Buy Hold Sell: 3 stocks that have been smashed (and 2 big buys)

Matthew Kidman: Hello and welcome to Livewire's Buy Hold Sell. I'm Matthew Kidman, and today we're going to have a look at the good and bad. But first, we're going to have a look at what got smashed, absolutely crunched, from bad results in the recent company reporting season. And with me today to discuss that, I have David Wilson from First Sentier and Michael Wayne from Medallion Financial. Michael Wayne (SELL): Sell. Bevan Slattery, the major shareholder, has finally managed to exit his stake, and this coming report was no different really to the last few reports from Megaport. It doesn't do things by halves, but it was a big downgrade, missed estimates by a long way, average revenue per customer was in decline, and customer churn showed signs of picking up. So for a business that's meant to be a high-value growth stock, this one didn't deliver the growth, unfortunately.

Matthew Kidman: David, it was hardly mega. What were your comments, buy, hold, or sell about Megaport?

David Wilson (BUY): Our recommendation is a buy. We think it was actually an execution issue. The result itself was actually okay. The guidance was weak, and we think that more reflects execution rather than its market position. It's still in 24 countries, 162 cities. It's the leader. Its competition is actually falling away. So we think it's actually in a good place despite the fact that the market was very disappointed, and we were disappointed with the guidance.

Matthew Kidman: Hardly a bionic result for the bionic ear company, Cochlear. Buy, hold, or sell?

David Wilson (HOLD): For us, it's a hold. The result itself was a slight miss; it was at the bottom end of expectations. The market was disappointed by the guidance and so therefore you generally saw a 5-10% cut in consensus earnings forecasts. But they've still got 65% of the market, so they're in a good place. The valuation is extended. For us, a hold.

Matthew Kidman: They hardly ever miss, but do you think the market misheard what they were saying? Buy, hold, or sell on Cochlear?

Michael Wayne (HOLD): Hold on Cochlear. Very high-quality business with a long-term track record of delivering. This was a slight misstep. The outlook was somewhat weaker than everyone was hoping for. The reality is they dominate the market in the developed world - it's whether they can now go on and execute in the emerging markets. Emerging markets have enormous potential, but the costs and margins potentially will have to be squeezed in order to really penetrate that market on a long-term horizon. But good business, good track history, it's whether or not they can make that pivot. And at this stage, that's still to be decided. But hold for us.

Matthew Kidman: Okay. It might be the Year of the Dragon, but none of the Chinese people are having babies. A2 Milk, buy, hold, or sell?

Michael Wayne (SELL): Sell on A2 Milk. They missed earnings expectations, margins came in weaker than expected on higher marketing costs. There are a few issues with that business going forward. We think there's a lot of competition entering that market, and the glory days of a few years ago when infant milk formula was taking off, I think, are well behind us. So, going a sell on A2 Milk.

Matthew Kidman: David, they're not even getting married in China these days; the marriage rates are down. But A2 Milk, they've done pretty well this year but their guidance got everyone a bit concerned - problems with their supply chain. Buy, hold, or sell?

David Wilson (SELL): We agree, it's a sell. We think the management's done a fantastic job taking market share from even local operators, but also some of the international competitors as well. So they've done a great job. But as you say, the marriage rate is down and the birth rate is down. So it means it's going to be quite tough for them over the next three or four years.

Matthew Kidman: Well, I'm feeling smashed. So lift us up, get out of those stocks and give us a pick of a stock that did really well that you're quite excited about that you will tilt into with your portfolio in the coming months.

David Wilson (BUY): Well, that stock is Brambles. There's been a chequered history over decades in this particular company, but now we're starting to see them really exert their global leadership across both North America and Europe. So, returns were up 400 basis points to 22%, they gave great guidance as well - double-digit earnings growth. So we think they're finally exerting that sort of market presence that the market has been looking for for decades. So for us, we're quite excited about the outlook for Brambles.

Matthew Kidman: Who could have been so excited about pallets? That's interesting, isn't it?

David Wilson: They're really interesting.

Matthew Kidman: They are. Obviously. Okay, Michael, you've got a chance now. What's the stock that you think shot the lights out that is going to go on with it, especially over the next six months? Because that's what we're looking for. We can't have all the gains on day one - it's got to keep going.

Michael Wayne (BUY): That's right. So a recent addition to the portfolio for us has been Block, SQ2 is the code. Everyone relates this business to the old Afterpay. But Afterpay, these days, barely rates a mention for this business; it's all about the Cash App product and the Square product. Cash App in the US continues to go gangbusters - over 50 million users, all monetized to some degree. So this is a business that we think has the potential for a bit of a re-rating in the months and years ahead.

Matthew Kidman: It's just got to get its name sorted out. There are too many names involved with that company.

Michael Wayne: I know. It's very confusing.

Matthew Kidman: But very exciting. So that was a great show, give it a like. And don't forget to subscribe on YouTube to get more content like this, and go out and have a listen to our great podcast.