The 10 biggest losers on the ASX100: Fallen angels or cheap for a reason?

The equity market has been relatively strong in the last year – but not all companies are equal. Some companies have had a shocker, be it deservedly or not. But could their pain be your gain?

It depends on whether their losses relate to short-term factors or are part of bigger fundamental problems. That is, are they ‘fallen angels’ or simply cheap for a reason?

In this wire, I’ll take a look at the 10 biggest losers on the ASX100 and what the experts and brokers have said recently about these companies. Could there be some value opportunities in the mix? Let’s take a look and I'll leave it to you to decide.

The 10 biggest losers in the ASX100

The below list was taken from Market Index on 17 April 2024.

IGO (ASX: IGO)

The mineral exploration company is focused on critical minerals for the clean energy transition, including copper, nickel, cobalt and lithium.

Both nickel and lithium prices fell dramatically in 2023. Nickel was affected by an influx of cheap supply, while lithium has been affected by the economic slowdown in China – particularly slowing electric vehicle sales, and oversupplied markets. 

Brokers Macquarie and Morgan Stanley recently argued that we could be near the trough in lithium markets, though Macquarie downgraded its rating from Outperform to NEUTRAL.

IDP education (ASX: IEL)

The provider of international student placement services, high-stake English language testing services, as well as operator of English language schools, has been a heavy feature of shorting lists this year.

The business generates between 40-50% of its English language testing system testing volumes from Canada, which earlier this year announced a cap 35% lower than previous on international student permits.

Medallion Financial’s Michael Wayne recently noted IDP Education as a position he’s exited.

“The landscape for the business has altered somewhat over the last 6-12 months. There’s been regulatory changes in the UK and Canada, for instance. There are also some ongoing issues in India with their English language testing systems,” Wayne says.

He believes the visibility has become more cloudy and it’s difficult to gauge where things will land.

The business did have a stronger-than-expected reporting season, and FNArena’s Rudi Filapek-Vandyck nominated it as his next pick for a ‘Resmed-like recovery’.

“I think, at the moment, the market is very unsure about how to deal with the uncertainty and once that becomes more clear, I think that could potentially be the next rebound, but not necessarily in February. It might require more time,” he said.

Sonic Healthcare (ASX: SHL)

The healthcare provider has specialist operations in pathology, laboratory medicine, radiology, general practice medicine and corporate medical services.

Its earnings came in below expectations in the February reporting season – with the company arguing this was a normalisation after a boom in testing facilities during the COVID pandemic.

IML’s Michael O'Neill tipped it as a stock to watch for income – and it did lift its dividends in the latest reporting season.

“While the COVID boost has now tailed off, Sonic is well placed to continue to benefit from the good growth prospects in healthcare. The diagnostic imaging sector also tends to be resilient throughout the economic cycle,” O’Neill said.

Elston Asset Management’s Andrew McKie also holds a positive view on it, believing that the market has underappreciated its potential.

“With a focus on specialist and hospital markets in pathology, coupled with a strong balance sheet fortified by COVID-19 testing profits, SHL is well-positioned for future acquisitions and enhancing shareholder returns,” he said.

South32 (ASX: S32)

The metals and mining company had a tough reporting season, with underlying earnings down 93%. It has been hard hit by soft commodity prices and rising costs. The business recently sold Illawarra Coal to focus efforts on zinc, which has raised some concerns in the industry given the zinc mine is not profitable yet.

Plato Asset Management’s Dr Don Hamson recently nominated it as a potential dividend trap, but Blackwattle Investment Partners’ Ray David has a contrarian view, viewing the stock as good value and it’s one he owns. He offers three reasons for buying the stock:

1. Trading below book value
2. Well-diversified, including exposure to commodities that will benefit from decarbonisation.
3. Good balance sheet and management.

EBOS Group (ASX: EBO)

The healthcare products distributor has been substantially impacted by the end of its five-year contract with Chemist Warehouse in June this year. It also had a failed takeover bid for Greencross Vets. It’s worth noting that it still operates its own Chemist Brand – Terry White.

Morgan Stanley anticipates EBOS will benefit from the weight-loss drug theme, particularly in Asian markets.

EBOS recently applied to expand its share offerings to the ASX by 3,615 ordinary fully paid shares.

EBOS Group hasn't been covered on Livewire in recent months, so there aren't any strong views to offer here from our fund managers.

Endeavour Group (ASX: EDV)

Australia’s largest retail drinks network, spanning Dan Murphy’s, BWS, hotels, bottling and wineries, has been hit hard by gaming regulations and lower sales.

In a recent episode of Buy Hold Sell, Auscap’s Will Mumford and Blackwattle Investment Partners’s Tim Riordan held differing views on the company, with Mumford viewing it as a BUY and Riordan as a HOLD.

Riordan notes it hasn’t done well in terms of allocating capital, but now that the board has clarity around its direction, this could turn for the better.

Mumford also believes the management is looking more aligned, but he is particularly positive about the prospect of Dan Murphy’s.

“It’s got price leadership, it’s got more revenue than the next two competitors combined, and it’s got double the EBIT margin of its next two competitors. So if you put Dan Murphy’s on a premium multiple, then you’re not paying much for the balance of the business,” Mumford said.

Ramsay Healthcare (ASX: RHC)

The hospital and healthcare service provider struggled with post-COVID supply chain issues, higher operating and labour costs and disruptions in elective surgery. It was also hit hard by a failed takeover bid in 2022 by KKR & Co. Adding to its woes, Ramsay’s stake in French-based Ramsay Sante has failed to pay off in the way it originally anticipated.

The first half-year reporting suggested promising changes in Ramsay’s fortunes, beating expectations for earnings and profit. There have been positive negotiations with Australian health insurers and ongoing negotiations with the French government for additional funding for Ramsay Sante. You can read more here.

Tribeca Investment Partners’ Jun Bei Liu believes the stock may be at a turning point.

“Ramsay is moving into a steady recovery phase. After a challenging post-pandemic period, Ramsay’s leading domestic private hospital business is benefitting from a steady recovery in volumes which is in turn supporting a lift in productivity,” she said.

APA Group (ASX: APA)

The listed energy infrastructure business has spent significantly on new acquisitions, for example, the purchase of Alinta Energy or Basslink. It has underperformed the utilities sector and hasn’t significantly grown dividends, disappointing some investors.

However, Allan Gray’s Simon Mawhinney notes that Origin is 50% of the utilities sector and has inflated earnings so comparing to the sector may not be a fair analysis for APA Group.

Wilson Asset Management’s Matthew Haupt similarly likes APA Group and has a positive view on the utilities sector, saying, “If we go into this interest rate cutting cycle, which we think will happen over the next 12-24 months, utilities do very well.”

TPG Telecom (ASX: TPG)

The telecommunications services provider operates its services via multiple brands including Vodafone, TPG, iiNet, AAPT, Internode, Lebara and felix. Vodafone and Hutchison 3G have a 50.1% stake in TPG Telecom.

It has seen profits shrink, despite a surge in mobile customers and had higher than expected interest and cost expenses in its recent reports. It also held its final dividend, disappointing investors.

It is doing some interesting work – for example, working with UTS to develop a Network Sensing Lab to extract weather details using wireless signals through the 5G mobile network which is then combined with AI and a tech called the NSW Spatial Digital Twin which allows for 4D visualisation.

The company is holding high debt and investors will be monitoring its balance sheet. It hasn't been profiled by Livewire's fund managers in recent months.

Atlas Arteria (ASX: ALX)

The toll road developer and operator is sensitive to rising interest rates. It also spent 2023 coming off the back of a significant capital raising to purchase a majority stake in the US toll road Chicago Skyway. The business has also been hit in segments by the ongoing work-from-home trend.

Lazard’s Wayne Robinson tipped Atlas Arteria as one of his preferred infrastructure stocks, pointing to the fact it earns 50% of its income from North American and French toll roads.

By contrast, in a recent episode of Buy Hold Sell, Plato Asset Management’s Dr Don Hamson argued it was a SELL.

“On every criteria we have – value, outlook, etc. It still hasn’t seen all the impact of higher interest rates come through. It’s definitely a sell from us,” he said.

IML’s Michael O'Neill viewed it as a HOLD, noting that the 7.38% 1-year forward yield should be sustainable and supported by predictable toll road revenues.

Over to you

Have you been watching any of the ASX 100's biggest losers and would you invest in them? Let us know your thoughts in the comments below.