Equity&Super Daily Bulletin 15 February 2016

The market is now firmly at a level where taking risk will be rewarded, from what we have seen from earnings season thus far the economy is going “ok”. The offshore driven sell-off in global credit has hit our index hard, mainly due to the fact that such a large portion of the ASX 200 is in financials. When selling momentum builds in that sector it drags the broader index down. Accumulating oversold and undervalued stocks in these offshore driven sell-offs makes sense, but in context of the bigger picture 2016 remains highly complex. The banking credit story in Europe has further to play out in the next few years, but at this stage Australian banks such as ANZ & NAB are well priced.

Today our focus isn’t on the traditional names but on stocks that have been undermined in the recent market drop. Ramsay Health Care, Magellan Financial Group (MFG) and Realestate.com have all been added to accumulate in growth portfolios. Our first focus is Ramsay Health Care, who in 2016 has underperformed due to potential changes to the Medicare scheme. We feel this company is now at the price point where its long term growth credentials are being underplayed. Second, is Magellan Financial Group, who we have followed since it was $4.00. The long term drivers of this company’s revenue growth remain well intact, and the recent sell-off is an opportunity for growth portfolios. We think the current price to earnings ratio of 17 times is an attractive re-entry point with a dividend yield of 4.5%.

Finally it is good to see both political parties looking at negative gearing in this country, the political debate needs to be brave enough to look into all aspects of tax reform. In a country obsessed with property investment, we need a broader and more thoughtful approach to investing into productivity and businesses innovation, so we hope this debate doesn’t get smothered by the 2016 election.

Figure 1 – Market Value Zones


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