Livewire’s 2018 'Predictions and Top Picks' series continues with part two. Here, we ask our expert panel for their top stock ideas for 2018, and one thing they think the market has wrong. Watch the video or read the summary below.
Speakers: Matthew Kidman, Centennial Funds; Chris Stott, Wilson Asset Management; Ben Clark, TMS Capital; Richard ‘Coppo’ Coppleson, Bell Potter; Chad Slater, Morphic Asset Management; Charlie Aitken, Aitken Investment Management.
The most crowded trades in 2018
Crowded Trade #1 – Amazon and Australian retail
Chris Stott: That Amazon will not destroy Australian retail. We just think it's overblown. Longer term, Amazon will get a decent footprint here, but medium term, it's going to take a number of years to get going. I think the discretionary retailers have been oversold this year.
Crowded Trade #2 – Mining services acceleration
Ben Clark: For me, it's probably that there's going to be an acceleration in the mining services sector. That's fully factored into a lot of prices in the area. I think it might be a bit slower and more muted than the market's anticipating.
Matthew: The actual operations, or the share prices?
Ben: The operations of the mining services sector, and given the PEs that we're seeing are factoring a continued resurgence in 2018, it might not play out so well. There will be some cases where it does, but across the board, I think it seems like a bit of a crowded trade to me now.
Crowded Trade #3 – US tax cuts
Matthew Kidman: I'm going to go global; I think it's US tax cuts. Everyone's talking about it, it's the most discovered trade, everyone's factored it in, and it probably won't have the impact that all the bulls are hoping. So, US tax cuts won't drive the market.
Crowded Trade #4 – Continued low rates
Richard ‘Coppo’ Coppleson: Well, it's a fact that the RBA is going to hike rates. But the whole market isn't expecting it apparently. The RBA will hike rates, and it will change everything. Bonds and all the infrastructure stocks will weaken. A rotation will take place that hasn't yet.
Crowded Trade #5 – Lower interest rates
Chad Slater: Everyone betting on lower interest rates. What I mean by this is, if you’re long Sydney house prices at 2% yield, you're betting on lower interest rates. If you're long high yield stocks, you're betting on lower interest rates. I think you'll find out next year, if global rates are going up, that trade doesn't work.
Crowded Trade #6 – China bearishness
Charlie Aitken: Well, I think globally, it's actually bearish China. I think there's a lot of China bears, a lot of people worried about debt loads in China. I'm very bullish China, and I think that's one thing that could change next year in markets, the perception of Chinese GDP growth. So, that's the one thing I'm most contrarian on.
Charlie Aitken: My number one pick is actually listed in New York, it's JD.com. It's the Amazon of China. I think it could double next year. It's only got 1/10th the market cap of Amazon. Huge addressable marketplace, 55 billion market cap. That's my number one pick for next year.
31 December 2017 close: US$41.42
Aristocrat Leisure (ASX:ALL)
Ben Clark: Well, hopefully Aristocrat. They had another fantastic result a couple of weeks ago. Pretty muted share price reaction, due to the acquisition of Big Fish and the lack of earnings guidance. But, we think this is a really quality business that's going to continue growing strongly. Over 60% of revenues are now recurring. About 40% will come from digital. It's a great management team, it's a really good, growing space. Trading at 22 times this year’s earnings, it doesn't look too expensive. It wouldn't surprise me if it got to the high 20s, $28-$29, maybe even 30 bucks this year.
31 December 2017 close: $23.70
Reject Shop (ASX:TRS)
Matthew Kidman: I'm going to go with the ugly part of the market. The good thing about this stock is that we'll know by February; the Reject Shop. It’s hated in the market, they’ve tripped over a few times, it trades on a single digit PE. I think they've got the inventory right. If they can trade through Christmas, which is a big part of the year, we'll know by about late January, early February. If they do that, I think the stock could be up 40-50%.
31 December 2017 close: $5.61
Deutsche Bank AG (ETR:DBK)
Chad Slater: It's a small stock most of you've never heard of, called Deutsche Bank. I think you'll find with rates up, Europe doing okay, global GDP. We've got some call options struck 40% above here, we think they'll be in the money.
31 December 2017 close: €15.85
Afterpay Touch Group (ASX:APT)
Richard 'Coppo' Coppleson: I like Afterpay, I think it's an absolute screamer. It’s got about a billion dollar market cap. They had 40% EPS growth this year, 50% next year, and multiples going beyond that. They're growing, they've barely even scratched the surface yet on the number of clients they're going to sign up. Also, they haven't scratched the surface on just what they're going to do globally. This company is going to do very well over the next three years.
31 December 2017 close: $5.97
Emeco Holdings (ASX:EHL)
Chris Stott: Emeco, EHL, capped at $650 million. It’s still undiscovered, not well owned by small cap managers. One of the most highly levered stocks to the improving mining cycle. Good acquisition of Force Equipment in the last few months. So, we think that one goes a lot higher, could almost double over the next 12 months.
31 December 2017 close: $0.25
Wondering how last year's predictions went?
Livewire's James Marlay has analysed last year's results from both the readers and the expert panel, you can read it here.
Reject shop forget it. Every corner we have dollar shops importing stuff from China owned mainly by by Chinese families. Reject shop bussiness model can't face this competition
Afterpay, they will/are now facing stiff competition and this will put pressure on such growth forecasts. Look at Harvey Norman's current offer of 5 years interest free for purchases over $750. Fashions may do well, but hey sales per capita will be low and with that are fixed processing costs equals reduced margins.