##{"id":61840,"date":"2013-05-16T12:59:39","date_gmt":"2013-05-16T02:59:39","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2013\/05\/16\/all-weather-stocks-solid-but-not-immune\/"},"modified":"2013-05-16T12:59:39","modified_gmt":"2013-05-16T02:59:39","slug":"all-weather-stocks-solid-but-not-immune","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2013\/05\/16\/all-weather-stocks-solid-but-not-immune\/","title":{"rendered":"All-Weather Stocks: Solid, But Not Immune"},"content":{"rendered":"

\n\tBy Rudi Filapek-Vandyck<\/span> and Andrew Nelson<\/p>\n

\n\t****<\/em><\/p>\n

\n\tThree types of Australian listed stocks have proved an absolute boon for loyal shareholders and investors in the post-2008 era: reliable dividend payers such as Telstra ((TLS)) and the Big Four Banks, All-Weather Performers such as Woolworths ((WOW)), Amcor<\/span> ((AMC)) and CSL<\/span> ((CSL<\/span>)) and stocks experiencing an operational sweet spot, generating strong profits and shareholder returns along the way.<\/em><\/p>\n

\n\tAll three categories have one key characteristic in common: they are able to generate satisfactory returns even when risk appetite retreats or economic momentum wanes. In mid-March this year FNArena<\/span> opened this new series with an inaugural update on All-Weather Performers, see story "All-Weather Stocks: MND<\/span> And BKL<\/span> In The Red". The following week we took a look into stocks we think are experiencing an operational sweet spot. Note that we intend to make this an interactive exercise: readers are encouraged to nominate stocks they believe should be added to our updates. Send your nominations to info@fnarena.com and we will follow up and consider.<\/em><\/p>\n

\n\tAt the basis of all this lays research by FNArena<\/span> Editor Rudi Filapek-Vandyck<\/span> since late 2007 which earlier this year led to the publication of "Make Risk Your Friend. Finding All-Weather Performers", an eBooklet<\/span> which to date is exclusively available to paying FNArena<\/span> subscribers (if you haven't received your copy as yet, send an email to info@fnarena.com).<\/em><\/p>\n

\n\tThe eBooklet<\/span> argues that successful investing is closely correlated to minimising<\/span> and managing risk. Hopefully the framework we are creating with these regular updates will assist subscribers in executing successful, long term investment strategies.<\/em><\/p>\n

\n\t****<\/em><\/p>\n

\n\tIf you still think today's share market is all about dividends and nothing but sustainable dividends, then today's update on All-Weather Performers should provide you with the alternative insight to what works best in a low growth, low interest rate environment: low risk, dependable and sustainable growth. It's just a pity such characteristics are rather rare in the Australian share market, hence why dividend stocks attract all the attention.<\/p>\n

\n\tUnfortunately, the past weeks have shown that All-Weather Performers may be lower risk under most circumstances, they are by no means completely immune to the vagaries of changing industry dynamics. In previous updates we identified Blackmores<\/span> ((BKL<\/span>)) and Monadelphous<\/span> ((MND<\/span>)) as turning into a higher risk proposition, with a downward bias, respectively because of a changing competitive landscape and a downturn in mining capex<\/span>. The usually robust Coca-Cola Amatil<\/span> ((CCL<\/span>)) has now joined these two with a surprisingly hefty disappointment on the H1<\/span> earnings front.<\/p>\n

\n\tThe BIG question mark now hanging in front of Coca-Cola Amatil<\/span> is whether this month's disappointment is merely a temporary blip or whether we're witnessing a structural shift towards a sustainable lower growth rhythm? The debate among analysts is fierce and polarised<\/span>. In case of scenario two playing out (the structural downshift) the stock risks an even more pronounced de-rating than has already occurred, a la Blackmores<\/span> and Monadelphous<\/span>.<\/p>\n

\n\tShare prices for both Coca-Cola Amatil<\/span> and Monadelphous<\/span> took a beating since about a month ago and as a result the All-Weather index of 14 stocks has underperformed<\/span> the broader index. Note also there are no banks among these 14 stocks and neither is Telstra represented, or any other telecommunication stock.<\/p>\n

\n\tAnother easy to make observation is that valuation limits have started to materialise<\/span>, which has seen Woolworths ((WOW)), Tox<\/span> Free Solutions ((TOX<\/span>)) , Invocare<\/span> ((IVC<\/span>)) and ARB<\/span> Corp ((ARP)) underperform<\/span> over the weeks past. Obvious beneficial relationships with a strengthening USD (weakening AUD) have translated into further share price gains for the likes of Amcor<\/span> ((AMC)), Ansell<\/span> ((ANN)) and CSL<\/span> ((CSL<\/span>)), all offshore manufacturers.<\/p>\n

\n\tAll in all, seven stocks on the All-Weather list (50%) continued to perform better than major indices in Australia over the month past, including a strong performance by Retail Food Group ((RFG<\/span>)), a previous laggard on the list.<\/p>\n

\n\tAs a group of 14, All-Weather Performers added 3.57% over the past month versus a 4.91% uptick in the ASX<\/span>\/200 and a 4.45% rise in the All Ords<\/span>. Year to date, All Weather Performers are up 8.46% compared to a 10.13% increase in the ASX<\/span>\/200 and a 9.25% advance in the All Ords<\/span>.<\/p>\n

\n\tMuch of the disparity that has unfolded over the last month can be attributed to Monadelphous<\/span> and Coca-Cola Amatil<\/span>.<\/p>\n

\n\tOn Wednesday, Monadelphous<\/span>'<\/strong><\/u> shares were down 12.8% from the ninth of April and 18.59% lower from the start of the year. UBS believes Monadelphous<\/span>' end markets have deteriorated, predicting an earlier-than-expected decline in earnings, i.e. FY14<\/span> rather than FY16<\/span>. The broker upgraded FY13<\/span> earnings forecasts by 1.5% a few weeks back, but reduced FY14-15<\/span> numbers by 18%. The FNArena<\/span> Database shows a Buy\/Hold\/Sell (B\/H\/S) ratio of 1\/1\/5, indicating very negative sentiment for the stock.<\/p>\n

\n\tDeutsche Bank summed up the negative view on the stock quite succinctly a few months back, saying competition is taking a bite, margins are under increasing pressure and uncertainty remains around new project approvals. The broker expects the pipeline to keep shrinking and this casts a cloud over revenue growth in FY14<\/span>.<\/p>\n

\n\tShares in Coca Cola Amatil<\/span><\/strong><\/u> are down 8.37% over the past month, although the year to date showing is only minus 0.67%. Brokers are debating whether CCL<\/span> is shifting to a new, lower growth paradigm, succumbing to the pressure of increasing costs and negative price-competition.<\/p>\n

\n\tCIMB<\/span> analysts predict earnings are about to turn more volatile, especially in Australia, now that Pepsi’s Project Zero is approaching completion. Meanwhile, Deutsche Bank said a 7% earnings downgrade is not what one expects from a company that has historically been very reliable. Yet while Deutsche Bank thinks there could be some structural decline in consumption trends, it doesn't see that as being the main problem. DB said it is starting to think future volume growth may not be as strong as in the past. B\/H\/S: 2\/2\/4<\/p>\n

\n\tOnly one other All-Weather Stock posted a negative performance over the past month, Blackmores<\/span><\/strong><\/u> shares have pulled back 3.43% since the ninth of April and are down 12.9% year to date. JP Morgan said at the end of last month it continues to like the business, but noted there are near term headwinds<\/span> in the form of continuing structural change to traditional distribution channels and aggressive advertising campaigns and pricing competition. B\/H\/S: 0\/1\/0<\/p>\n

\n\tYear to date, ten of the fourteen All-Weather Stocks are still running ahead of the market, of which seven, as highlighted earlier, posted market beating performances since early April.<\/p>\n

\n\tLeading the way has been Invocare<\/span><\/strong><\/u>, with shares up 34.05% so far this year. The momentum has slowed over the past month, a fact not missed by those broker holding less than positive views. JP Morgan downgraded to Neutral from Overweight last week, noting the stock had outperformed the Small Ordinaries by around 36% since the beginning of the year. The broker otherwise remains comfortable with the earnings outlook. Citi<\/span> said back in February that a PER of 22x<\/span> isn't justified by earnings growth of 16% in FY13<\/span>, 5% in FY14<\/span> and 7% in FY15<\/span>. B\/H\/S: 1\/4\/1<\/p>\n

\n\tShares in Retail Food Group<\/strong><\/u> are up 30.28% year to date and if anything the advance has accelerated over the past month, with the price up 11.02%. B\/H\/S: 2\/0\/1<\/p>\n

\n\tDomino’s Pizza<\/strong><\/u> ((DMP<\/span>)) has had an even better month, its share price running 15.29% since the ninth of April. The shares are up 28.57% so far this year which is one reason as to why all but one broker in the FNArena<\/span> Database has the stock at Hold. B\/H\/S: 1\/5\/0<\/p>\n

\n\tMcMillan Shakespeare<\/strong><\/u> ((MMS)) yet again had to shrug off market concerns that Federal Government deficits might lead to a nasty surprise from the Treasurer, but it all proved hot air with no substance. The shares are up 14.23% since April and up 19.74% since the beginning of the year. Credit Suisse lowered its rating to Neutral back in February on valuation grounds. Citi<\/span>, at Buy, said it is trusting in the proven business track record and the growth it has seen in the lease book, which it feels will underpin future earnings. B\/H\/S: 2\/1\/0<\/p>\n

\n\tShares in Ansell<\/span><\/strong><\/u> have climbed 10.26% over the past month and are now up 12.2% year to date. This performance comes despite widespread acceptance (at least amongst securities analysts) the company may not achieve its guidance for FY13<\/span>, but then in most cases a quick recovery for FY14<\/span> remains firmly on the agenda. Right now the shares are a key beneficiary of the movements in FX markets. Not one broker in the FNArena<\/span> Database has a Buy on the stock. Deutsche Bank is concerned that the fevered work on cost control could damage future growth prospects. B\/H\/S: 0\/6\/1<\/p>\n

\n\tAmcor’<\/strong><\/u>s<\/span> share price has advanced 10.18% over the past month and is up 26.13% year to date. Citi<\/span> cut its call to Neutral last week, saying Australian manufacturing is not in a great place given flat industry volume growth expectations, rising energy costs and low labour<\/span> productivity. On the other hand, the broker was impressed by the company's solid leadership position in the space, the quality of the management team and a strategy that seems focused on value adding innovation, cost savings and capital discipline. CIMB<\/span> is less equivocal, saying two weeks back the sentence that probably sums Amcor<\/span> up the best is the following: "we continue to view AMC as a core portfolio holding given the quality and defensive nature of its earnings stream, supportive dividend yield and prospect of further capital management". B\/H\/S: 4\/3\/1<\/p>\n

\n\tHealthcare stocks CSL<\/span><\/strong><\/u> and Ramsay Healthcare<\/strong><\/u> ((RHC<\/span>)) have both put on good shows over the past month, their prices up 7.17% and 7.70% respectively. Citi<\/span> said last week it thinks CSL<\/span> is expensive given a 23x<\/span> PER versus FY13-15<\/span> EPS growth estimates of 28%, 11% and 9%, especially as growth is expected to start coming off over the next 12 months once Baxter’s supply constraints ease. B\/H\/S: 3\/4\/1<\/p>\n

\n\tShares in Ramsay Healthcare are up 26.69% so far this year and BA-Merrill Lynch, at Buy, said last week the importance of the private hospital operators and the regulatory strength of the health insurance sector was in evidence in the 2013 Budget. Hence, the attractiveness of Ramsay's forecast earnings consistency was underlined. BA-Merrill Lynch views Ramsay as having the lowest regulatory\/funding risk profile of the sector with a growing margin that should add to earnings upside. B\/H\/S: 1\/4\/3<\/p>\n

\n\tThe three remaining All-Weather Stocks all underperformed<\/span> the broader market over the past month, but they remain well ahead of the market on a year to date basis. ARB<\/span> Corp<\/strong><\/u>’s performance over the past month has been flat, but the share price has advanced 18.90% since the beginning of the year. Citi<\/span>, at Sell, pointed out last week that shares are trading at a 40% premium to their long term average and the Small Industrials. Macquarie, at Buy, said its view was based on a more medium term outlook and warned of a slowdown in the interim. B\/H\/S: 1\/1\/1<\/p>\n

\n\tTox<\/span> Free Solutions<\/strong><\/u> is up "only" 2.43% over the past month, but the year to date performance sits at 14.24%. Macquarie, at Buy, said last week it believes the stock is fairly valued for the near term, but it sees medium-term options for growth, both organically and from acquisitions. Meanwhile, UBS admitted it can't fault the company for trying to grow by acquisition, but it is worried that the company has picked a tough new market with its latest acquisition, Queensland and Tasmania based waste management business Wanless<\/span>. B\/H\/S: 1\/3\/0<\/p>\n

\n\tShares in Woolworths<\/strong><\/u> have picked up a sub-market 2.64% over the past month. The shares are up 19.47% so far this year. BA-Merrill Lynch, at Sell, downgraded earnings forecasts at the end of April because of a more pessimistic outlook for hardware. The broker concluded, after analysing<\/span> March quarter sales, that the recently opened Masters stores are generating annualised<\/span> sales of $16.5 million, a deterioration from the performance of the first 15 stores that were opened. The broker said the financial drag is getting larger and wondered whether an impairment is coming. JP Morgan, at Hold, said multiples such as 18.6x FY13<\/span> earnings forecasts and 18.0x FY14<\/span> are too high relative to peers and forecast growth rates. The share price is also above the broker's valuation and at a 7.4% premium to consensus. B\/H\/S: 2\/3\/3<\/p>\n

\n\tNote attachments to this story which include share price performances for all stocks mentioned in this story, as well as overviews of earnings per share (EPS) and dividend (DPS<\/span>) histories (sorry, paying subscribers only).<\/p>\n

\n\t****<\/p>\n

\n\tDO YOU HAVE YOUR COPY YET?<\/strong><\/p>\n

\n\tEarlier this year, FNArena<\/span> published the e-Booklet "Making Risk Your Friend. Finding All-Weather Performers". This e-Booklet (58 pages) is offered as a free bonus to paid subscribers (excl<\/span> one month subs). If you haven't received your copy as yet, send an email to info@fnarena.com<\/p>\n

\n\t(Do note that all of the above names and calculations are provided for educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions.)<\/strong><\/em><\/p>\n

\n\t <\/p>\n

\n\tFind out why FNArena<\/span> subscribers like the service so much: "Your Feedback (Thank You)<\/a>" – Warning this story contains unashamedly positive feedback on the service provided.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"