Company Interview / Take from these stocks and move to resources

Key points:

Market optimism due to China’s economic stimulusRotation from bank stocks into resource stocks Assessments of specific sectors including health care, utilities, and lithium market

Adam Dawes from Shaw and Partners expresses excitement as the market hits another record high. He notes the impact of China’s stimulus on resource stocks and suggests trimming positions in Commonwealth Bank (ASX: CBA) and Westpac (ASX: WBC) to reallocate to the resource sector.

Adam indicates a rotation from banks to resources due to improved commodity prices. He recommends holding onto Macquarie (ASX: MQG) and potentially taking profits from defensive sectors like health care and utilities, including CSL Ltd (ASX: CSL) and Computershare (ASX: CPU).

Regarding lithium, Adam highlights ongoing supply-demand issues but sees potential in the long term, mentioning Pilbara Minerals (ASX: PLS) as a positive example. He also sees value in Star Entertainment (ASX: SGR) despite its challenges, noting the company's property portfolio value.

Full unedited transcript:

0:00

And I wanted to get a take on the broader market. Now, get stock specific, perhaps where we can sell to buy, where the opportunities are, all the rest of it. With Adam Dawes, who's joining us from Shawn Partners. Adam, hello. Nice to see you this afternoon. So another record high for this local market boy. It's feeling it's feeling a bit better as we head toward the end of the year. Now we've got rate cuts. We've got China stimulus. Are you excited?

0:26

I'm very excited, Nadine. I think it's one of those ones where you look at it and you think, you know, was I getting this all wrong? Was I getting this all wrong? Because we were all underweight, the banks were all underweight a lot of things. And I was overweight resources. And so look, it's just fantastic to see this market starting to really start to fire up. And some of those resource stocks starting to get a bit of a wriggle on, which is great to see. So yeah, I'm very excited. And certainly that bazooka that that China stimulus that came through has definitely going to reinvigorate the resource market and hopefully it reinvigorates the Chinese economy. Okay, but here's the thing. And you know this from talking to clients, not everybody has a pile of cash that they can just go out and start to buy the resources. Name. Sometimes you've got to take some profits somewhere. Correct. So if you hadn't already been underweight the banks, uh, you know, if you are holding

1:25

winners in your portfolio, where do you look to trim? Because you don't want to get rid of all your quality companies?

1:32

Oh, absolutely. And banks are all very quality businesses here on the ASX. But look, certainly looking at something like a CBA which has just had a fantastic run. And even if you compare it to global standards, uh, you know, JP Morgan trades, which is probably the biggest bank or the best bank in the world that trades on a PE of around 12. Commonwealth Bank trades on a PE of 24. So it does seem to that there is some, uh, ability there to takes some kind of profits going forward. So, you know, you would definitely look to sort of trim some of those bank holdings that you do have, even if you could potentially look at something like a Suncorp or something like that. I know there's some corporate activity that's going to happen there. Uh, but, you know, there's potential that you can change or just switch around some of these things to then to pick up some of the resource stocks. I think that there is a rotation that we are now starting to see out of the banks into the resources, and certainly that is how come from improved commodity prices, which is started that rotation and

2:33

keep that rotation going, you know, for further and further. What about so you said CBA, you could trim uh what about Macquarie?

2:43

Yeah, that's a hard one. I still think that the deal flow for Macquarie is going to be really, really good. And I just feel that you'd be, uh, like, just look, you look at that chart and you think, well, you know. So yes, you could definitely trim a little bit off the top. I don't think it's Nadine. You and I both remember when we were sitting on the show a year ago saying $180. Just buy it. Anything below $180, get near it. Buy it. You know, now it's, you know, sort of 200, 220 plus. I think you could definitely trim up here. I think the market is expecting the deal. Flow for Macquarie is going to continue to be a lot better than in previous years, and hence why that is going to show that Macquarie is going to be a leader and will continue on, whereas the Aussie banks, it's all about mortgages. You can say potentially that interest rates might start to fall and if interest rates do fall here in Australia, that would predominantly bring the the, uh, mortgage market up and move higher. But I think overall trimming some of CBA, trimming some of Westpac, uh,

3:42

and the other banks I think is a better way to do it versus, you know, potentially Macquarie. I think Macquarie is still a buy and I'd be keeping on with Macquarie. I wouldn't be touching at best yet. Still a buy. Yeah. Okay. Um, I can't help but notice today. And of course, today is not every day but all of the defensive areas of the stock market. So telcos, utilities and health care, you know, they're the sectors that are into negative territory today. So do you look to any of your performers in say health care to to take a bit of profit?

4:18

Yeah, I had a couple of questions today from clients. You know, should we take some money off CSL at least as far as a sort of a trading strategy then to to be picking up some of the lithium stocks or the materials stocks? Look, you know, taking a little bit I mean, CSL has definitely underperformed the overall market over the last 12 months. And so, you know, it is such a huge holding for some clients that it's not bad idea to look at taking some profits. One of the other areas that I think you should definitely be looking, if you do hold potentially something like a Computershare, uh, Computershare will continue to fall as interest rates start to fall in the US. And that's probably where some profit. If there is some profitability there, I think taking some money off, uh, something like that or interest rates, sensitive stocks. So you know, like something like a CSL potentially. But yeah, the health care, uh, even API, you can't uh, in the defensive utility, you can't really have there's not a lot of profit there because that thing's been belted, uh, pretty hard. Telcos even Telstra. Uh, yeah. Having a

5:18

little bit of a bad day today as people potentially rotate out of Defensives into more growth orientated stocks. Yeah, it's really interesting. And um, you know, back to back to the resources play like I've had a number obviously of conversations today about various miners. Um,

5:38

like we talk a lot about China when it comes to iron ore, you know, copper and coal, you know, the stimulatory effect and the demand that it will result in there. But what about lithium? Like, has lithium do you think bottomed out? I think six months ago we were talking about it potentially being close to the bottom, but I mean, is now sort of an inflection point or is there still, you know, supply demand issues there? Yeah, you're absolutely right. There is definitely supply demand issues. Um, we certainly saw last week that there was, I think, 1 or 2 Chinese mines, uh, were shuttered, which sort of gave a little bit of breath of life into the overall, uh, China, into the lithium market. But, um, you know, I just looked at Paul's short now it's been up to 22% of the companies in short hands is now down under 20% to 19%. Potentially some people are sort of thinking that, uh, maybe that lithium short might need to be relooked at again. And we're certainly saying I love

6:38

it when it's over $3. It looks a lot better. But yeah, you're right, there is still some supply issues that are happening in, uh, in lithium, we know that Africa is bringing on more supply. So we've got to be a little bit careful there. And certainly, um, you know, these many, many companies are there's a lot of supply out there. The demand is still there. But look, lithium is probably going to be a 2025 story. We still need to work through some of the issues with that supply and oversupply and demand needs to keep going. So yeah it's probably one for those sort of bottom drawer, but it's really nice to see something like a Pilbara feels under 20% of the shorts in the stock at the moment. So that's a that's a really positive outcome. Yeah. Is there going to be a positive outcome for Star Entertainment like again best performer by percentage change on the 200 today but still a long way off. Yeah. Like long way from glory days.

7:37

Long way from Friday. Still, um, you know, deep value or just. This is a no go zone.

7:43

Uh, look, I bought some for the super fund this morning myself, so I put my hand up and say I own some of the star at the moment. So I think, um, look it's all about whether the government is going to take the regulations off star, that they can continue to be a casino. Now, a star would not have come out of trading halt if they didn't think that they were going to get the license and continue to move forward. The property portfolio alone, even the car parks, are worth more than what the what the stock is trading on on the ASX today at $0.30. So look, I think there's deep value there. You just got to be really mindful that this, this plug or the rug can get pulled out from underneath you fairly quickly. But the government does want the casino to be there. It puts jobs, it creates it gives taxes. And I think that what Masdar needs to do is to show that they can actually operate a casino and do quite well. So I'm really comfortable with start. I think it's something

8:43

that you might want to put in the bottom drawer. Certainly don't throw the kitchen sink at it, but at 28 $0.30 where it is today, it's probably not a bad little punt.