Macro and Australian equity strategist, Macro Strategy Advisors

Shane Lee

Macro and Australian equity strategist

Macro Strategy Advisors

Cross Asset Strategy

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Looking for Defensive Earnings in the Sector is Getting Tougher. We raised the bar on defence in our latest model portfolio update and added TME and NVT to the portfolio for the first time.  These two stocks are in a unique club.  Along with IVC, they are the only stocks in the sector that have outperformed during the correction and have seen upgrades to consensus earnings.  TME still looks cheap and attractive, while NVT is considering a private equity offer to buy the business and this has driven its outperformance.  IVC has relatively defendable earnings, which are likely to become scarcer across the market.</li>
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Off on holidays and at play. Consumer spending is picking up in line with improving employment prospects, but more detailed data from the national accounts show there are some bright spots.  Spending on holiday Accommodation, Recreation Goods and Clothing and Footwear are punching above their weight.  The weaker currency is probably keeping more holidaymakers in Australia, while competition is putting downward pressure on prices and encouraging spending in the other two strong-performing categories.  Cost pressure from the weaker currency is also a concern. </li>
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Bricks and Mortar Retail Still Looks Shaky, despite Recent Outperformance. The recent market correction has seen 9 of the 24 stocks in the Consumer Discretionary sector outperform.  Beaten-up retail stocks such as JBH, HVN and SUL have all outperformed during the downturn and are benefitting from the strength in spending on Recreation Goods, but these stocks have been downgraded in the process.  In our view, valuation support can only deliver temporary outperformance without an improving earnings outlook.  Beware of these stocks – they look like classic Value Traps.</li>
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The Stocks Benefitting from Holiday Travel Look Too Difficult.WEB, AAD and FLT all benefit from holiday spending and therefore look attractive after screening the national accounts data.  However, they have all underperformed during the correction.  WEB looks the most attractive, given its strong FY18 result and good performance for most of the year.  However, it’s probably vulnerable to the threat of rising airline charges that FLT management cited as a headwind for future earnings in last week’s downgrade.  AAD remains in a no-go zone – the stock has underperformed all year and the earnings outlook is uncertain.</li>
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Looking for Defensive Earnings in the Sector is Getting Tougher. We raised the bar on defence in our latest model portfolio update and added TME and NVT to the portfolio for the first time.  These two stocks are in a unique club.  Along with IVC, they are the only stocks in the sector that have outperformed during the correction and have seen upgrades to consensus earnings.  TME still looks cheap and attractive, while NVT is considering a private equity offer to buy the business and this has driven its outperformance.  IVC has relatively defendable earnings, which are likely to become scarcer across the market.

Off on holidays and at play. Consumer spending is picking up in line with improving employment prospects, but more detailed data from the national accounts show there are some bright spots.  Spending on holiday Accommodation, Recreation Goods and Clothing and Footwear are punching above their weight.  The weaker currency is probably keeping more holidaymakers in Australia, while competition is putting downward pressure on prices and encouraging spending in the other two strong-performing categories.  Cost pressure from the weaker currency is also a concern. 

Bricks and Mortar Retail Still Looks Shaky, despite Recent Outperformance. The recent market correction has seen 9 of the 24 stocks in the Consumer Discretionary sector outperform.  Beaten-up retail stocks such as JBH, HVN and SUL have all outperformed during the downturn and are benefitting from the strength in spending on Recreation Goods, but these stocks have been downgraded in the process.  In our view, valuation support can only deliver temporary outperformance without an improving earnings outlook.  Beware of these stocks – they look like classic Value Traps.

The Stocks Benefitting from Holiday Travel Look Too Difficult.WEB, AAD and FLT all benefit from holiday spending and therefore look attractive after screening the national accounts data.  However, they have all underperformed during the correction.  WEB looks the most attractive, given its strong FY18 result and good performance for most of the year.  However, it’s probably vulnerable to the threat of rising airline charges that FLT management cited as a headwind for future earnings in last week’s downgrade.  AAD remains in a no-go zone – the stock has underperformed all year and the earnings outlook is uncertain.


Aussie Consumers: Tough Shopping in a Down Market