Buy Hold Sell: The 3 best and 2 worst performing ASX100 stocks in FY22

When threats are lurking, with size comes safety. Just look at birds: the larger the flock, the less prone they are to predators. The same applies to investing - when markets are a bit bumpy, the small end of town tends to be much more volatile than its counterparts in the large. 

As we approach the end of the financial year, it has been a wild ride for equities. The ASX100 has been somewhat stable though, considering the uncertain macroeconomic environment, down only 2.35% year-to-date. This is very favourable versus the ASX200 (-7.51%) and S&P500 (-14.19%). So if you are looking for protection as well as opportunity, maybe the largest of the large is the place to be.

In this episode, we hosted Anthony Aboud from Perpetual and Sean Fenton from Sage Capital to uncover their thoughts on the darlings and the dogs of the ASX100 from FY22. Follow along as we look at 3 of the best performing ASX100 shares and 2 laggards from the past year.

The top-performing ASX100 stocks covered:

• Pilbara Minerals (ASX:PLS)
• Lynas Rare Earths (ASX:LYC)
• Incitec Pivot (ASX:IPL)

The worst-performing ASX100 stocks covered:

• Dominos’s Pizza (ASX:DMP)
• REA Group (ASX:REA)

Read, watch or listen below.

Note: This episode of Buy Hold Sell was shot on Wednesday 9th June 2022. You can watch the video, read an edited transcript or listen to the podcast below.

Edited transcript

David Thornton: Hello and welcome to Buy Hold Sell. I'm your host, David Thornton. It's been a pretty wild ride for stocks in 2022, but the ASX 200 is holding up pretty well. Today, we're going to discuss three of the best performing stocks in the 200, and also two laggards. For that, we're joined by Anthony Aboud from Perpetual, and Sean Fenton from Sage Capital. Welcome, guys. Okay, Anthony. First up, Pilbara Minerals. The ASX leading pure play lithium stock. Blew the lights out last year, hit $3.86, but it's definitely come off the ball this year, currently about $2.38. Buy, hold or sell?

Pilbara minerals (ASX:PLS)

Anthony Aboud (HOLD): I'm going to hold. It's come off 40% since about January on expectations of weaker lithium government price, mainly on the back of extra supply coming not hitting the market. We think that it's probably fairly priced at the moment just, but actual lithium price hasn't come off that much. But we think it reflects Pilbara’s long term prices, so we think it's about fairly valued.

David Thornton: Sean, PE still up in the 80s. Buy, hold or sell?

Sean Fenton (HOLD): Yeah, it's probably a hold with a bit of a tilt towards being a buy. It's all about the lithium price. We like lithium because you've got a legislative transition from internal combustion engines to electric vehicles occurring very rapidly. We don't like lithium because there's oodles of supply coming on quite rapidly. We suspect demand might do a bit better than supply there, but Pilbara's probably not our preferred lithium stock, so we prefer Allkem and ITO in that space.

Lynas Rare Earths (ASX:LYC)

David Thornton: Another one of the three top performers Lynas Rare Earths. Similar rollercoaster ride, hit $11.39, now $9.63. Buy, hold or sell, Sean?

Sean Fenton (HOLD): It's also going to be a hold, I have to say that because we were long and we've taken profits. But once again, Rare Earths, you've got a whole lot of geopolitical overlay there with China dominating refining capacity there. And Western companies, the US in particular looking for alternate sources and supply chains and support coming from governments there. Rare earth prices are very high, but there is supply starting to come out from different parts of the world and some refining capacity through China and other parts there. We see it as pretty evenly balanced where the price is.

David Thornton: Anthony, Lynas Rare Earths. You also going to give me a hold?

Anthony Aboud(SELL): No I think it's a sell. I think we like Rare Earths, we think it's a great story in Western sphere. We think that demand for magnets is going to be very strong with wind turbines, EVs, etc. We think there's a good demand side. But look, current price of NdPr is about US$123, so we think that's where it's priced. We think at some point the price will come back. In which case, we think Lynas will come back. Our preferred play in the rare earths is Iluka.

Incitec Pivot (ASX:IPL)

David Thornton: Okay. The third top performer, Incitec Pivot. Currently trading at $3.58, and it's planning to split its explosives and fertilisers business. Buy, hold or sell, Anthony?

Anthony Aboud (BUY): I've still got a buy. I like it. I think there are two things to have occurred which are going to be a bit more sustainable as a result of lack of supply, but also as a result of Russian invasion of Ukraine is elevated energy and food costs. And second derivative of food is fertiliser. We think that fertiliser is not a bad place to be over the medium term. Secondly, we like the demerger. We think that the volatility of the fertiliser earnings hides how good a business the explosive business is. It operates in a lot of duopolies with Orica. And so we think it will get a rerating and we do think then two bite size pieces. One of them may be quite attractive from an M&A perspective

David Thornton: Sean, buy, hold, sell?

Sean Fenton (BUY): Yeah, I generally agree it's a buy. There could be a bit of entry point coming up, but trading wise, there's a few pressures there. They've done really well from high ammonia nitrate, urea prices, ammonia prices with cheap gas out of the US, where their Waggaman plant is, that's being arbitraged away. The Europeans are buying all the gas cargoes they can out of the US, and coming out of winter in the Northern hemisphere, you've also seen some of those European gas prices come down. Margins have come down across the nitrogen part of the business. You're seeing some resistance to very high fertiliser prices in Brazil and in Australia. Bit of demand destruction there. But I agree with Anthony, the separation of the business should be value accretive and we're not in a situation where we've sold food inflation, food scarcity. We do see longer term strong demand there. They've just got to really step up the operational performance of that Waggaman plant, the AN plant in Louisiana.

REA Group (ASX:REA)

David Thornton: Okay. Now, moving on to the laggards. REA Group, missed its third quarter estimates, which the market didn't like. Buy, hold or sell, Sean?

Sean Fenton (SELL): I think it's a sell. At the end of the day. Last time we had a look, you get a house price downturn, listing volumes tend to fall at least 30%. This is starting to look a bit scary. The RBA is getting on the hawkish front foot. Rates are going up. You're going to see house prices fall and generally in that environment, turnover really drops off. They can pull some price levers, but penetration's very high in premium ads. They've pulled the cost levers through COVID so we know they've got the flexibility to do that. But rising bond yields, high prices and cyclical downside to earnings. It's hard to own.

David Thornton: Anthony. Rates going up.

Anthony Aboud (HOLD): Yeah. Being a big soft here, I'm going to say with the hold. I like the business. I do like the pricing power. They've got a strong market position. However, I agree with Sean. It's still not cheap enough yet to be a buy, given you've got the headwinds from probably slowing volumes of housing transactions. So I think it's still about 35 xPE for this year, FY22. It's just not cheap enough. Especially when you also, you've got a major shareholder in News Corp, which got a majority share. You just don't know what they're going to do. I don't know, from my perspective, it's still a hold. It's not a buy yet.

Dominoes (ASX:DMP)

David Thornton: Okay. The other laggard, Domino's. That one, Domino's has not had a good time of it. It's lost about two thirds of its value since September. Now sitting at $63. Buy, hold, or sell?

Anthony Aboud (SELL): I still think it's a sell. I think that the market consistently overestimates these guys. This time last year for FY23, the market had $3 a share in EPS forecast. It's now going to be just over $2. Our problem is in the short term is that we think franchisee profitability is going to be tough. They've got labour price going up. You got cost of goods sold from going up. And therefore, we think the rollout of stores is going to be tough, so the growth's not going to be there and still 30 xPE. For us, it's just not there yet so we still thinks it's a sell.

David Thornton: Sean, they're rolling out stores. Is it a sell for you?

Sean Fenton (SELL): Yeah, I think it is. I'm finding myself agreeing with Anthony a lot today, I don’t know it's worrying me a little bit. But yeah, it was a bit of a COVID beneficiary. It's fallen a long way, but got ridiculously expensive. And what I'm just uncertain about is, as we open up normalisation, what happens to that pizza demand? They did really well in Japan, but it's been a struggle longer term. How much of that does that turn around? And you've got cost pressure inflation there. Don't forget they've got a delivery model. Drivers, labour, petrol, pizza, wheat, cheese, dairy, pepperoni, it's all going up. Yeah, a bit of margin pressure and a fair bit of uncertainty. It's just not cheap enough to get excited about.

David Thornton: That's it for today's episode. If you enjoyed it, be sure to subscribe to our YouTube channel where we're adding new content every day.

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