The sectors and stocks to watch from Macquarie's 2023 conference

Defensive remains the name of the investing game, according to the Macquarie Conference 2023. But that’s not to say there aren’t bright spots in sectors and companies in this challenging environment.

In it’s conference wrap dated 5 May 2023, Macquarie noted four key market themes, upgraded some stocks and downgraded others - but it was far from the bloodbath many investors might have expected.

In this wire, I’ll take a deeper look at these themes, as well asMacquarie’s view on sectors and stocks to watch in the coming year.

Four key themes

1. Inflation is easing There were a range of signals in different sectors to reflect this. Industrials and resources companies like Seven Group Holdings (ASX: SVW) pointed to easing labour availability, reducing inflationary pressure, while consumer staples companies like Woolworths (ASX: WOW) and Coles (ASX: COL) noted that there were less frequent supplier price increases and food inflation was therefore moderating.

2. Weaker consumer spending Inflation and rate hikes have finally hit consumers. Media companies all pointed to weakness in advertising markets which is consistent with slowing consumer spend. Consumer staples companies Woolworths and Coles also noted that Australians were ‘trading down’ purchases and buying in batches, for example, buying frozen vegetables rather than fresh, or cheaper cuts of meat. Macquarie pointed to slowing demand trends in consumer discretionary companies with more to come as fixed rate mortgages roll off and higher unemployment is anticipated, both headwinds for consumer spending.

3. A strong outlook for property and residential recovery While there are risks on the horizon for office properties due to the expectation of higher unemployment, industrial and residential properties are looking promising. In fact, REITs are shifting in favour of these. Despite the RBA rate hikes, there are still signs of recovery in the residential property market – the Sydney market for example has seen gains the past few months. The residential property market should continue to be supported by strong immigration and the housing shortage.

4. And an honourable mention... an oncoming energy crisis in Australia APA Group (ASX: APA) tipped an oncoming gas crisis (which it views as an opportunity – less of a positive for end consumers) while Strike Energy (ASX: STX) noted that the WA is approaching energy challenges due to lower exploration activity, a decline in legacy fields and growing demand for power generation.

Sectors and stocks to watch

If you’re looking for the bright spots for the rest of the year, it’s hard to go past healthcare along with a few specific pockets in consumer discretionary and financials.

“We raised Health to our top overweight with an increase in CSL (ASX: CSL), but reduced exposure to Energy and some expensive defensives,” Macquarie analysts wrote in their Equity Strategy note released on 5 May 2023. 

Healthcare businesses have benefited from a range of factors, such as backlog of elective surgeries post the COVID lockdowns. Macquarie also anticipate benefits to healthcare companies focused on aged care, such as Regis Healthcare (ASX: REG), off the back of the Australian Government announcement of additional funding for the industry.

There were also four upgrades and five notable downgrades revealed during the conference.

These upgrades included: Medibank Private (ASX: MPL), NIB Holdings (ASX: NHF), Flight Centre (ASX: FLT) and Auckland International Airport (ASX: AIA).

The reason for these?

Macquarie noted that pent-up demand continued to support travel sales. FLT upgraded its guidance, while AIA is benefitting from recommencing flights.

Private health insurers MPL and NHF upgraded growth expectations in policyholders, with non-residents a particular focus for MPL.

The five downgrades won't surprise anyone

Media stocks disappointed at the Macquarie Conference, thanks to weak ad bookings off the back of a challenging market and slower consumer spending. 

Macquarie downgraded SWM, Nine Entertainment (ASX: NEC), Domain Holdings Australia (ASX: DHG) and Ooh!Media (ASX: OML). OML was the largest underperformer of the conference.

Macquarie also downgraded Computershare (ASX: CPU) off the back of its reduction in FY24 margin income guidance due to lower client balances. Macquarie's biggest outperformer

“CWY was the biggest outperformer in the ASX 100 after maintaining guidance, calling out improving labour availability and the potential for improving margins,” Macquarie analysts wrote on May 5. 

Cleanaway Waste Management (ASX: CWY) typically has stable cashflows from its waste management business and government contracts and is considered an infrastructure-like asset. It has been previously called out as an M&A target – you can read more in this article by Hans Lee.