TOL - 3rd Feb, 2023
Buy Hold Sell: Your top large caps for 2023 (and 2 that should have made the list)
In this episode, Marcus Today's Henry Jennings and Medallion Financial's Michael Wayne analyse the five most-tipped large caps for 2023.
Your top-tipped large caps from 2022 performed suspiciously well. Either readers like you have access to a working crystal ball, or you know far more than the professionals would let on.
Aided by the stellar performance of Mineral Resources and Woodside, your favourite large caps delivered a total return of 14.35%, far more than the -5.5% drop of the benchmark S&P/ASX 200 during the year.
So can you back it up again in 2023? As you'll find out in this episode, the experts certainly think so. In fact, not one of the five most-tipped large caps for the year ahead has been dubbed a "sell".
Livewire's Ally Selby was joined by Marcus Today's Henry Jennings and Medallion Financial's Michael Wayne for their analysis of CSL, BHP Group, Macquarie Group, Mineral Resources and Woodside.
Plus, we also asked our guests to name one large-cap stock they think should have made your 2023 list instead.
Note: This episode was filmed on Wednesday 24th January 2023. You can watch the video, listen to the podcast or read an edited transcript below.
Edited Transcript
Ally Selby: Hello, and welcome to Livewire's Buy Hold Sell. I'm Ally Selby and today, we're joined by Henry Jennings from Marcus Today and Michael Wayne from Medallion Financial for their analysis of your top large-cap picks for 2023. We'll also be asking them to name the stock that they think should have made the list instead.
Okay, let's get straight into it. First up, we have CSL. It's topped the list a whopping five times. It's crazy. It's obviously your favourite stock. Michael, I'll start with you. Is it a buy, hold, or sell?
CSL Limited (ASX: CSL)
Michael Wayne (BUY): I am going to go buy on CSL. The recovery of the plasma business post-COVID should add some support. It comes with a bit of a lag before you start to see that come through in earnings, but it is a very high-quality large cap with over a decade of consistent earnings and revenue growth and margin growth. That's a buy for us.
Ally Selby: After a few not-so-great years, its share price lifted around 13% over the past 12 months. Henry, over to you. Is it a buy, hold, or sell?
Henry Jennings (HOLD): It's almost un-Australian not to like CSL, isn't it? It's written into our DNA, with Vegemite. I don't like Vegemite and I'm not a massive fan of CSL, I must admit. I'm being un-Australian here, but for me, it's a hold. I mean, it obviously is a high-quality business. The question mark for me is the big acquisition of Vifor. That was a company maker, a diversifier. I am just not 100% behind that one.
BHP Group (ASX: BHP)
Ally Selby: Okay. Next up, we have iron ore darling, BHP Group. Henry, is that a buy, hold, or sell?
Henry Jennings (BUY): It's been an absolute winner, a ripper this year. I think it's going to continue. Management is very focused. They're very disciplined. They've sorted out the dual-listed structure, which was a big issue for them in the past. They're in all the right metals, in all the right places. They pay a whopping great big dividend. Ally, what's not to like?
Ally Selby: That one's a buy?
Henry Jennings: Definitely.
Ally Selby: Okay. Over to you, Michael. Its share price has been on a pretty volatile ride over the past 12 months, but it's ended 9% in the black. Is it a buy, hold, or sell?
Michael Wayne (HOLD): Going to go hold on BHP. Their recent updates were very good in terms of production numbers. They are seeing a big uplift in costs, but who isn't at the moment given the inflation story at play? That's been more than made up for in terms of the solid prices they're seeing across the commodity suite. So, we're just conscious of the cycle. Commodities do tend to be very cyclical and BHP is pushing well and truly into all-time high territory. So, happy to hold it and ride it for now, but as we've seen in previous months not going back that far, it can be quite volatile and you often get opportunities to jump in after some sizable pullbacks. So, stick with a hold for now.
Macquarie Group (ASX: MQG)
Ally Selby: Okay. Next up, we have financial services powerhouse, Macquarie Group. Michael, is it a buy, hold, or sell?
Michael Wayne (BUY): It's a buy. On a long-term horizon, we think that the activity we've been seeing in the commodities space and the energy space will continue to support the commodities division of that business. The asset management business has proven to be very resilient through a turbulent 2022. We like the changed business model and the annuity-style businesses that were really developed under Nick Moore going back 10 years ago. So, a much more stable company, much more resilient than it was leading into the GFC. We see some good earnings growth and some good dividend growth for the years to come. So, happy to give it a buy.
Ally Selby: Its share price has fallen around 3% over the past 12 months. Henry, I know you're ex-Macquarie. So, you might be a little bit biased, but is it a buy, hold or sell?
Henry Jennings (BUY): I think it's a buy. I mean, they're the smartest guys in the room really, which is why I don't work there anymore. They're leveraged across the whole gamut of equity markets, and I think they're still a class act. Shemara Wikramanayake has done a great job navigating through COVID and various other things. As equity markets recover, which I hope they do, and we get that leverage to IPOs and deal flow, Macquarie will be there. Buy.
Mineral Resources (ASX: MIN)
Ally Selby: Okay. Next up, we have lithium giant, Mineral Resources. Is that one a buy, hold, or sell?
Henry Jennings: I'm so buying everything today. I'm going to...
Ally Selby: Super positive. We love it.
Henry Jennings (BUY): This is still a buy. Chris Ellison has done an amazing job. The two big metals they're exposed to, iron ore and lithium, really have done an incredible job and I think that's going to continue, to be honest. The big story of '23 is going to be China. It's going to be that reopening. It's going to be how that affects the world. The second biggest economy in the world is coming back. What is that going to do to commodities? What is that going to do to demand? This one's going to be in the winner's enclosure.
Ally Selby: Readers are bullish, Henry's bullish. Are you bullish too, Michael? Its share price already lifted around 55% over the past 12 months. Is that one a buy, hold, or sell?
Michael Wayne (BUY): It's a buy for us as well. It's hard not to be bullish on this company. They've done a great job over a long period of time. Really transformed the business into what is primarily a lithium producer these days, with a little bit of iron ore in there, as well as the crushing business. I'm going to get a little bit technical here in just looking at the way many of the analysts value this company. They all assume a certain debt-to-equity ratio of about 60:40. But looking through history, Mineral Resources has never really issued a dollar or issued one share of equity in order to fund their growth. It's mainly been debt funded or just through its own expansion. So, we continue to like this company. We think the valuations that the analysts have in the market are fairly low, based on that debt to equity assumptions. We do see further upside potential. So, happy to go with a buy.
Woodside Energy Group (ASX: WDS)
Ally Selby: Okay. Last up for today, we have Woodside Energy Group. Its share price also soared in 2022. It lifted around 50%. Michael, last one, is it a buy, hold, or sell?
Michael Wayne (HOLD): I am going to go a hold on Woodside. Straight up, our preference is for Santos (ASX: STO) at these levels, but we do see why the outlook for Woodside is quite good. Only about 20% of their gas goes to the domestic market. The rest goes overseas. So, they're able to supply the Asian market, which has been fairly buoyant, let's put it that way, in recent years. It's a very high-quality business, with low costs of production. It really integrated the BHP energy assets very nicely and the production coming out of those assets is above expectations. But we do prefer Santos and the free cash flow profile of Santos. So, going to go a hold on Woodside and a bonus buy on Santos.
Ally Selby: It's generating a ridiculous amount of cash. Is Woodside a buy, hold, or sell?
Henry Jennings (HOLD): I am going to be Debbie Downer on this one and break my buys. This is a hold for me. I think '22 was as good as it gets for Woodside in terms of gas pricing, in terms of that demand. I think they've got some big decisions to make as far as Scarborough goes and various other things. Obviously, they've bettered down the assets from BHP very well, but as Michael says, the one that sticks out for me that hasn't performed, "bonus buy", is Santos. What are you doing? It's been flatlining. They've got Kiefer Sutherland on standby to film the Santos story, Flatliners. I prefer Santos at these levels. $7.50 against $37, whatever it is, Santos wins.
Fundies' picks for what should have made the list
Ally Selby: Okay, this stock might be Santos, but I did ask you to bring along one large cap that you think should have made the top five in 2023. What did you bring along for us?
Henry Jennings: Well, it's my contrarian pick, and it's James Hardie (ASX: JHX). I haven't really liked this stock in the past, mainly because of all the asbestos stuff, but it has done really well in containing the fallout from the US housing problems that we've seen over there. I think if that turns around, they've got such leverage. They've got good management. The stock has suffered. I think the dogs of '22 could become the stars of '23. This one could be a 2023 star.
Ally Selby: Okay. Over to you, Michael. What's your top large cap for 2023 and why?
Michael Wayne: I am going to go with ResMed (ASX: RMD), the sleep apnea device producer. It is a very high-quality company and has one of the best balance sheets in the market. It has come back a fairly long way after holding up and being pretty resilient through COVID. But I think that they're in a very dominant market position, released a new product to the market recently, and the long-term tailwinds for that whole sector with the amount of obesity in the US and around the world, we think gives it a lot of support for many years to come. So, ResMed is the long-term buy.
Ally Selby: Okay, ResMed and James Hardie. We hope you enjoyed that large-cap special of Buy, Hold, Sell. If you did, why not give it a like? Remember to subscribe to our YouTube channel. We're adding so much great content every single week.
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Buy Hold Sell is a weekly video series exclusive to Livewire. In each episode two fund managers give their views 'Buy, Hold or Sell' on five ASX listed companies. Not recommendations, please read the disclaimer and seek advice where appropriate.
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Livewire Markets
Buy Hold Sell is a weekly video series exclusive to Livewire. In each episode two fund managers give their views 'Buy, Hold or Sell' on five ASX listed companies. Not recommendations, please read the disclaimer and seek advice where appropriate.
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Livewire Markets
Buy Hold Sell is a weekly video series exclusive to Livewire. In each episode two fund managers give their views 'Buy, Hold or Sell' on five ASX listed companies. Not recommendations, please read the disclaimer and seek advice where appropriate.
Expertise
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