Technology vs Essentials
Entering the late phase of the business cycle often coincides with the peak of economic expansion; depicting higher levels of economic growth that tends to moderate during this phase, resulting in shrinking profits of the companies. Moreover, corporations witness earnings slowdown.
Monetary policy tends to return to an accommodative stance during the matured part in the late phase. As a result, investors start to question the extent of economic slowdown, while leaning towards more defensive sectors.
During the late phase, Utilities stocks appear strong such as APA Group (ASX: APA) â year-to-date return (+36.34%), one year returnâ (+17.47%). Other names from the broader market that have depicted stellar performances, include Infigen Energy (ASX: IFN) â year-to-date return (+48.86%), 3 months return â (+42.39%), Tilt Renewable (ASX: TLT) â year-to-date return (+28.45%), 3 months returnâ (+12.39%).
Defensive sector stocks are likely to remain resilient amid moderating growth due to the fact that revenues of these companies are dependent on the basic needs of humans, which is likely to remain consistent.
Particularly, Health Care & Consumer Staples sectors are the two essentials, believed to be having sustaining revenues amid a wider slowdown in the economy. Industries related to these sectors produce essential items such as- toothpaste, medicines, health care equipment, dairy, beverages, etc.
Technology being the darling of bulls tends to trade in relatively higher valuations that might witness some heat from the market. Possibly due to the increased allocation towards defensive sector while growing scepticism for expensive investments, including technology, among others.
It is highly unlikely that any broader market sell-off would spare any stock, at the same time, it provides immense headroom to act opportunistically. Investors may hunt for bargain buys amid a wider heat towards the technology sector by looking for quality businesses that have been discounted heavily, leading to possible value gaps.
As an example, during the dot-com bubble that lasted until the early years in this century is marked in the red circle in the below chart.
Between 1999 to 2001, Amazon Inc. (NASDAQ: AMZN) witnessed a sharp fall in the price of the stock ranging from a close of $106.69 on 10 December 1999 to a close of $14.57 on 5 January 2001. Value investors at that time would have had rejoiced a lot, following the highly attractive value gap.
Please note that all returns discussed for the below stocks are as on 24 September 2019.
Tech Stocks in Australia
Let us now get acquainted with a few Information Technology stocks as follows:
WiseTech Global Limited (ASX: WTC)
WiseTech provides software solutions service to the supply chain industry. During FY 2019 period (ended 30 June 2019), the company had reported 57.16% growth in revenue over the year to clock $348.27 million.
Further, it reported a net profit after tax of $54.12 million, up by 32.65% over the previous year. Over the year-to-date period, the stock has given a decent return of 99.65%. Markets had witnessed sell-off in early August, following the all-time high-levels that were recorded in July.
During late August, the stock had recovered some losses suffered in the early period of August. As a result, three-month return stands at +20.82% and six-months at +52.60%.
On 26 September 2019, WTC quoted $34.430 (at AEST 2:30 PM), up by 1.265%.
Altium Limited (ASX: ALU)
Altium develops computer software for the design of electronic products. During FY 2019 period (ended 30 June 2019), the company had recorded 23.1% growth in revenue for the period to $172.7 million. Net profit after tax for the period was up by 41.1% to $52.9 million.
During the past six months, the stock has delivered +5.11%. However, over the year-to-date period, the return stands at +55.99%.
Amid a wider sell-off during the month of August â the gains made since the year were wiped out to some extent, resulted in a return of 1.81% in the past three months, and -6.36% in the past one month.
On 26 September 2019, ALU quoted $33.97 (at AEST 2:35 PM), up by 0.771%.
Link Administration Holdings Limited (ASX: LNK)
Link Administration Holdings provides administration, securities registration, asset services, to corporates, including pension funds across the globe. Its FY 2019 ended on 30 June 2019, and the revenue for the period was $1.4 billion, up 17% over the year.
Further, it recorded a net profit after tax of $320 million, up by 123% in y-o-y terms. During late May 2019, the company updated the market with guidance, resulting in a sharp fall in the price of the stock.
The performance of the stock has been impacted heavily due to the sharp fall in late May, which was followed by the negative returns in the year-to-date and six months period. However, the stock is now picking up the pace, reflected through the positive return of +5.57% in the past three months despite, having suffered losses amid August sell-off. More importantly, in the last one month, the stock is up by +20.30%.
On 26 September 2019, LNK quoted flat at $5.690 (at AEST 2:52 PM).
Health Care Stocks in Australia
Let us now get acquainted with a few Health Care stocks as follows:
Pro Medicus Limited (ASX: PME)
Pro Medicus provides health care imaging software and services to hospitals and diagnostic imaging groups in Australia, Europe & North America. In its full year report, for the period ended 30 June 2019, the company recorded revenue of $50.1 million, up by 47.9% over FY 2018 (restated).
Net profit after tax for the period was $19.12 million, up by 91.9% over FY2018 (restated). In the last six-months period, the stock has returned +65.37%. Moreover, the year-to-date return is of +146.93%. PME has further recorded a return of +6.16% in the past three months, and -11.73% in the last one month.
On 26 September 2019, PME quoted $28.84 (at AEST 3:02 PM), up by 2.707%.
CSL Limited (ASX: CSL)
CSL Limited, an established biotechnology company, operating globally with a range of activities from research to distribution of biopharmaceutical and allied products. In its full year ended 30 June 2019, sales revenue grew 8.1% to US$8.2 billion compared to $7.57 billion in FY2018.
Net profit after tax for the period was $1.92 billion, up by 11% over FY2018. In the year-to-date period, the stock has returned +27.68%.
Presently, the return of the stock stands positive in the period of last one-month, three-months, and six-months at +1.19%, +10.41%, 21.19%, respectively. The stock sharply rose in August, following the release of the results, amid a turbulent month (August) for overall market.
On 26 September 2019, CSL quoted $233.130 (at AEST 3:17 PM), down by 1.504%.
Nanosonics Limited (ASX: NAN)
Nanosonics Limited is engaged in the manufacturing and distribution of the trophonÂ® ultrasound probe disinfector. In its full year results, for the period ended 30 June 2019, the companyâs revenue grew 38.9 percent over the year to $84.32 million, resulting in a net profit after tax $13.6 million, up 136.5% over FY2018.
In the year-to-date period, the stock has delivered a return of 124.82%. The stock of the company made a significant leap in the month of August, following the disclosure of FY2019.
As a result, one month return stands at +27.55%. However, in the last three months and six-months period, the returns are of +8.51% and +42.37%, respectively.
On 26 September 2019, NAN quoted $6.24 (at AEST 3:27 PM), down by 0.16%.
Consumer Staples Stocks in Australia
Let us now get acquainted with a few Consumer Staples stocks as follows:
Freedom Foods Group Limited (ASX: FNP)
Freedom foods Group is engaged in the retailing of dairy products, consumer nutritionals, specialty cereal, dairy and nutritional ingredient products, and investment in large scale dairy farming operations.
In its full year ended 30 June 2019, FNP recorded revenue growth of 34.9% over FY2018 period to $476.2 million. Net profit after tax for the period was $11.57 million, down by 9% over FY2018.
Markets depicted high optimism following the release of the full-year results of the company, resulting in a sharp increase in the stock price of the company. As a result, the stock has returned +30.52% in the last one month, covering up for all the losses made during August 2019.
Over the year-to-date period, the return of the stock is +20.09%, and +7.96% in the last three months period.
On 26 September 2019, FNP quoted $5.5 (at AEST 3:39 PM), down by 1.079%.
Blackmores Limited (ASX: BKL)
Blackmores is engaged in the development, sales & marketing of health products for humans, and animals. Its product includes vitamins, herbal and mineral supplements.
In its full year ended 30 June 2019, the revenue of the company grew by 1.4% to $609.5 million. Net profit after tax for the period was $53.46 million down by 23.6% over FY2018.
Over the year-to-date period, the return of the stock is -33.44%. In the past six months, the return stands at -12.14%. However, the stock has given a return of 21.14% in the last one-month period.
On 26 September 2019, BKL quoted $84.19 (at AEST 3:44 PM), up by 0.984%.
Treasury Wine Estates Limited (ASX: TWE)
Treasury Wine is one of the worldâs most established wine companies. In its annual results for the period ended 30 June 2019, the revenue of the company grew by 15.5% over the year to $2.89 billion compared to $2.5 billion a year ago.
Further, net profit after tax for the period ended 30 June 2019 was $419.5 million against $360.3 million a year ago. Over the year-to-date period, the return of the stock is +22.75%.
Presently, the return of the stock stands positive in the period of last one-month, three-months, and six-months at +0.11%, +19.81%, 19.58%, respectively.
On 26 September 2019, TWE quoted $18.265 (at AEST 3:53 PM), edging up by 1.36%.
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With the pandemic continuing to affect the globe, healthcare companies are evaluating their lead compounds for COVID-19 treatment. Future revenue for these stocks depends on the probability of launching an approved treatment in the market.