Well folks, after a tumultuous three years, global investors are betting big on a Goldilocks scenario for 2024. In fact, Bank of America's final global fund manager survey for 2023 found that sentiment hasn't been this bullish since January 2022.
70% of the fund managers surveyed now predict there will be a "soft" or "no" landing scenario over the year ahead, while 91% argue that the risk of further Federal Reserve rate hikes dissipated when the clock struck midnight on December 31, bringing in a tantalising start to the new year.
Meanwhile, Goldman Sachs believes the "hard part is over", UBS predicts "upside for equity indexes, supported by earnings growth among quality companies", and Morgan Stanley foresees a “tale of two halves,” with a rocky first half giving way to stronger performance into the second half of the year. Mind you, the Coppock Indicator for the ASX All Ords has been in positive territory since the end of July last year.
So how are Australia's brightest investment minds investing as we kick off the new year? I am so glad you asked. Market Index's sister company Livewire, has assembled an exclusive roll card of 12 of the country's finest global and local equities investors for their highest conviction stock picks for the year ahead.
This includes Alphinity's Mary Manning, whose top stock last year delivered a whopping return of 86% in 2023 (the average return of the stock picks last year was 36.73%), as well as star stockpickers Emma Fisher and Chris Stott, industry legends Dr Philipp Hofflin and Bob Desmond, and many more.
So, without further ado, sit back, relax and enjoy the most anticipated list of stocks for 2024. And as always, do your own research before making any investment decisions of your own.
Our featured fund managers include (in order of appearance):
Mary Manning, Alphinity Investment Management
Marc Whittaker, IML
Emma Fisher, Airlie Funds Management
Dr Philipp Hofflin, Lazard Asset Management
Joel Fleming, Yarra Capital Management
Matthew Haupt, Wilson Asset Management
Chris Stott, 1851 Capital
Francyne Mu, Franklin Templeton
Bob Desmond, Claremont Global
Daniel Sullivan, Janus Henderson
Vihari Ross, Antipodes
Matthew Kidman, Centennial Asset Management
Note: We would like to thank the fund managers listed above for sharing their top ideas for 2024 in the spirit of the Outlook Series. All of the fund managers featured in this series run diversified portfolios and do not invest solely in the stocks mentioned below. This list is not, nor is it intended to be, a set of recommendations. Please do your own research and seek advice from a professional before making any investment decisions of your own. Past performance is not a reliable indicator of future returns.
You can watch the video by clicking the player, listen to the podcast, or read an edited transcript below. These interviews were filmed on Tuesday, 12 December 2023.
James Marlay: Hello and welcome to Livewire's Outlook Series for 2024. I'm James Marlay.
Ally Selby: And I'm Ally Selby. And if you like stocks, you've come to the right place.
James Marlay: In this video, we'll be asking 12 of Australia's top fund managers for their #1 stock pick for 2024.
Mary Manning: My #1 stock pick for 2024 is Nike. I like Nike for three main reasons. The first is Nike is just starting to be in an earnings upgrade cycle. It had a difficult two years with respect to COVID supply chain issues, and inventory build in the US, which led to discounting and margin compression, but now that is all in the rearview mirror and Nike is starting to be in a nice earnings upgrade cycle.
I also like Nike's valuation. It's trading at 28x PE versus a historical average of 33x, and it has mid-teens earnings growth going forward. So, the PEG ratio (price/earnings-to-growth) is very attractive.
Lastly, I like Nike because it's one of the best brands in the world. Some sportswear brands come and go, but Nike is here to stay. If you're thinking of buying a stock and buying Nike for 2024, just do it.
Marc Whittaker: I think some great opportunities are emerging in the small-cap healthcare space. So in that context, I think Australian Clinical Labs is my #1 stock pick. It's the third-largest pathology player in the country. The key to success in pathology is just pushing volume through your fixed laboratory network.
So if you look at ACL, its top line is growing at 4-6%, that's not high growth, but when you think about the fixed cost base they're operating across, those volumes coming through will provide good operating leverage going forward. It has a very good management team. I'm really impressed with the way they've built that business over the last few years, and where they've taken it to be the #3 national player over time.
They have great prospects in terms of M&A and winning national contracts, which they haven't had before. It puts them in what I think is a pretty good competitive advantage compared to the likes of Sonic (ASX: SHL) and Healius (ASX: HLS).
And, of course, they've been topical in the press lately because they have proposed a merger with Healius. The industrial logic of a merger between those two is indisputable. It would be highly profitable for both sets of shareholders. And we're really encouraging both sets of management teams to have that conversation. And if that were to happen, that would be a tremendous outcome for us as ACL shareholders.
Emma Fisher: I'd love to have some undiscovered gem for you. We've just done a podcast where I talked about this stock. It is a consensus view, I think, but there are no prizes for originality in funds management and I've just got to go with what our largest position is, which is ResMed.
2023 was the year that everyone decided that obesity was cured by these weight-loss drugs. And I think 2024 is the year that reality will hit - that they are not a panacea for weight loss and that they aren't a panacea for sleep apnea, which is what ResMed treats. So that's one that I think will have a very big 2024.
Dr. Philipp Hofflin: A little bit of soul-searching as to how to answer that one. And I thought I'd go down the controversial path, with a stock that's been in the headlines for the wrong reasons and has had a terrible run. Healius is a pathology and imaging business. And traditionally, this is a very good industry. It's very consolidated in Australia, the government provides your revenues. But everything's gone wrong. They lost control over their costs during COVID. They did some terrible M&A. They've got a cost blow-out. It got so bad they had to do a capital raising. But that's all behind us.
But there's an interesting question there. For some reason, we don't have as many GP visits in Australia as one would expect. So the question is, what's going on there? And it seems to be that the most likely reason is that it's because bulk billing rates have fallen. So why is that happening?
Well, for six years or so, the government rebates on Medicare for the GPs were lagging costs enormously. But the federal government, from November 1, has increased those by 30-50%. That probably means more GP visits again, and that probably generates pathology referrals. And it's really important for those businesses because most of their costs are fixed. The marginal test is almost all profit. So volumes are really important.
Now, it's a small company and it's a turnaround, so it's riskier than most. It's a small position for us, but it's high risk, high return. But it's worth thinking about because, fundamentally, it is in a very good industry overall.
Joel Fleming: I am going to hedge my bets here, but base metals have had a really tough year. So we think tin, nickel, and copper all look really interesting to us at the moment. We see improving demand. We see issues on the supply side. So we'd highlight Metals X in the tin space, Lunnon Metals (ASX: LM8) in nickel, and AIC Mines (ASX: A1M) in copper as being really interesting ways to play that base metal recovery.
James Marlay: Well, that's three names. Appreciate the generosity at this time of year. It's a good time for giving. If I had to push you for one, which one would it be?
Joel Fleming: It's got to be Metals X. That's the standout.
Matthew Haupt: The #1 would be Star Group, so Star Casino, by the mere fact that it's fallen so much and it's been a terrible investment for us this year. But we look at the asset backing of the company now and we can get around 80 cents in pure asset backing through the hotels and their property. It's trading currently at 47 cents. So when you go through lists of no-brainer companies, Star, at this point, looks like an absolute no-brainer.
They do have AUSTRAC to clear (the fine), and also the dealing with Multiplex up in Queensland. But for us, that looks like an absolute standout. And if you value the operating business, you can get around $1.20 per share. So it looks like incredible value.
Chris Stott: We've gone with Light & Wonder. In the gaming space, Light & Wonder is the Aristocrat (ASX: ALL) of the next decade. Over the last 10 years, Aristocrat shareholders have had a great experience, and essentially when you look at Light & Wonder, they've picked off maybe 70 or 80 of the best people out of Aristocrat and put them into this business.
It's trading on a PE, a price-to-earnings ratio, of 15x, and is growing at north of 20%. So trading at a large discount to the overall segment and market with superior growth characteristics. Some of their key games are experiencing well above floor average market share. And when you look at the Australian market, Aristocrat represents about 70% of the overall floor market share. They're ripe for the picking in our view.
Some of the games that Light & Wonder have - Dragon Train, Monsters and Frankenstein - we think can take share. The early signs in Australia for some of those games are good, and they've got plenty of others in the bank that are going to launch over the next couple of years.
Then we haven't talked about the North American market yet. So as they launch those games in Australia, they can push them into the North American market, and we think that can significantly drive earnings growth over the medium-term. Finally, they've put out an earnings target of $1.4 billion of EBITDA for 2025. We think they'll beat that quite comfortably. And on current earnings run rates, we think that they will be way ahead of consensus in terms of what they can deliver.
Francyne Mu: I think MongoDB is a great company to own. It can be volatile, but we think that the secular growth drivers underpinning that name will mean that it will be able to manage through that volatility.
Essentially, it provides database management for companies. And in a world where we're increasingly trying to draw upon that data where you've got different data types, MongoDB is well-placed to benefit from that over time.
Bob Desmond: Our #1 pick for 2024 is Nike because I think there's been a lot of transitory headwinds there. For example, margin pressure from freight, they've been discounting inventory, and China's been shut down. That's coming back online.
The valuation's very, very supportive. It's probably one of our best-value names at the moment, and we can see a clear catalyst. So that's probably our #1 pick for 2024.
Daniel Sullivan: Given copper is the backbone of all this transitional activity, and even though it has probably held up a bit better than expected over this year, we'd still say copper's the thing that investors should get exposure to. And as I say, Ivanhoe's copper grade is around 5-6%, and most copper companies are 0.5-1%. They've got an exceptional advantage in that respect. They'll expand over the next few years to become the second biggest or the biggest copper company in the world. And that's all come from almost nothing 10 years ago.
It's a fantastic new venture. It's working really well. If you look at the pictures and see it, it looks just like other good mining jurisdictions, like Western Australia. So they've done a fantastic job bringing it on. And they also have additional optionality and projects in zinc and platinum.
So there are a lot of things there, and the founder is a deal-doer. So this has got a good setup to both grow, have the commodity work, have corporate action, and have new projects. There are lots of things layered into that, which we quite like in a stock.
Vihari Ross: I'm going to give you a very different one here. I'm going to go Sendas Distribuidora. That's a Brazilian cash-and-carry business. Cash and carry is the most popular grocery format in Brazil. The reason the stock is cheap is that they've had their series of troubles. The first one was they've had food deflation. That doesn't help any grocer around the world. They've also had interest rates go from 2% to almost 14%, which obviously hit the consumer hard. They also bought these supermarkets just before those interest rates started climbing and took their debt level up.
Now, we're in this situation where that debt level has peaked. It's passed three times net debt to EBITDA. And when you look at these stores that they bought, they've closed them, they've refurbed them and they've converted them, and they're opening up at three times the level of sales than when they bought them. They're also now generating significant amounts of free cash for this business.
So you've got a company that's passed those troubles and you're going to be growing your operating profits at 20% per annum over the next three years, and stock's trading on a multiple of 14 times. So that's my pick for you today.
Matthew Kidman: I'm going to stick with a financial stock. Earlier we talked about how markets can be up [in 2024], and I said small caps can be up even more. So what company is leveraged to a rising market? Almost like a second derivative. And I think one that could really do that is the Bell Financial Group, BFG, the big friendly giant. I think it can grow into a bigger company this year.
What everyone knows it for, the stockbroking and the corporate advice and the capital raisings, that's the leverage play that's been dead the last two years. That can spike earnings. Underneath that are a couple of quite nice businesses that don't get recognition. So the online platform, Bells Online, has been growing nicely, with steady earnings. They've also got a bunch of services, the main one being margin lending. Another part of the business that's been growing quite nicely, because of not much competition in that area.
So it has good underlying businesses, but you're going to get the real kick, the real leverage in the earnings when the market takes off. And I think that's one you can play, 50-60% this year, if it works.
James Marlay: It might put you in the top spot.
Matthew Kidman: You never know!
This article originally appeared on Livewire on Friday 5 January.
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