3 hot sectors and 9 blistering stocks from Q1

The three ASX sectors that have run the hardest year-to-date - Technology, Real Estate and Financials – gained 23%, 13.5% and 10.6%, respectively, by the end of March 2024.

That’s versus a gain of just 3.5% from the S&P/ASX 200 during the period.

In the following wire, we dig into the data – with the help of Livewire’s Kerry Sun – to identify the three highest-performing stocks across each of these sectors. Some have risen on the back of M&A activity, while others have lifted in response to different catalysts.

TOP PERFORMERS IN ASX TECH

Source: Market Index, ASX

Life360 (ASX: 360)

A developer of software applications for family safety and location-sharing, Life360 is the fifth-largest social media company in the US. This is its largest market, though it has a presence in 150 countries.

The California-based firm was listed in Australia back in 2009, after being founded in the wake of Hurricane Katrina in 2005 to help isolated families keep in contact.

The latest share price surge coincides with management's plan to monetise non-subscription “freemium” users by rolling out advertising. It currently serves 61 million individual users – including 1.8 million family units, an audience that is growing at 20% annually.

The company, whose share price gained 70% between the end of February and mid-March, reported a more than 30% lift in revenue for calendar 2023 and earnings of US$20.6 billion.

What the brokers think

• Morgan Stanley rates the company OVERWEIGHT, with a price target of $14.40. Equity analysts James Bales, Joseph Michael, CFA and Chenny Wang, CFA, in a mid-March report, called out 360’s large, affluent user base and introduction of advertising on its platform.
• Ord Minnett rates Life360 as BUY, with a price target of $8.84 as of the end of November 2023.

Megaport (ASX: MP1)

First-quarter return: 63.47%

The global provider of cloud computing applications is tipped as one of Australia’s biggest beneficiaries of the artificial intelligence theme. It was highlighted by Wilson Asset Management portfolio manager Oscar Oberg in a recent forum, as reported by Livewire’s Ally Selby.

"Our catalyst to buy shares in Megaport came from the announcement of the new chief executive officer Michael Reid, which happened in April last year," Oberg said.

Oberg expects MP1’s customer base will continue to grow and sees more – and larger – contract wins ahead.

And with the company trading on a price-to-earnings multiple of 10 times (as of mid-February) – versus 18 times for tech competitor Altium (ASX: ALU) – he believes there’s a good chance the share price will push higher.

What the brokers think

• Barrenjoey downgraded MP1 to NEUTRAL from Overweight on 30 January, but analyst Eric Choi lifted his price target to $12.50 from $11.50.

Altium (ASX: ALU)

First-quarter return: 38.41%

One of Australia’s “picks and shovels” plays of the AI revolution, Altium produces software for the design of circuit boards and other electronic products. On 14 February, the firm received a $9.1 billion takeover offer from Japanese firm Renesas Electronics – which sent its share price up 30%. The $68.50 a share offer has been approved by the board, with shareholders still to sign off on the deal, which is expected to close in the second half of this year.

What the brokers think

• Morgan Stanley downgraded Altium to EQUAL-WEIGHT, from Overweight, on 28 February. But analyst Andrew McLeod lifted his price target to $68.50 from $50.
• E&P downgraded Altium to NEUTRAL from Positive on 15 February, analyst Paul Mason leaving his price target unchanged at $68.50.

Top performers in Australian real estate

Source: Market Index, ASX

Goodman Group (ASX: GMG)

First-quarter return: 34.11%

The commercial property company, with a large focus on industrial buildings, has benefited from the increased emphasis on prime logistics assets – particularly as institutional investors have been rotating out of office assets since work-from-home rose during COVID. The out-of-favour category is down 15-20% due to rising vacancy rates and higher interest rates.

Goodman has also been swept up in the AI theme, the company increasing its focus on data centre assets in the last 12 months or more.

Martin Currie’s Reece Birtles recently named the company among Australia’s “fabulous four” companies with exposure to the tech theme – alongside NEXTDC (ASX: NXT), Wisetech Global (ASX: WTC) and Xero (ASX: XRO).

Schroders’ Martin Conlon was less sanguine: “While in no way diminishing the amazing job of management teams at companies like Goodman Group, when valuations expect King Midas to be in charge forever, there is plenty of scope for disappointment.”

What the brokers think

• JPMorgan downgraded GMG to neutral from overweight on 15 January, but analyst Richard Jones lifted his price target to $25.50 from A$25.
• Jarden also downgraded the firm in early January, analyst Lou Pirenc reducing it to OVERWEIGHT from Buy. However, he lifted his price target to $27 from $24.90.

PEXA Group (ASX: PXA)

First-quarter return: 21.4%

The property software business, Property Exchange Australia (PEXA), digitises the settlements for as much as 90% of Australian housing transactions. It was recently discussed in a Views From The Top interview with James Dougherty of Lennox Capital Partners.

While emphasising that the team doesn’t buy or hold companies based on the expectation of M&A activity, he regards PEXA as a potential takeover candidate within the next 12 months.

“It’s a high-quality business with good margins, a dominant market position, good cash generation and a number of growth drivers,” he told Livewire’s Ally Selby last week.

Having a controlling stake in the Australian settlements market, PEXA has been pushing into new geographies, particularly the UK. CEO Glenn King is targeting a 40% share of the UK re-mortgage market by the end of calendar 2025 and at least 25 per cent of the sale-and-purchase market by the end of 2027, the AFR reported last week.

While emphasising his conviction in the firm’s quality, Lennox Capital’s Dougherty noted its foray into the UK has proven difficult: “It’s taken a lot longer and has cost way more than it initially thought.”

He believes PEXA’s Australian business is worth around $16 – versus the share price of $13.50, “so you’re effectively being penalised $2.50 for the international business, and I’m pretty sure we’re not the only ones doing the math on that.”

PEXA shares closed at $12.34 on Friday, 5 April, having retraced some of their gains since the end of March.

What the brokers think

• Goldman Sachs added PEXA to its coverage list in January with a NEUTRAL rating. Analyst Annabel Liu set an initial price target of $12.80.
• Morgans rates the firm HOLD as of 21 December, when analyst Richard Coles downgraded the firm from Add and reduced his price target to $11.65 from $13.36.
• Jefferies also downgraded PEXA in December, analyst Roger Samuel cutting his price target to $11.45 from $14.05.

Ingenia Communities Group (ASX: INA)

First-quarter return: 16.74%

The lifestyle property firm and tourist park operator runs a portfolio of 37 holiday parks across NSW, Victoria, and Queensland. Its $1.1 billion land lease business – exposed to the demographic “megatrend” of Australia’s ageing population, is targeted at Australians aged 55 and over and contributes around half the firm’s total revenue.

Wilson Asset Management portfolio manager Shaun Weick cited the company as one to watch in February. He named it among a handful of housing and infrastructure-leveraged companies expected to benefit from improving economic conditions.

Ingenia was also the subject of a potential private equity takeover in late 2023, when US$83 billion Warburg Pincus was considering a bid – this coincides with the firm’s 25% share price jump since November.

What the brokers think

• UBS downgraded INA to NEUTRAL from Buy on 27 February, but analyst Tim Bodor lifted his price target slightly to $4.90 from $4.76.
• CLSA upgraded INA to OUTPERFORM from Underperform on 10 March, analyst James Druce lifting his price target to $13.74 from $11.74.
• Jarden upgraded the company to BUY from Overweight on 8 January, analyst Lou Pirenc also increasing the price target to $5.20 from $4.70.

Top performing ASX Financial stocks

Source: Market Index, ASX

Netwealth Group (ASX: NWL)

A provider of portfolio administration, superannuation, managed investment account platforms, Netwealth has a market cap of around $5 billion.

Yarra Capital portfolio manager Katie Hudson noted in January that Yarra's portfolios were overweight the sector. Netwealth (ASX:NWL) was one of four she highlighted among providers of financial platforms, insurance broking, funds management and trustee services. Other names included AUB Group (ASX: AUB), Equity Trustees (ASX: EQT), and Pinnacle Investment Management (ASX: PNI).

What the brokers think

• Jefferies downgraded NWL to UNDERPERFORM from Hold on 1 April, analyst Simon Fitzerald cutting his price target to $18.60 from $19.68.
• Ord Minnett downgraded the firm to HOLD from Accumulate on 30 January but analyst Nicolas Burgess lifted his price target to $16.50 from $14.70.
• CITI upgraded Netwealth to NEUTRAL from Sell on 17 January, analyst Siraj Ahmed lifting his price target to $16.10 from $13.45.

Virgin UK (ASX: VUK)

First quarter return: 32.15%

The name behind UK’s Clydesdale Bank, Yorkshire Bank and Virgin Money, the Richard Branson-owned firm was lobbed with a 2.9-billion-pound takeover offer from UK bank Nationwide at the back end of March.

The financial sector was highlighted by global asset managers Forager and Merlon Capital when I spoke with them back in November 2023. Portfolio managers Steve Johnson and Andrew Fraser both held the view that negative sentiment on the sector was overdone.

Johnson singled out European banks as an area of interest. “It’s been endless pain for European bank shareholders for the past 16 years, and the market is largely valuing them via the rear-vision mirror. That’s a mistake,” he said, describing VUK as a “bargain”.

What the brokers think

• Macquarie downgraded VUK to NEUTRAL from outperform on 11 March. But the research team increased their price target to 2.20 pounds (A$4.22) from 1.90 pounds (A$3.65).
• Morgan Stanley’s sell-side research team upgraded VUK to EQUAL-WEIGHT from Underweight on the same day. Analyst Alvaro Serrano lifting his price target to 2.20 pounds (A$4.22) from 1.65 pounds (A$3.17).

QBE Insurance (ASX: QBE)

First-quarter return: 23.08%

The Australian general insurer, having successfully passed through higher costs and benefited from higher interest earnings on its investment book, has been a preferred holding of several Australian equities funds.

QBE’s attractive dividends were called out by Plato Investment Management’s Dr Don Hamson last month during an investor update. The insurer was one of four he highlighted, alongside Rio Tinto (ASX: RIO), Fortescue (ASX: FMG) and Ampol (ASX: ALD).

What the brokers think

• Macquarie downgraded QBE to NEUTRAL from Outperform on 3 April, though the research team increased their price target to $18 from $17.10.
• QBE shares closed at $17.98 on Friday 5 April.

Do you own these companies?

If you hold any of the above in your portfolio – or are avoiding them entirely – we'd love to hear about it in the comments below.