Buy Hold Sell: The best and worst investment ideas from 5 ASX sectors

LiveWire11-12 04:00

One key function of long/short fund managers is to compare similar companies and trade them against each other. These companies are often found within sectors but can also be found across sectors, as...

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This is known as a 'pairs' trade. This strategy also has the benefit of being market-neutral .Livewire's James Marlay was joined by Tribeca Investment Partners' Jun Bei Liu and ClearLife Capital's David Moberleyto discuss their best and worst picks in five different sectors.James Marlay: Hi there and welcome to Livewire's Buy Hold Sell. My name is James Marlay and today we're going to be looking through five sectors on the ASX to pick out the best and worst stocks for the year ahead. With me to talk about the sectors on the ASX, I have Jun Bei Liu from Tribeca and David Moberley from ClearLife. But before we get into those ","collect":0,"end_time":0,"defaultTopTitle":"livewiremarkets.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"BK7078":"赌场与赌博","AD8.AU":"AUDINATE GROUP LTD","BK7093":"消费信贷","MQG.AU":"Macquarie","BK7135":"综合性银行","BK7094":"医疗保健技术","NXG.AU":"NEXGEN ENERGY LTD-CDR","CAT.AU":"CATAPULT GROUP INTERNATIONAL","BK7507":"资源股","CPU.AU":"COMPUTERSHARE LTD","BK7126":"医疗保健用品","BK7041":"综合货品商店","BK7073":"电子制造服务","BK7084":"电子设备和仪器","BK7511":"ESG概念","JBH.AU":"JB HI-FI LTD","BK7033":"数据处理与外包服务","NAN.AU":"NANOSONICS LTD","BK7007":"医疗保健设备","BK7046":"综合性资本市场","BK7153":"综合零售","WBC.AU":"WESTPAC BANKING CORPORATION","ALL.AU":"ARISTOCRAT LEISURE LTD","ZIP.AU":"Zip Co Ltd","BK7083":"煤与消费用燃料","BHP.AU":"BHP GROUP LTD","BK7113":"保健护理机构","RMD.AU":"Resmed DRC","LTR.AU":"LIONTOWN RESOURCES LTD","BK7503":"科技股","WES.AU":"WESFARMERS LTD","BK7001":"电脑与电子产品零售","BK7157":"数据处理及外包服务","BK7016":"应用软件","PME.AU":"PRO MEDICUS LTD","BK7504":"锂钴概念","RHC.AU":"RAMSAY HEALTH CARE LTD","BK7095":"多种金属与采矿","BK7501":"新冠治疗股","360.AU":"LIFE360 INC-CDI","XRO.AU":"XERO LTD"},"translate_title":"买入持有卖出：澳大利亚证券交易所5个行业的最佳和最差投资理念","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"AD8.AU":1,"ZIP.AU":1,"XRO.AU":1,"WES.AU":1,"WBC.AU":1,"RMD.AU":1,"RHC.AU":1,"PME.AU":1,"NXG.AU":1,"NAN.AU":1,"MQG.AU":1,"LTR.AU":1,"JBH.AU":1,"CPU.AU":1,"CAT.AU":1,"360.AU":1,"ALL.AU":1,"BHP.AU":1},"content_text":"One key function of long/short fund managers is to compare similar companies and trade them against each other. \nThese companies are often found within sectors but can also be found across sectors, as companies with similar characteristics. \nOnce identified, a long/short manager will buy the stronger-performing company in the pair and sell the weaker-performing company. This is known as a 'pairs' trade. This strategy also has the benefit of being market-neutral (given one long and one short trade in the pair). \nThe ASX is littered with potential pairs trading opportunities. Some examples include Coles and Woolworths, Fortescue and Rio Tinto, and Santos and Woodside. \nGiven the focus on comparing companies and actively trading them against each other, who better to ask for their best and worst picks in a sector than a couple of long/short fund managers?   \nFor those who love stock picks on both sides of the ball, this episode is for you. \nLivewire's James Marlay was joined by Tribeca Investment Partners' Jun Bei Liu and ClearLife Capital's David Moberley to discuss their best and worst picks in five different sectors. \nNote: This episode was recorded on Wednesday 6 November 2024. You can watch the video, listen to the podcast, or read an edited transcript below.\n\n\n\n\n\nEdited Transcript \nJames Marlay: Hi there and welcome to Livewire's Buy Hold Sell. My name is James Marlay and today we're going to be looking through five sectors on the ASX to pick out the best and worst stocks for the year ahead. With me to talk about the sectors on the ASX, I have Jun Bei Liu from Tribeca and David Moberley from ClearLife. But before we get into those sectors, we're just going to learn a little bit about long-short investing. What makes these managers different? What makes them tick. \nWhat's unique about the way you invest and particularly with that long-short focus in mind?\nJun Bei Liu: So, in my view, a long-short manager, we just have more tools to generate a return. So not only can we benefit from the rise of share prices, but we can also benefit from picking a company whose share price will fall. So in that environment where we do a lot of research and we find this company actually is not going to meet expectations, most managers, if it's long only, you can only just go, \"I don't want to touch it.\" But what we could do, we place a short bet and then generate a return. Also in an environment where the market is volatile, we can be very agile and jump into any opportunity because we can hedge - as in short a company within that sector and give us the money so we can buy the better quality company. So in a way, it's lower risk and generates a much higher return, especially in a market where the volatility is high giving a lot of opportunities.\nJames Marlay: Jun Bei, just while we're with you over time, how much of your portfolio would be in a short position versus a long position just on average over time?\nJun Bei Liu: So the fund has been going for over 16 years and I myself have run this fund for over five and a half years. And on average, it actually averages out to be half-half, which is very interesting. Despite rising markets or falling markets, there [are] always companies that you can find that will have a bad earnings result or have that sort of value arbitrage you can find.\nJames Marlay: Okay, great. Dave, same question for you. Market neutral strategy, what's unique about the way you invest?\nDavid Moberley: So we're a little bit different to some of the other products out there. A typical extension strategy will add some shorts into a long book. What we're trying to do is actually remove the market exposure from our product. So, our short book is typically of a similar size to our long book. So what that results in is an uncorrelated return stream. We're trying to deliver positive returns irrespective of broader market conditions with much lower volatility.\nWhat is pairs trading and how does it add value?\nDavid Moberley: So pairs trading is where you try and find two highly correlated stocks within a sector where you see headwinds for one and tailwinds for another and you obviously go long the one you like and short the one that doesn't. We don't do a lot of that in our strategy. We're typically trying to find, in our long book, structural growth companies that can deliver independently of the broader market. \nAnd our short book is more about trying to take the exposure down. A lot of our shorts are much smaller in terms of position size. Some of the issues you can come into, we do do pairs trades to be clear, but some of the issues you can come into when two companies are highly correlated, the amount of exposure you have to put on both sides of that trade to get a return is quite big. So if it goes wrong, it can go wrong quite big.\nJames Marlay: Okay. Jun Bei, it sounds like one of those things where you say the people at home don't try this at home. Pairs trading. Is it something that you do?\nJun Bei Liu: Yeah, I love pair trading. Yes, don't do it at home. So I love pair trading because especially if you can find one or two companies that are very similar in a similar sector and you pair trade. You can find that one has a headwind and one has a tailwind. That hedges off all the risk that this sector faces. What you're left with is that share is essentially about buying an earnings growth story and selling an earnings sale story. So one of the big examples more recently is Coles versus Woolworths - and it worked out really, really well.\nBut that's actually quite rare here in Australia because our sectors are very small. Out of the whole consumer staples [space], there are only three companies. It's too narrow, normally, for you to be able to get a pure pair trade. What we do is group all the companies with similar characteristics into five big groups.\nSo within the five big groups then you have more companies to play with. So for example, in our growth buckets, we will have healthcare and technology companies. They're all long duration, they're all growth, they're structural leaders and they can play pair trade within. So then this way you have a bigger universe, then you have the resources, you've got the property trusts, you’ve got global cyclicals and domestic cyclicals. So this way you have a lot more pair trade opportunities and also it gives you a much better way of controlling the portfolio risks while you generate go chase your return.\nFINANCIALS - Long\nJames Marlay: Awesome, thanks for that insight. All right, we're going to talk about a couple of sectors. Each of our guests is going to tell us their top pick and one that they don't like in each sector and we've got a few to get through so we're going to keep it pretty short and sharp. Jun Bei, start with you. Financials are up 26% this year to date so far. What's one you like?\nZip Co (ASX: ZIP)\nJun Bei Liu: I love Zip. It's sort of a growth financial, but look, it's financially exposed to the US consumer doing incredibly well with the buy-now-pay-later product there in the US becoming very profitable here in Australia as well. And with US consumer conditions now picking up, I think this company will continue to track higher.\nJames Marlay: It's been on a cracking turnaround. All right, David, same question for you. Opportunity and financials.\nMacquarie (ASX: MQG)\nDavid Moberley: We really like Macquarie in that space. So there have been some short-term headwinds in their commodities trading business and in the mid-cap business. But that, in our view, has created the opportunity. The asset management business continues to go from strength to strength. They've got some amazing exposure to some sectoral growth categories like green energy and data centres, which they're realising assets over the next few years which is going to drive significant growth.\nFINANCIALS – Short\nJames Marlay: Okay, flip it around. What don't you like in the financials?\nBanks / Westpac (ASX: WBC)\nDavid Moberley: Yeah, I think banks as a whole, they've probably been part of the big driver of that return that you just discussed. I think Westpac, if you include all the dividends, is up around 60% this calendar year with very small changes in earnings. If anything, looking at next year, we still see headwinds around NIMs, volumes aren't really growing too much, it's pretty uninteresting and with a valuation that's about 1.5x book [P/B valuation ratio] for 9% ROE, seems pretty toppy to us.\nJames Marlay: All right, David's bearish on the banks. What are the financials you're avoiding, Jun Bei?\nComputershare (ASX: CPU)\nJun Bei Liu: I think Computershare is definitely number one. I'm a bit worried about the financial space. Great company, and it's made a lot of money from higher interest rates. Now interest rates are going lower, the earnings will fall in the double-digit for many years. I just think the share price has topped and it's going to continue to weaken in the next few years as the interest rate goes lower.\nCOMMODITIES – Long\nJames Marlay: Okay. Let's switch gears to the other big sector on the ASX, we're obviously talking about materials. We're going to look at energy stocks as well. They're down 10% and 18% roughly for the year. So two of only three sectors that are in the red year to date. Jun Bei, any opportunities in the commodity space that you like?\nBHP Group (ASX: BHP)\nJun Bei Liu: I do like the commodity space at the moment with China starting to track up. I think I would put my money in the BHP, the larger names. I think the company is still trading at that all-time low in terms of valuation, it’s got a really strong cash flow coming through. And then with commodity prices tracking up, they're almost mark to market in the upgrade cycle now.\nJames Marlay: Okay. Dave, you got something you like in the materials, the energy space?\nNexgen Energy (ASX: NXG)\nDavid Moberley: So across commodities and energy, we like commodities that have deficit markets with a structural growth in their demand profile. So we like copper, uranium, and gold at the moment. We're less favourable on iron, ore, and lithium. I think one of the ones that stands out in uranium is NexGen. So it's the best pre-production asset, the highest quality we could find globally and near term it's got a catalyst around environmental approvals. So yeah, that looks good.\nJames Marlay: Okay. What don't you like in commodities?\nCOMMODITIES – Short\nLiontown Resources (ASX: LTR)\nDavid Moberley: So, as I mentioned, lithium has had some serious headwinds and still looks challenged to us. Liontown is one of the assets that we think still have significant headwinds. Typically, the worst time to own a commodity company is when it's ramping up production of a new asset, which is what they're doing right now. And that asset, given its cost profile, is probably going to end up being swing capacity in the market. So it's one to avoid in our view.\nJames Marlay: Jun Bei, anything in that material space that's got a few red flags for you?\nLithium space\nJun Bei Liu: I’ve got lithium top of the list as well. Look, I think the overall conditions, market conditions, continue to be very, very tough for those names. While some of them are doing the best they can, the spot price remains very low or continues to see supply coming on. Clearly, that means the market condition will remain soggy for quite some time. The overall demand environment isn't really picking up as we previously expected. So I'd be avoiding that space.\nCONSUMER\nJames Marlay: All righty. We'll talk about the consumer surprisingly strong this year up 15-odd percent. Jun Bei, what's your top pick in the consumer space?\nJB Hi-Fi (ASX: JBH)\nJun Bei Liu: Look, it remains to be JB Hi-Fi. I know it has traded very well, but it is one company that gives you that cyclical upswing that will benefit from future interest rate cuts and a slight improvement in the underlying consumer. Also, this company will be leveraged to the whole replacement cycle of the PC, the AI-enabled PC, and devices. \nSo I think this company certainly looks expensive on previous historical terms but looking forward with the earnings trajectory, I think it looks very reasonable at this stage. \nJames Marlay: Okay, flip it around. What are you avoiding?\nWesfarmers (ASX: WES)\nJun Bei Liu: Look, I'd be a little bit more careful with Wesfarmers. The share price actually has held up pretty well. Overall, Bunnings has done very, very well. But we are seeing signs, in terms of the home renovation side, of slowing down. And particularly for the valuation this company is trading on, with assets such as Kmart now weakening, the lithium market has been pretty tough. So, net-net as a conglomerate, it's been a great company but they're just very expensive for the earnings growth it is delivering. \nJames Marlay: Okay. Cautious on Wesfarmers. Dave, what's your pick in the consumer, the discretionary space?\nAristocrat (ASX: ALL)\nDavid Moberley: It's a large cap, maybe a little bit boring but we're still like Aristocrat. It's got an amazing market position and continues to grow share. And I think that the gaming business has proved to be a lot more countercyclical, or less exposed to the cycle than what we previously thought, and they're continuing to deliver huge cash flow. It looks attractively priced compared to other stocks in the market. On the negative, I also concur with Jun Bei on Wesfarmers for all the reasons she mentioned.\nJames Marlay: Controversial, everyone is in peak renovation season.\nDavid Moberley: Well as Jun Bei mentioned, Bunnings has started to slow, amazing franchise business. Kmart is also slowing. They've also got the lithium business. And if you just look at headline valuation multiples 27 or 28 times, it's hardly growing this year. There's just better opportunities in the market.\nHEALTHCARE\nJames Marlay: Okay. We're nearly done. We've got two sectors to go. Healthcare, it's been muted this year. It hasn't kept up with the broader market. David, have you got an opportunity for us in healthcare?\nResMed (ASX: RMD)\nDavid Moberley: We like ResMed. Its key competitor, Philips, has been out of the market. ResMed's basically taken the entire revenue growth of the broader market and they've done a great job on costs. So margins continue to tick up. It's going to grow about 30% this year on mid-20 times multiple - looks pretty attractive. \nRamsay Health Care (ASX: RHC)\nOn the negative, I think Ramsay has still got some headwinds. It's a little bit controversial this one, but post-COVID you still haven't seen volumes recover. You're getting negative mixed shifts with day surgeries continuing to decline and they haven't been able to recoup costs through their price inflation. So yeah, it's just headwinds there from there.\nJames Marlay: Okay, Jun Bei, the healthcare sector got a good idea for us?\nJun Bei Liu: David's stolen my thunder.\nJames Marlay: That's all. It's a double ResMed. Double Wesfarmers. Double SELL sausage, BUY ResMed.\nPro Medicus (ASX: PME)\nJun Bei Liu: Exactly. That's it. But then I'll pick two different ones. So I think ProMedicus is one of the highest-quality companies listed in Australia. It is very, very rare to come across quality like that. Huge amount of growth runway, great execution by the management, a very stable customer base and a very high retention rate for this business. The growth profile is enormous. This is one of those tech companies that you want to buy on every dip and it's not something that you want to constantly take profit because the runway is so enormous. So I'd put that as a buy in the healthcare space.\nNanosonics (ASX: NAN)\nOn the other side, when we talk about pair trade, pair trade as in when we think about how we balancing out everything, if I pick a long that's an expensive company, it's often you want to be offsetting with another expensive company. So if I'm picking out of healthcare, Nanosonics certainly looks very, very expensive. \nI think the company has recovered from the cyclical lows, post-COVID impact, however, the markets betting on the next product to be quite successful. And we don't know when that's coming through and it's not going to be until next year. And even when that does get approval, there'll be a lot of costs that need to be put. There's just a lot of unknowns based on the multiple it is trading on. Just quite expensive for just the core business and there are quite a lot of unknowns with the future. So that will be the one I'll avoid for now.\nTECHNOLOGY\nJames Marlay: Okay, I love that idea. All righty. So we're going to finish up with the star sector of the calendar year. So far, technology up 44%. Jun Bei, can you still find good ideas in a sector that's ripped so hard?\nLife 360 (ASX: 360)\nJun Bei Liu: Absolutely. There are many ideas. One thing about the quality growth businesses is they don't take profit so you just got to be on them. So one of the top names we like is Life360. I know there's a quarterly coming up. Often there's volatility but investors sometimes can be short term. So if there's any volatility, the share price could fall on slight disappointment. I'll be buying aggressively on the dip simply because the base business is growing really fast, they're monetising by converting into more paid subscribers. \nOn top of that, they've got the advertising revenue opportunity and analysts have got very tiny expectations in the forecast. And compared to some of the possible numbers that they could generate that EBITDA could double if they get it right… not even getting it right, getting it half right. So I think the opportunity is enormous for this company. That will be our number one pick.\nJames Marlay: Okay, I'm going to give your voice a break. I'm going to come back to you for the one to avoid. Dave, let's go with you. Let's go with one you like, one you don't like in the spicy tech sector.\nCatapult (ASX: CAT)\nDavid Moberley: So in the tech names we're trying to find next year's winners and looking at some of the emerging plays. So I think Catapult's a super interesting one. We've been in the doldrums for a few years, but the refreshed management team have done a great job, and has got the company through cashflow breakeven. They're benefiting from some really strong growth in wearables technology in the sports management and player management space. And yeah, it looks good on a medium-term view. So yeah, that's something we like. \nAudinate (ASX: AD8)\nOn the negative, Audinate is one that I'd flag. Great business, looks like a great franchise. But yeah, it raised some money about a year ago for an acquisition that still hasn't eventuated. There's been some management churn and some insider selling, which is a bit of a red flag for us.\nJames Marlay: Okay. Jun Bei, you get the final say. What's the tech stock that you're avoiding?\nXero (ASX: XRO)\nJun Bei Liu: I'm trying to think of which tech stock I don't like. In general, they are pretty good. Just some valuations are expensive. I think Xero is one of the highest-quality businesses, but again, we are heading into a quarterly result. Just to be a little bit tactical, when the result comes often Xero talks about a lot about costs and the like, and they tend to disappoint on the day. And to me, it potentially could lighten into the result. But again, it's one of those buy-the-dip sort of stories.\nJames Marlay: Okay folks, well that's a wrap on our episode, looking at some of the best and worst names across a range of ASX sectors. I hope you enjoyed that video and all the insights from our guests today. Remember, check into our YouTube channel. We're adding fresh content just like this every week.\n\n \n\n\nNever miss an update\n\n    Enjoy this wire? 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