The best (and worst) placed stocks that topped the leaderboard in FY22

If past performance was a guarantee of future performance, the top stocks from the ASX200 in FY22 would all be BUYS. 

Unfortunately for them, and us, it's not that easy. New economic and market conditions favour companies differently - even those within the same sector.

Remember - good companies are not necessarily good stocks, and vice versa. Lynas Rare Earths is a prime example of this. It's down almost 25% this calendar year yet it just booked record sales of $351 million in the June quarter. 

So even a broad-based commodities bull market and the top line to match can't be relied upon when it comes to share price. 

And that's the purpose of this collection. To find out which top companies from the ASX200 in FY22 are still good stock picks as we kick off FY23, and which might have a harder time repeating history. 

For that I reached out Jun Bei Liu from Tribeca Investment Partners and Jack Collopy from Perpetual to each elect a stock from the top of the FY22 leaderboard that they're keen on in FY23, and one they aren't. 

Spoiler: there's one company they both picked to underperform!

WHITEHAVEN COAL (ASX: WHC)

Price: $6.17

Market Capitalisation: $5.90 billion

Jack Collopy (OUTPERFORM): WHC starts the year with net cash of $1bn and extremely strong cash flow generation at current coal prices (roughly 100% of its current valuation on an annualised basis!). The prices received for WHC’s Thermal Coal relative to the Newcastle benchmark pricing will improve in FY23 due to improved coal quality from their Narribri mine.

There is also limited capital expenditure requirements in FY23. 

We expect a large proportion of this considerable free cash flow to be returned to shareholders through either dividends or share buybacks. 

Aside from volatility in coal prices, the main risk is a further increase in costs in FY23 in an inflationary environment with ongoing labour and logistics challenges.

PILBARA MINERALS (ASX:PLS)

Price: $2.56

Market capitalisation: $7.62 billion

Jun Bei Liu (OUTPERFORM): With the recent sell off, PLS is an appealing name in lithium because it is the most leveraged to rising spot prices and has direct exposure to the Chinese market. PLS is also a straightforward operation. 

The entirety of its production is in Western Australia and it is generating strong cash flows profiting from current higher prices. 

PLS also has clear visibility for growth looking out for many years, making it a standout asset in this space.

CORE LITHIUM (ASX:CXO)

Price: $1.06

Market capitalisation: $1.85 billion

Jun Bei Liu (UNDERPERFORM): We believe CXO will continue to underperform in the next 12 months because CXO is still 6 months out from its first spodumene shipments, which are due around year-end 2022.

Commissioning and ramp up of lithium operations is always challenging when new. This is also the time when a developer is most vulnerable as its cash balance is typically at a minimum. The recent volatility we have seen in spodumene prices will expose CXO to further cash flow squeeze.

Jack Collopy (UNDERPERFORM): As a pre-production Lithium explorer, CXO doesn’t meet our investment filters. After a very strong run, Lithium stocks have faced a broad de-rating in recent months due to the impact of higher interest rates on long duration stocks and concerns about an impending step up in supply. This is in spite of Lithium prices (spodumene and Lithium Carbonate) that have been extremely resilient. 

Although the Lithium market is expected to be in deficit in the next few years, current prices are incentivising new production that could tip the market into surplus in the second half of this decade. 

There will be an ongoing arm wrestle between growing EV demand and this new supply, but we are reminded of the well-known saying that ‘the best cure for high prices is, high prices’.   

What are the brokers saying?

To find out the which 11 commodities stocks UBS have given a 12-month BUY rating, see my article here:  

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