Macquarie which he described as a cash and growth story

We recently sat down with industry legend, Catherine Allfrey from Wavestone Capital for a fascinating and extensive CIO profile interview, in which she discussed Macquarie, describing it as having superior DNA and also sharing her impressions of the recent capital raising. 

Search for the latest stock commentary on Livewire

I've summarised some of the most recent manager commentary on each of the stocks above, but if you want to see what they have written on another stock you are interested in, you can use the search function on the Livewire website. Look for the magnifying glass at the top right of the screen. Click that then type in the stock's name. Happy researching!

The next ten stocks

We have also been tracking the stocks that were in positions 11-20 in the most tipped list. These were in small-cap territory with an average market cap of just $3.4 billion. They have also smashed the market, and in fact have even beaten the list above, with an average gain of more than 47.5% (or 45% without dividends). You can read them here




Comments

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Michael Nevill

thank you

Tomas Shteyman

Hi Alex Just out of curiosity, of all the 2500 stocks that were tipped in the contest, which stocks have been the ten top performers so far?.

Peter Mueller

Thank you for your great work. Look forward to read the update of the next ten stocks. Peter Mueller

Alex Cowie

Hi Tomas, Great question and I'll be posting that in the coming days.

John Smith

Hey Thanks, Alex for sharing this wonderful information!! RIO Tinto and BHP Shares have gained a lot of attention these days in ASX stock markets. It would be great if you could suggest something as top stocks with top-performing stocks.

Nigel Comelately

Excellent strategy with an outstanding result. So will you conduct a similar poll this year? And publish the results before year's end?

Tomas Shteyman

Thanks Alex, look forward to it. I agree with Nigel's comment above, it would be interesting to see both the list of the top ten and who tipped them.

Param Singh

How's about a list of the worst performers out of the most tipped stocks?