As Australia’s reporting season looms, fund managers are identifying unique investment opportunities amidst anticipated market volatility. Despite the aviation sector’s historically challenging nature, significant operational changes at Virgin Australia have positioned the airline for a potential rally. Investors are also finding value in the booming retiree population, alongside select consumer and healthcare stocks, though lingering doubts persist regarding CSL.
Firetrail Investments portfolio manager Blake Henricks expressed particular optimism for Virgin Australia shares, which have fallen nearly 20 per cent this year. Henricks noted Virgin’s world-leading low price-to-earnings ratio of 5.8, contrasting with Qantas’s 9.2. He attributed this strength to the carrier ending loss-making international routes and simplifying its fleet, asserting that Virgin operates in Australia’s robust two-player aviation market, indicating a potential 50 per cent upside. Another top pick was GemLife, an over-50s land-lease community operator. GemLife customers, typically downsizers, purchase a new home in a community but not the land it occupies, instead paying rent to the developer. Henricks highlighted a market gap for attractive over-50s living, making GemLife appealing despite a 14 per cent share price drop this year.
Elsewhere, Auscap Asset Management chief investment officer Tim Carleton favoured mid-cap names in health and retail over major banks, citing a softening housing market and increased lending competition. His selections include Car Group (Carsales), furniture retailer Nick Scali, jewellery chain Lovisa, insurance broker AUB Group, and sleep apnoea device manufacturer ResMed. Carleton believes the mid-cap universe offers compelling opportunities, with many stocks trading at decades-low price-to-earnings multiples in sectors like healthcare, insurance broking, and retail. However, caution surrounds CSL despite its almost 40 per cent rebound in the last three months.
Canaccord Genuity chief investment officer David Cassidy warned against buying into the blood plasma business, citing potential for further downgrades. Following a nearly $10 billion valuation drop in May due to impairments related to its Vifor kidney treatment subsidiary and profit headwinds, CSL’s earnings profile has been structurally weakened. Cassidy noted that market profit expectations have been cut more than eight times in the past three years, advising investors to remain on the sidelines due to insufficient evidence that CSL’s multi-year downgrade cycle has concluded.
