More volatility is expected for the market this week after the Nasdaq got smashed late last week. There doesn’t seem to be one single driver of the current run, but former high-flyers are certainly coming in for a beating, as investors start to believe they may be over valued.
Mega caps
Last week, Charlie Aitken cautioned that it was time to get out of some of these high flyers and to look more at the mega caps that have more experience in weathering the ups and downs in the market.
“I recommend rotating that money to ASX TOP 20 laggards that have clear valuation and yield support,” he said.
Suncorp, Macquarie, AMP, IAG, Telstra, the big four banks and BHP are on his list.
Last week, Coca Cola Amatil (CCA) took a dive following a profit warning from the new chief executive, Alison Watkins. That earnings downgrade was mainly due to competition in the drinks space.
But further falls this week could make it a buying opportunity and it is on Peter Switzer’s watch list.
“The ex-Grain Corp boss has a strategic review to cut costs and raise productivity and that should work. I think an improving economy will help, taking the line through the two months of really good job numbers,” he says.
Resmed
Chief investment officer of Equity Trustees, George Boubouras, is a fan of Resmed and today he answers some fundie’s favourite style questions for us.
How long have you held Resmed (RMD) and what do you like about it?
Since late 2011, when the stock traded well below long run valuation signals.
We like the strong global growth potential that Resmed offers investors in the healthcare sector. It has positive momentum for their core drivers. The structural volume growth between 6-8% per annum simply underpins its earnings outlook. Also, it has a favourable outlook for its product mix. The improving momentum in identifying, diagnosing and treating sufferers continues to build in the core markets of Europe, Asia, Australia and the US. Also, the launch of new masks is an important development.
How is it better than its competitors?
They are global leaders compared to their peers with track record and have resolved previous challenges. The launch of a range of new (sleep apnoea) masks will restore Resmed’s global market share. Due to their superior product functionality, they command a premium price versus their competitors.
What do you like about its management?
Experienced senior management and supportive Board have ensured they have maintained their competitive advantage by utilising technological enhancements. They understand their market.
What is your target price on Resmed and at what point would you sell it?
Around $6 by mid-2015. A multiple above 22x would be an initial signal to take profit. We are a long way from that.
How much has it added (subtracted) to your overall portfolio over the last 12 months?
While RMD is up around 11% over the past year (31 March 2014), it has underperformed the broader ASX200 benchmark, which is up around 13.4% (total return) over the same time period. We see good upside in Resmed by the end of the year.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.
Also in the Switzer Super Report:
- Peter Switzer: Nasdaq freefall – how worried should you be? [1]
- Paul Rickard: ‘You are never too old for super’ – our call to the Murray Review [2]
- Rudi Filapek-Vandyck: Buy, Sell, Hold – what the brokers say [3]
- James Dunn: The new billionaires’ club – M2, AHE & SGH [4]
- Staff Reporter: Clearance rate down but more properties hit the market [5]