Buy Hold Sell: 5 stocks battling for blue-chip status

Few stocks have been able to wrangle their way into the S&P/ASX 20 over the past few years, earning themselves a place among the bourse's biggest as their market caps swelled. 

In 2020 alone, Amcor lost its place in the top 20 to Aristocrat Leisure, while a few months later Coles and Fortescue earned their stripes among the ASX all-stars - with Scentre Group and Suncorp receiving the boot. By the end of the year, it was all over for Insurance Australia Group, with Afterpay kicking the multinational conglomerate out of the mix. 

But, as they say, what goes up - must come down. 

In this episode of Buy Hold Sell, Livewire's Bella Kidman sits down with WaveStone Capital's Catherine Allfrey and Elston's Bruce Williams for a look at some of the mid-cap stocks that could be inching their way up to the lofty top 20. Plus, they'll also share two stocks that they believe could be on their way out. 

Note: You can watch, read or listen to the discussion below. This episode was filmed on 9 June 2021.

Edited Transcript

Bella Kidman: Welcome to Buy Hold Sell, brought to you by Livewire Markets. My name is Bella Kidman, and today we're going to be discussing the next big thing. That's right, we're talking mid-caps, specifically those mid caps which are about to creep their way up into the ASX 20. We'll also be talking about two ASX 20 stocks that may be on their way out. To talk to me about this today, I'm joined by Catherine Allfrey from WaveStone and Bruce Williams from Elston.

Catherine, I'll start with you first up we've got ResMed, they're obviously specialising in the development of technology for sleep apnea. Buy, hold, or sell?

Resmed (ASX:RMD)

Catherine Allfrey (BUY): It's a buy for us. There's a couple of really strong catalysts coming up with that one. They've got this new CPAP machine, AirSense 11, that's coming out. This is their first launch in six years. And the last time they did a launch the sales were up 40-50% for some time, for some quarters. And we also think that later in the year, in terms of the fourth quarter, there'll be a buyback coming. So it's a buy for us.

Bella Kidman: Bruce, can you sleep at night knowing this company could enter the ASX 20? Buy, hold or sell?

Bruce Williams (HOLD): Yeah, ResMed's an absolutely fantastic business. I agree with Catherine, all the points she's made. The one question I do have is that I don't understand some of their Software as a Service acquisitions and the growth rate attached to them. So it's a hold for us.

Xero (ASX:XRO)

Bella Kidman: All right, next up is Xero up around 60% in the last 12 months. Buy, hold, or sell?

Bruce Williams (SELL): Very strong business, but it's a sell for us based on valuation.

Bella Kidman: Catherine, you've been a big fan of Xero in the past. Does that still stand? Buy, hold or sell?

Catherine Allfrey (HOLD): Depends on your timeframe, Bella. I'll go with a hold on this one at the moment, but I think there's plenty of runway for growth on this one. And it's one of those stocks that if there's ever a market correction, buy it.

DEXUS Property Group (ASX:DXS)

Bella Kidman: High conviction. Next up we've got DEXUS which is one of Australia's largest REITs. Investing in CBD office spaces. Buy, hold, or sell?

Catherine Allfrey (SELL): It's a sell for us. Look, it's just had a recent bounce it's up trading at about $11, but how good can things get for it? I mean, clearly the occupancy rate has come off during COVID, but at the same time, interest rates are at an all time low, cap rates are like sub 5% on a $16 billion portfolio. There's not a lot of growth, you're talking like 3% growth, there's better other places to invest your money.

Bella Kidman: DEXUS has really struggled, everyone's working from home. Do we need a bit of property in the ASX 20 though? Buy hold or sell?

Bruce Williams (SELL): It's a sell for us. We think work from home has been overstated, we think it will normalise to an extent. But as Catherine said, we don't see too many catalysts for it, particularly with the tailwind of low rates turning against it.

2 companies on their way out of the S&P/ASX 20

Bella Kidman: Bruce, you've got to pick one ASX 20 company that you think give it the boot. Which one is it going to be?

Bruce Williams: Unfortunately, I think it's going to be Brambles (ASX:BXB). It's a really good quality company for us. It's probably considered a little boring by a lot of participants in the market, not too many friends, but it's got inflation protection in there, deals in consumer staples, primarily. Fantastic business.

Bella Kidman: Catherine, which ASX 20 company is on its way out?

Catherine Allfrey: I think it's Coles (ASX:COL), it's number 20 at the moment. It doesn't look good. It's at best a GDP business. It's comping the comp on a really high COVID sales result from last year. So unfortunately there's some faster movers coming through. So Coles is out.

Bella Kidman: The ASX 20 well and truly has something for everyone, from healthcare to technology and back to resources. But if you close your eyes just for a moment, you might find that these mighty mid-caps have become their replacement. If you enjoyed this episode of Buy Hold Sell, make sure you subscribe to Livewire's YouTube channel for more.

What S&P/ASX 20 stock do you think is about to get the boot? 

With the quarterly rebalance of the index fast approaching, we would love to know what top stock you think is likely to fall from the S&P/ASX 20? Let us know what stock and why in the comments section below.

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