Buy Hold Sell: 5 stocks backed by fund managers

We'll start with you, Reece. The first stock is Cleanaway. Is it a buy, hold, sell for you?

Cleanaway Waste Management (ASX: CWY)

Reece Birtles (HOLD): For us, at best, it's a hold. For a number of years, pre-COVID, it was growing very strongly as an M&A roll-up and really had some growth tailwinds. Since that time, it doesn't really have the opportunities to do M&A anymore to add to it. It's a very capital-intensive business, it's trading on a big premium after that big re-rate over its strong period and there are really quite high expectations of improvement required to get to the price. So we think it's a hold.

Hamish Tadgell (BUY): We'd probably say it's a buy. We see it as a high-quality business with infrastructure-type characteristics. It has a new management team in there and it's got strong parallels to us of Brambles (ASX: BXB) and sort of the turnaround that's gone on there, in terms of the network business. They've got a new management team that's coming in and I think there are some strong operational improvement initiatives that they're putting in place. Secondly, I think that there's still recovery from COVID going on. They were impacted particularly on the labour side, and I think they're sorting some of those issues out. And thirdly, they have invested in a number of initiatives like FOGO and the like. And the M&A that Reece has talked about, we still think the benefits growth to come over the next few years, so we think it's a buy.

QBE Insurance (ASX: QBE)

Hamish Tadgell (BUY): We're a buy. We think that QBE's in a bit of a sweet spot at the moment in terms of benefiting from rising interest rates and that's helping improve technical reserves. And for the first time in a long time, that business is also benefiting from the global insurance hardening cycle, which we still think has some way to run. And then thirdly, I think there are some good restructuring initiatives and simplification of the US business that's been going on. Focusing more on the mid-market and getting out of some of the insurance classes that have proved difficult over the recent past.

Reece Birtles (BUY): It's a buy for me as well. The only thing rising faster than the share price is its earnings. So the PE has actually been falling, it's now on around nine times earnings for FY24. So agree with many of the themes, the premium rate environment has been very strong given catastrophes, and the inflation dynamic has caused the cost of insurance generally to rise. So they're really benefiting from that strong top-line growth. One of the things we really like in this business is the appointment of a really experienced CEO who's really focusing on rectifying the problems in the business. And it's so important for insurance to be on top of the details, to get those claims sorted out and to be in the right line. And then the industry backdrop in the US, with its peers just reporting 10% rate increases, low 90%-type combined ratios, and that would be very positive for QBE's earnings going forward if they continue that.

The Lottery Corporation (ASX: TLC)

Hamish Tadgell (BUY): Look, I'd call out Worley. Clearly, the company has had a good run in the last 12 months, but we think it's coming off a low base and we think there is still a long runway of growth [ahead of it]. Worley historically has been in the hydrocarbon space. It's the biggest or largest engineering consultant globally and employs about 40,000 people. 

The company is pivoting towards sustainability. And so over the next two or three years, by 2026, the company is suggesting that 75% of their earnings will come from work in the sustainability and energy transition area. So areas like battery metals, wind and hydrogen and those types of things. 

We think that growth is real. We think that they've got pricing power in the current environment and we also think that the government policy backdrop is very favourable. So things like the Inflation Reduction Act in the US, and initiatives here, are encouraging companies to invest in this space, which is then engaging Worley to do various services for them. So we see double-digit earnings growth for this business over probably the next five to six years and trading on 15 times, we think the company could re-rate to 18 or 19 times and is hence a buy.

Reece Birtles (BUY): For us, it's Flight Centre. It really has not had the full travel recovery, its key segments are in corporate and international and both of those segments have yet to fully recover. And what we'd say is that Flight Centre definitely did not waste the crisis. 

So in FY23, Australian travel numbers were at about 80% of pre-COVID, but Flight Centre managed to do 120% of their turnover in their corporate segment because they were winning accounts during the COVID-19 lockdown period and growing their market share in that corporate business. 

And then in the leisure business, that has traditionally been quite hard to fix, given their bricks-and-mortar bas. They're running at about 80% of their pre-COVID levels, but with half the staff numbers and about half the number of stores. So they've really managed to drive efficiency in their business.