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.
Westpac offering ‘meaningful’ discount and significant upside
Morningstar’s monthly Best Stock ideas for December include the addition of Westpac Banking Corp (ASX:WBC) but the removal of APA Group (ASX:APA).
Westpac has been added because it is trading on a meaningful discount and the upside potential following recent share price weakness is appealing. The banking heavyweight recently disappointed with its guidance on net interest margin and operating expenses, pulling the share price lower.
However, Morningstar says, “we expect margin headwinds to persist in the short term as the bank uses price to lift volume via the broker channel and the loan-book shifts more to lower-margin owner-occupied and fixed loans. But as Australia’s second largest lender, number two in mortgages and number three in business loans, we expect funding cost advantages will allow the bank to reprice loans and generate better margins as the cash rate is increased.”
While the bank was on the way down, Morningstar says this has stopped in recent months which gives it confidence “there are no serious issues with the bank’s loan approval processes. Westpac continues to sit on surplus capital, is well-provisioned, and pays generous fully franked dividends.”
To make way for Westpac, Morningstar has removed infrastructure stock APA Group (ASX:APA). The stock bounced back to fair value in November, after management said it would no longer go after an acquisition of AusNet Services. Morningstar said, “The acquisition would have been mildly dilutive, required an equity raising, and increased financial leverage.”
Remaining stocks in the portfolio include A2 Milk (ASX:A2M), AGL Energy (ASX:AGL), AUB Group (ASX:AUB), Aurizon Holdings (ASX:AZJ), Brambles (ASX:BXB), Cimic Group (ASX:CIM), G8 Education (ASX:GEM), Invocare (ASX:IVC), LendLease Group (ASX:LLC), Link Administration Holdings (ASX:LNK), Magellan Financial Group (ASX:MFG), Southern Cross Media Group (ASX:SXL), Viva Energy Group (ASX:VEA), Whitehaven Coal (ASX:WHC) and Woodside Petroleum (ASX:WPL). There is a clear ‘value’ tilt, given the lofty current valuations.
