Doug Goodwille from Kayne Anderson speaks to Drew Meredith from The Inside Network on market thinkers.
While a surging gold price is on hold as the world adjusts to a Trump presidency, all the factors that saw its price rise more than 50 per during his first term in office – trade disputes, fiscal deficits and geopolitical tensions – are almost certainly guaranteed the second time around.
Fineos, Newcrest added to Morningstar Best Ideas List
Morningstar has released its Best Stock Ideas, which highlight the top Australian and New Zealand companies that are trading at a discount to their fair valuations. This month it has 15 companies in its list having added Fineos Corporate Holdings (ASX:FCL) and Newcrest Mining (ASX:NCM).
Fineos develops and sells claims and policy management software for the life, accident and health Insurance Industry, on both an enterprise and software-as-a-service (SaaS) basis. Shares in FCL ($1.59) are trading at a significant discount to Morningstar’s $4.40 valuation. While unprofitable, Morningstar thinks Fineos is in a good position to win new business supported by longstanding customer relationships and their referrals. Newcrest Mining was chosen on the back of the rising demand for gold. This is supported by rising inflation, higher bond yields and recessionary concerns increasing gold’s appeal as a safe-haven asset. The miner has numerous developments at play.
Here are Morningstar’s Best 15 Stock Ideas:
| Code | Company Name | Market Price | Fair Value Est | % Upside | Mcap |
|---|---|---|---|---|---|
| KGN | Kogan | $ 2.78 | $ 11.70 | 320.86% | $0.30bn |
| FCL | Fineos Corp Hldgs | $ 1.48 | $ 4.40 | 197.30% | $0.47bn |
| MFG | Magellan Financial Group | $ 12.92 | $ 31.30 | 142.26% | $2.39bn |
| GEM | G8 Education | $ 1.06 | $ 2.00 | 88.68% | $0.89bn |
| A2M | The a2 Milk Company | $ 4.39 | $ 7.60 | 73.12% | $3.27bn |
| WTC | Wisetech Global | $ 37.85 | $ 65.00 | 71.73% | 12.35bn |
| AGL | AGL Energy | $ 8.25 | $ 13.30 | 61.21% | $5.55bn |
| LLC | LendLease | $ 9.11 | $ 14.45 | 58.62% | $6.28bn |
| NCM | Newcrest Mining | $ 20.89 | $ 33.00 | 57.97% | $18.66bn |
| WBC | Westpac Banking Corp | $ 19.50 | $ 29.00 | 48.72% | $68.27bn |
| IVC | InvoCare | $ 10.46 | $ 15.30 | 46.27% | $1.51bn |
| WPL | Woodside Petroleum | $ 31.84 | $ 40.00 | 25.63% | $60.46bn |
| TPG | TPG Telecom | $ 5.97 | $ 7.40 | 23.95% | $11.10bn |
| AZJ | Aurizon Holdings | $ 3.80 | $ 4.70 | 23.68% | $7.00bn |
| BXB | Brambles | $ 10.71 | $ 12.70 | 18.58% | $14.85bn |
Topping the list with the highest upside potential is Kogan (ASX:KGN) with an upside potential of 320.86 per cent. Shares are trading at a significant discount to Morningstar’s $11.70 fair value estimate. The firm says the current weakness in the share price is due “to a material moderation in sales growth and earnings declining from boom-time levels of 2020, as well as management’s decision to temporarily suspend dividends.” Kogan should benefit more than omni-channel retailers from the secular shift to e-commerce, as it is a pure online play.
Also worthy of mention is Magellan Financial Group (ASX:MFG), which was experienced a brutal sell-off after a series of blunders, missed expectations and co-founder Hamish Douglass taking medical leave after a horror two-month stretch took a toll on his health. Magellan announced on 9 June 2022 that Douglass will resume work in a new consultancy role on 1 October 2022. Let’s not forget Magellan is, or was, the biggest fund manager in Australia. The share price sell-off was largely overdone.
Morningstar sees several drivers of earnings growth for Magellan Financial Group. It says, “First, a return of fund performance to historical levels should help stabilise outflows and boost performance fees. The flagship Global Equity strategy’s portfolio undervaluation, moat-focused composition, and above-average expected earnings growth give us confidence that it is strongly positioned to outperform its benchmark. Second, a cleverly designed product suite will help Magellan to capitalise on emerging investor trends.”
