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The seven stocks seven experts tip

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With reporting season done and dusted, I’ve asked some of my most respected market watchers to give us the one stock they want to hold going forward.

 

With reporting season done and dusted, I’ve asked some of the most respected market watchers to give us the one stock they want to hold going forward. I won’t muck around giving qualifications, but I will simply give you the question I asked them and then I’ll give you the stock they like and why. And yep, I will throw in mine, which has 59% upside if the analysts know what they’re talking about!

Here’s the question: “Given reporting season is over — what’s your best stock for the year ahead? And what are your reasons?

 

1. The expert: Rudi Filapek-Vandyck of FNArena

The stock: Charter Hall Long Wale REIT (CLW)

Analysts’ view: +5.6% upside

Reasons why:

  • It’s an alternative to the usual ‘go-to’ stocks for income seeking investors.
  • If we do have something like dividend champions on the ASX (reliable, sustainable payers of dividends that do not cut and instead grow their cash flows and dividends), CLW is part of that select group in Australia.
  • Its share price is currently slightly undervalued but is offering 6% yield, with the certainty there won’t be a cut, and growth is on the horizon.
  • On the combination of more certainty, less risk, and high quality, CLW should be on an investor’s radar.

 

2. The expert: Michael Wayne of Medallion Financial

The stock: Megaport (MP1)

Analysts’ view: – 4.0% downside

Reasons why:

  • Megaport is a provider of elasticity connectivity and network services, operating under a Network as a Service (NaaS) business model.
  • The company prides itself for offering the world’s first elastic SDN-based interconnection fabric, which accelerates connection between customers and data centres.
  • Megaport allows businesses to swiftly access multiple cloud databases – the likes of Amazon Web Services, Google Cloud Platform, IBM Cloud, Oracle Cloud, Salesforce and SAP – through a single platform.
  • This is extremely important in an environment where many multinational corporations have several business operations across several countries and use several cloud databases depending on the location and business – Megaport effectively streamlines the communication by allowing data stored in different cloud servers and countries to be accessed universally on a single platform.
  • The share was on the move recently, after the network-as-a-service provider announced the upcoming release of Megaport Virtual Edge. The product innovation will allow customers to tap into Megaport’s platform to deploy and extend network functions in real time, without deploying hardware.
  • The global cloud database market estimated to grow to $24.8 billion USD by 2025 which places MP1 in an enviable position to capitalise should management continue to deliver.

 

3. The expert: Michael Gable of Fairmont Equities

The stock: Goodman Group (GMG)

Analysts’ view: + 2.45% upside

Reasons why:

  • All the biggest gains at the moment are in the tech sector, but GMG is a company that will provide a solid return over 12 months with little volatility.
  • The stock has been a favourite of mine for a number of years as the best run REIT on the market.
  • Industrial property is a sector that is not only benefitting from COVID-19, but it can also benefit from a further reopening of the economy.
  • Their recent FY results were better than expected and it makes me confident that earnings growth will continue to be strong and reliable.

The chart below is another reason why Michael likes GMG.

That’s a great trend!

 

4. The expert: Paul Rickard of The Switzer Report

The stock: CSL (CSL)

Analysts’ view: +9.4% upside

Reasons why:

  • Still Australia’s best company (on performance track record).
  • Adjusting for currency, delivered profit growth of 17% and revenue growth of 9%. Both despite some COVID-19 headwinds. 
  • Has guided to revenue growth in FY21 of 6% to 10%, and profit growth of 0% to 7.7%.
  • Although profit growth in FY21 is less than market expected, it is spending an extra $100m on R&D.
  • Upsides with COVID-19 (1 vaccine opportunity, 4 treatment opportunities).
  • Upside with expected northern hemisphere flu vaccine demand.
  • Plasma collection costs should be temporary.
  • Not “outrageously” priced.

 

5. The expert: Tony Featherstone of The Switzer Report  and former editor ‘Shares’ magazine

The stock: Qantas (QAN)

Analysts’ view: +4.9% upside

Reasons why:

  • “I’ll stick my neck out and say Qantas as a top 12-month idea,” Tony confessed.
  • Global airlines are a basket case because of COVID-19. Australian airlines are no exception. Border closures, grounded fleets, Virgin’s demise and rebirth, massive job cuts at Qantas…the list goes on. 
  • Longer term, the boom in home-based work and remote meetings (Zoom, etc.) could moderate business-travel demand when conditions improve. International travel demand could be weaker if some Australians feel less confident to travel overseas after COVID.
  • Fast forward 12 months and the aviation outlook will be improving. Granted, a recovery in international flights will be protected due to lingering COVID-19 problems overseas. But domestic travel will be poised to recover strongly from this time next year thanks to huge pent-up travel demand.  A persistently lower oil price will be another tailwind for Qantas.
  • Qantas should get through the pandemic in good shape. Its balance sheet is strong after the capital raising; the airline is seeking a $1 billion reduction in sustainable costs; and will have a weakened, smaller competitor in Virgin. Qantas management has an excellent record and will get the airline through this crisis.
  • By this time next year, the market will look to Qantas’ FY23 earnings and rebounding aviation sector. Any recovery will take time and be hard-won. The Qantas share price is reflecting the challenges. Qantas is trading at a significant discount to long-term valuation averages and I’ve always thought it has latent value through its Frequent Flyer program, which gives it huge, digital footprint with customers and businesses. 

 “As any good contrarian investor knows, you buy quality companies when there’s ‘blood on the street,” Tony concluded.

 

6. The expert: Julia Lee of Burman Invest

The stock: Mesoblast (MSB)

Analysts’ view: None

Reasons why:

  • Biotech companies are notorious for consuming money. It is expensive to go through phase 1, phase 2, phase 3 trials and then look to regulatory approval in the US. Mesoblast has now completed or is in the final stages of phase 3 with many of its products. It is reaching that inflection point of moving from consuming huge amounts of capital to looking to generate revenue.
  • Its first approval in the US is potentially Remestemcel-L to treat steroid refractory acute graft vs host in children. The Food & Drug Administrative is due to make a decision by 30 September 2020. If approved, it would be the first allogenic stem cell product to be approved in the US.
  • At the moment, Remestemcel-L also has expanded access status for compassionate use Remestemcel-L in children with inflammatory syndrome associated with COVID-19. 
  • In addition, trials for Mesoblast’s products in heart failure and lower back pain are both in phase 3 trials.
  • It’s a long road for a biotech product to hit commercialisation. For Mesoblast, many of its products have completed most of the hard work and there are a number of company changing catalysts over the next 6-12 months

 

7.  The expert: Me! Do I need to name myself? Yes, why not! Peter Switzer of The Switzer Report

The stock: ELMO Software (ELO)

Analysts’ view: + 65.7% upside

Reasons why:

  • This is a part of my ZEET stocks’ group, which I think could be the follow up tech stocks from the WAAAX group. WAAAX stands for Wisetech, Altium, Afterpay, Appen and Xero.
  • ZEET, which is my speculative call, stands for Zip Co, EML Payments, ELMO Software and Tyro. I still like them all. Since I first wrote about Zip, the share price has gone from around $3 to around $7..
  • Note these are speculative plays unlike a lot of the other stocks in this story.
  • The stock was up 172% over three years and some retracement is to be expected.
  • Like a lot of tech stocks, this HR and Payroll business solution isn’t profitable, but its revenue story is very good. It has trended up 35% each year over three years.

 

This chart adds confidence for the long term.

Source: nabtrade

Its gross profit margin fell 1.3% over the past reporting season, however it still remains an impressive 85.3% and these are challenging times for a business that sells stuff to other businesses during COVID-19, an era that has to encourage cost-cutting.

  • From reporting season, I liked the 25.4% growth in customers, the 19.7% growth in recurring revenue and the 25% growth in statutory revenue. Also, the average modules used per customer grew from 2.4 to 2.7 and the average new customer took up 3.9 modules. These guys sell modules!
  • There’s $140m in cash and the company was prepared to provide 20%+ revenue guidance for FY21 is something Medallion’s Michael Wayne liked.

Michael Wayne was the first to put me on to this stock and this is what he told me recently:

“From speaking with management, the indication has been that the business has experienced a slight deferral in purchasing decisions by many prospects. However, broadly speaking the sense is that COVID-19 has helped to accelerate businesses migrating to the cloud. This has helped to partially offset some weakness as businesses with old school legacy payroll systems have been forced to modernise to facilitate staff working from home.

“In the view of management, ELMO’s competitive position is likely to been enhanced due to this pandemic. Many competitors are smaller companies led by Venture capital (VC) and private equity (PE) which are now starved of cash.”

Yep, I have a small holding of this stock as I always like to put my money where my mouth is. Let me underline that this is a speculative play, but I reckon this company is in the right space.

So here are the secret 7 stocks (which won’t be a secret for much longer!):

1.     Charter Hall Long WALE REIT (CLW)

2.     Megaport (MP1)

3.     Goodman Group (GMG)

4.     CSL (CSL)

5.     Qantas (QAN)

6.     Mesoblast (MSB)

7.     ELMO Software (ELO)

 

Analysts forecasts from FN Arena, as at 7 September 2020

Peter Switzer is one of Australia’s leading business and financial commentators, launching his own business 20 years ago. This information was produced by Switzer Financial Group Pty Ltd (ABN 24 112 294 649), which is an Australian Financial Services Licensee (Licence No. 286 531). All prices and analysis at 7 September. This material is intended to provide general advice only. It has been prepared without having regard to or taking into account any particular investor’s objectives, financial situation and/or needs. All investors should therefore consider the appropriateness of the advice, in light of their own objectives, financial situation and/or needs, before acting on the advice. This article does not reflect the views of WealthHub Securities Limited.