Market leading companies – taking a market fall in their stride
There is always a company making lemonade when the market deals out lemons. There are about forty companies on the ASX that have continued to perform well from September 2018 through to February 2019. As always, there is a theme or two that runs through the market leaders:
Foreign exchange tailwinds
The Australian market fell close to 1,000 points, -15% between the September 2018 highs and December lows.
Before the market fell, all of these companies were amongst the leaders, however these companies have stood strong throughout the last quarter of 2018.
Seasoned investors know that less than 5% of the Listed Property Trusts (LPTs) are exposed to residential property prices and have rightfully dismissed the headlines of falling residential property prices.
Most of the Australian LPT sector are sound rent collectors of office and industrial sites, both showing sturdy fundamentals and still very lower gearing levels.
The astute LPT investors know to avoid those buoyed by one-off development profits and focus on those with recurring rent collections, year in, and year out.
For a more detailed breakdown of the LPT segment, see last week’s Torpedo Tuesday with Atlas Funds Management’s Hugh Dive.
The top LPTs that are still leading the ASX are listed below.
Foreign Exchange tailwinds
The AUD has fallen throughout 2018 against the USD, although starts February 2019 around the same $0.725 USD level from September 2018.
More interesting is the AUD has fallen around -5% against the NZD, helping the companies earning in NZ dollars bring home greater returns for the same revenue – or ‘more bang for the same buck’.
Gold and other commodities can fit into this group as well.
Simplifying the economics lessons from first year university, the USD has a strong connection with commodity prices that has supported some miners on the ASX. The miners reaping the most benefits are those producing in Australia, with AUD costs (labour etc), but selling commodities in USD. Again, ‘more bang for the same buck’.
A further extension is that the gold price has increased about +10% since the market started falling in September. With little surprise gold miners have performed well over this period, although they are omitted from our list as we have focused on the companies that were strong both before and after the market started falling in September 2018.
A list of the companies with an FX tailwind is below.
Technology and innovation encourages consumption where Apple provides the best example of our consuming habits that are generally seeking better, faster, stronger, longer and smaller devices when it comes to technology.
The leading technology companies are not consumer-focused, but more industrial and professional facing companies. These technology leaders are helping existing businesses improve their existing process, reducing input costs, broadening service offerings or opening new markets.
While the complementary technology nexus is further separated from the end-consumer, the financial benefits they provide are closely linked to profits. The link to profits justifies the capital expenditure of businesses engaged with these leading technology companies – listed below.
These companies have taken the market’s late 2018 fall in their stride and have continued to perform – the silver lining of this recent market fall.
While never immune, arguably, these companies are less impacted by the negative market forces that have driven world markets lower over the last few months and are well poised to continue to out-perform the rest of the market (except LPTs buoyed by property developing profits).
History shows that companies exposed to more than once favourable theme have a much higher chance of leading markets for longer (eg FX tailwinds and complementary technologies).