3 ASX growth stocks to watch as earnings hit a turning point

This interview was recorded on Tuesday 11 February 2025.

Share markets are at near-highs. The RBA is expected to start cuts next week. There’s change in the air and something that seems like… hope. FNArena’s Rudi Filapek-Vandyck notes that all reporting seasons have their own character and this one spells a significant change compared to the more depressed mood of August 2024. The optimism is back and Filapek-Vandyck points to a few key reasons.

“There is a growing confidence now that earnings in Australia have bottomed, and we will see better times ahead. That’s already being reflected in forecasts,” he says.

“The earnings base is broadening, and the gap between the winners and the laggards is narrowing.”

He adds that the prospect of rate cuts supports his optimism and his view that 2025 may be the year that the “60% that haven’t performed over the past two years” finally get going.

Last year was about momentum, but Rudi sees potential for investors to consider cashing out on gains and jumping on laggards this season. But which lagging sectors and stocks offer investors true potential? Following Livewire’s reporting season tradition, Filapek-Vandyck joined me to discuss that and more in a wide-ranging interview you can watch above. Some of the highlights follow.

The two sectors and three stocks to watch this season

Filapek-Vandyck notes that the two sectors on his watchlist have polarising expectations within them – healthcare and telecommuncations.

Healthcare started to surge late last year – is this the start of solid outperformance?

“Covid is really weighing on that sector and we can see that by share prices for Ramsay (ASX: RHC), Sonic Healthcare (ASX: SHL), Healius (ASX: HLS), even CSL (ASX: CSL) and Cochlear (ASX: COH). It’s not the same as it used to be. And yet, we still have very good performing companies in that sector,” Filapek-Vandyck says.

He highlights Telix Pharmaceuticals (ASX: TLX), Pro Medicus (ASX: PME) and Resmed (ASX: RMD) – but they aren’t the two he is particularly interested in. Integral Diagnostics (ASX: IDX) and Australian Clinical Labs (ASX: ACL). He already holds Integral Diagnostics.

“Pre-results confidence is quite high that they will come out with good results and the share price should respond positively,” he says, describing Integral Diagnostics as a multi-year growth story.

Telecommunications is equally a mixed sector, with Filapek-Vandyck noting that TPG (ASX: TPG) is under the pump and Telstra (ASX: TLS) is said to be hitting limits on its franking credits.

“The one telecommunication company that has been put forward as potentially shooting out the lights this year is Superloop (ASX: SLC) and they have been on a tear for quite a while,” Filapek-Vandyck says.

The story of the big banks

At the time of interview, Commonwealth Bank (ASX: CBA) had not yet released its results – as of this morning, it beat market expectations with cash net profit up 2% to $5.13 billion.

While Filapek-Vandyck doesn’t hold the banks (with the exception of Macquarie Group (ASX: MQG)), he does believe outperformance can continue.

“The dynamics internationally are still to the extent that the finance sector, banks in particular, are often put forward as one of the outperformers for 2025 internationally,” he says, with the view that local performance should reflect international.

He argues it is unlikely that Commonwealth Bank will fall significantly in price, because of the way that it is valued here.

“It’s extremely overvalued and there’s no one who will deny that. But I figured out 10 years ago, that’s not how you look at Commonwealth Bank,” he says.

He adds that Commonwealth Bank is the best bank in Australia.

“By default, the market puts a premium on Commonwealth Bank in comparison to the sector,” he says.

“If [the other banks] keep rising, Commonwealth Bank will keep its premium. The sector needs to fall as a whole for Commonwealth Bank to come down as well. And that obviously isn’t happening.”

It’s not to say Filapek-Vandyck is expecting stellar outperformance from the banks, but rather a solid year.

Dry powder for opportunities

Filapek-Vandyck has previously held relatively high cash balances, for example, 40% in 2022. He currently holds 12.5%, along with 5-6% in gold.

“In principle, everyone should have gold. If you ask how much, well it depends. How worried are you about the world,” he says.

Filapek-Vandyck is ready to put his cash balance to work for the right opportunities.

“If some of those great growth quality stocks we have on the stock exchange sell off, I’ll be buying. That’s why I have some cash on the sidelines, otherwise I can’t do it,” he says.

This might mean topping up companies he already owns, such as Hub24 (ASX: HUB) or Wisetech (ASX: WTC) – or newer opportunities. Either way, Filapek-Vandyck sees the value in always having some cash on hand so you can jump on the right stocks at the right time.

Growth, areas to avoid, and two stocks to hold for the financial year

Watch the interview for more detail on the above, along with Filapek-Vandyck’s other growth picks, what he is avoiding, and two stocks he’d hold for the rest of the financial year.

Timecodes

0:00 - Introduction
0:30 - The changing market mood
6:48 - The outlook for the big banks
10:00 - The 2 sectors on Rudi's watchlist
10:47 - Stocks to watch in Healthcare
12:25 - Stocks to watch in Telecommunications
13:53 - Growth names Rudi likes
15:09 - Stocks and sectors Rudi is avoiding
16:52 - Rudi's cash balance and where he intends to deploy it
20:10 - A large-cap and small-cap Rudi would hold for the rest of FY25