On the Couch
Join Marcus Padley and Henry Jennings as they sit down with fund managers, CEOs, investors, and finance professionals to tackle the big issues and explore strategies for navigating choppy investment markets. Great guests, engaging conversations, and plenty of money-making ideas delivered straight from the experts.
On the Couch
On the Couch with Jonathon Higgins (Unified Capital Partners): Stock Picks, Sector Shifts and What's Ahead
Welcome to the latest episode of On the Couch.
In this episode, Henry Jennings is joined by Jonathon Higgins from Unified Capital Partners. A frequent guest on the podcast, Jonathon needs no introduction. He is Head of Research at boutique broker UCP and, as always, brings some great stock selections to the table.
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Welcome to another episode of On the Couch with myself Henry Jennings. And today I'm joined by an old favorite of ours on this podcast series, uh Jonathan Higgins from U Unified Capital Partners down in Melbourne. A great friend to this program, uh a great friend to this podcast, and uh a fantastic analyst, uh head of research down at Unified Capital Partners, and a long time uh well he's been in the business a long time, so despite the fact that he looks uh very young still, he has had a wealth of experience, and I I guess you know at the moment we're certainly seeing a a test of that experience. We're gonna get into that uh in a minute. So welcome Jonathan, really looking forward to this chat as usual.
SPEAKER_01:Thanks, Henry, appreciate being on the podcast, and uh as always, thanks to the listeners for jumping on today. So thank you.
SPEAKER_00:Well, mate, as always, you know, when I look at the numbers uh of downloads on our uh site, you know, you are uh possibly the most popular uh that we have on the site. So it's it's lovely to have you on. As usual, though, for anyone listening to this podcast, it is general advice only. So please do your own research. Uh contact your own financial advisor regarding any other thoughts, ideas, or insights. So, Jonathan, uh it's fair to say, well, happy new year, first of all, but it's fair to say it's been a what I would call a somewhat interesting start to the year. Um, I hope you had a good break. I I certainly uh tried to switch off from the markets completely over the Christmas break. Um, but what um what has 2026 started out for you? What's uh stood out for you so far this year?
SPEAKER_01:Oh look, I think from a macro level, it's pretty hard to keep up with all the headlines, to be frank. You're trying to have a quiet period, and I think we had between uh the 1st of January through to probably the second week of January, we probably had 10 or 12 major announcements out of the US. All eyes were on tweets, everything from dropping interest rates on credit card bills in the US through to obviously the overthrow of uh of the uh prior elected uh I think president in Venezuela, all the way through to oil and then discussion on Greenland. So, from a macro point of view, lots of noise. Unsure how much attention you want to pay on that noise, but um, what we're seeing more broadly at Unified Capital Partners um on the desk is the great rotation, it feels like. Um and I think that's been a dynamic that we've seen through the back end of calendar year last year, and uh it seems to have accelerated as people have come back from holidays. So, you know, effectively we're seeing a material rotation, particularly in the liquid names, towards your more resources-oriented businesses. Um, we're seeing a continued derating in a lot of the growth names that have done really well and compounded over a long period of time in Australia. Um, and and really that's causing people to really think how they want to be positioned um for the next 12 months. Sometimes it's hard to feel positioned for the next 12 minutes, I think, at the moment, but um effectively, yeah. Like there's there's a lot of flow-driven trades happening. I think there's a material number of opportunities, both um on the active side of things in terms of some of the growth names. Um, but I think also in terms of some of the cyclical names. And I think this year, I think I probably come on the podcast once a year and sort of talk towards it being a stock pickers year, but it really does feel like that this year, because I think there's going to be a disparity in sectors that come through, and probably geography is to be frank, with Australia probably being one that you have to be a little bit watchful over.
SPEAKER_00:It certainly I think is going to be a stock pickers market, as I always think it is, to be honest. But you know, we've seen not just the start of this year, but the back end of last year. The the tech sector in Australia has been absolutely decimated. You know, from we look at something like Zero, which did a capital raise at 176 bucks, and here we are languishing at you know, sort of a hundred bucks. Um, there's there's been an almighty reckoning uh with some of these uh stocks, hasn't there? Do you think well, first of all, I guess is it justified? And secondly, where will it end or will it not end? Are we just seeing a complete derating of high PE, low growth stocks in Australia and better opportunities elsewhere?
SPEAKER_01:Yeah, look, it's a great question. It's a question's on everyone's sort of lips. I mean, I I think we we are seeing things at the moment at a level that can remain unsustainable. So, you know, thinking about that stock you just spoke about in zero, you know, we're seeing days at the moment, this start of this calendar year where zero is going down three to five percent every day. Like, you know, the that you know, the reality is that rate of return, you know, cannot happen unless there's fundamentally a structural issue that's very broken in zero. So, you know, I think, you know, what our view would be personally is like, oh, you know, the reality is that earnings momentum matter in markets and you know, the the level of earnings and where we're seeing positive revisions do matter, you know, like the better earnings growth you do, the better of a stock performs. Um, and excluding, you know, anything that might be happening offshore, which I think is very similar to what we're seeing in Australia. The the reality is, is um, you know, the growth sector has not covered itself in glory, either self-inflicted or in terms of some of the drivers into those businesses. Now, what I mean by that is if you look at the a business like Zero that you spoke about, you know, that undertook a heavily diluted capital raise and bought a business that was on an e-bita sales multiple and didn't make any money, and and and probably rightly in the short term would be punished in zero. Um, you know, we've seen that with other stocks in the sector. The reality is that the earnings momentum in growth companies and probably technology in general, it has been very much towards the downside as a sector. And there's probably only four or five companies out of 20 or 30 of those popular names. If you think of the James Hardy's, the CSLs, the ARBs, the Zeros, these types of businesses, they they you know, they have had self-inflicted reasons or macro reasons why the earnings are deteriorating, and as such, the share prices reacted. Now, the re the the question is, have they reacted too much to the downside, which we can get to into on some of those stocks in in a little bit. Whereas, as you say, the resources stocks, the the absolute best earnings momentum in Australia and the ASX in general, is in is in um the resources stock commodities. I think it would be very hard to see any commodity that's probably down year on year, like we're seeing coconut coal rising. You know, we've seen lithium up, I think, 65% in the last month. We've seen gold obviously continuing to rise. Um, you know, even nickel, which I think people would consider to be a structurally very difficult commodity because of the dynamics of what we've seen in Indonesia and the like, have been um all rallying pretty materially. So I think the market's been very rational. And it might feel it might not feel that way if you'll log some of these other stocks, but I think the market's very much just moving into some of these stocks that have some lower valuations and good earnings momentum. And so, really, what you want to ask yourself if you're in some of those stocks, I think, is if it can continue. Things like gold have, you know, I think now look like they're in very much a speculator's market. Um, you know, I do continue to see things like the devaluation of the US dollar and you know, reasons to be long that currency, but uh sorry, that commodity, but you know, up up 65% a year having disconnected from US treasuries, you know, that's something that now you might want to be aware of if you've made really good money that you know it's probably hard to follow up a 65-year performance, 65% sorry, performance with another 65% performance. Yeah. Whereas, you know, we we can get into it if you want to, but like some of these growth stocks, they're now trading at the cheapest valuation we've seen outside of a crisis. And um, you know, if they if you're able to get in the right stock that can continue to compound earnings, then there's the potential to see earnings growth and re-rating, which is what we look for. So yeah, I I think you know, markets being very rational for all the noise. Um, earnings are all that's matters, and if you're looking at earnings at the moment, the best sector be in for earnings is um is commodities encyclicals, and so and that's what's doing well.
SPEAKER_00:It's um it's quite amazing. I was looking uh yesterday, the gold price in Aussie dollar terms hit 7,225 bucks, which is which is quite extraordinary. And when you're seeing these qualities come through where these miners are talking about all in sustaining costs at$2,700, Aussie, you know, they're they're making an extra four and a half thousand dollars an ounce. Um it's not a simple equation, but the the margins are stupefying. Even my old mate Adam Dawes sent me a picture the other day of the Q back outside ABC bullion um stretching around the block as people were buying gold and I presume silver as well because the same applies. But it it has been extraordinary, hasn't it? But is this you know, I I I keep looking back and I look back on the the portfolio thing that I run and I look at some of the the big gains that I've had, and it was really from buying uh straw hats in winter. You know, the resource stocks languished, no one wanted to know it was all about China, China was a a mess and it wasn't gonna grow ever in our lifetime again, and that was the reason to buy resource stocks. But now you know they they've gone nuts. BHP was banging on the door at 50 bucks. Is this straw hats in winter thing that we should be looking at the tech space now? Because this is where we're gonna get those outside gains going into the next it might take a while, you might see some pain. But is that where we should be looking?
SPEAKER_01:I think absolutely. Yeah, you know, I think like you know, if you're if you're going to be, you know, straw hats in winter, as you say, you you do need to have a time horizon that's longer than several months. We need to be thinking about the potential for those businesses over the long term. So absolutely, I think it's the right time. Um, you know, the reality is you're right about some of those dynamics. Like China still remains under pressure, you know, they had a 5% growth target. They seem to somehow hit 5% right on the knocker. That's it. They never miss that target, regardless of the narrative.
SPEAKER_00:Exactly.
SPEAKER_01:But you know, like if you look at the tariffs and all the noise in the US, the reality is like the average American is probably not really opening the newspaper anymore. They're just getting on with it. You know, the US printed 4.2% GDP growth in the last quarter of last year. The red book data we're seeing on retail sales is running six or seven percent year on year per annum. Um, and they're dropping interest rates and they're gonna run it hot. So, you know, the US is the biggest economy in the world and it's growing faster than what it was 12 months ago, regardless of the noise, and that's good for commodities, right? So, yeah, for tech stocks, that's the came. Look, I think the thing with tech stocks is to also remember the narrative. Like, you know, many of these good tech stocks that we've seen, they probably they might have overshot to the upside in valuation, but several of them I think you need to also consider the narrative around their business models. Um, the invention of AI is a great thing that I think isn't slowing down, and I don't think it's in a bubble as yet. Um, you know, I think there's still a lot more to come in terms of that thematic, but it is throwing up um, you know, differences and changes in business models. So I think the software as a service sector, you know, where you're selling seat-based licenses that may be disrupted somewhat from the likes of AI and that, I I don't think that narrative's going away. So I think, you know, like effectively maybe these stocks have been hit too hard, but I don't think that changes in the near term because I still expect AI to remain sort of a well-bid narrative and for you know businesses that are selling those seats to remain under pressure. But I think if you cast your mind towards more the ASX stocks, if you think of a car sales, if you think of uh realestate.com.au, um these types of businesses, I I fundamentally think it would be very, very difficult to foresee a future where AI disrupts these businesses. And I I ran a chart uh in our monthly morning note, uh, sorry, in our weekly morning note earlier this week that showed that car sales now has the same valuation as CBA. And now it's easy to pick on CBA. Um, you know, CBA is a great business, but CBA is a business that isn't growing earnings. It's a bank, it has a relatively low return on in equity, it doesn't have a global growth to its business. And for a business that's like car sales, which you know continues to grow at a double-digit pace year in, year out in Australia with leverage into offshore markets, the same with REA and the like, which you know essentially has an absolute monopolistic view on the world to be trading at the same valuation to me seems crazy. So, you know, I think there's pockets of businesses that if you're not worried about the business model, I think um, you know, many times you look back on periods like COVID and the GFC and you see these big drawdowns in these popular stocks, your Hub 24s, your REAs, these types of businesses, and you think, man, I wish I would have bought that, but you know, you never want to buy it in a crisis. Uh, I think the reality is we're not in a crisis. Um, you know, we've just had a really large valuation-driven drawdown, and and um, I'd be very confident in the earnings trajectory of some of those market leaders. So yeah, I mean, obviously always do your own work, but I think if you're confident in the business model, there's a there's an absolutely amazing opportunity in some of these businesses.
SPEAKER_00:Uh Jonathan, just as an aside, how how much are you using AI in your normal sort of day-to-day business? Is it taking over some of the the functions of uh fundamental analysis that you're using?
SPEAKER_01:Yeah, absolutely. Um I think it's a creeping thing as well. You know, you find yourself not really realizing you're using it a lot of the time. So, you know, certainly when it comes to um, you know, things like screens that you're running on stocks, you know, I'm using, you know, using it regularly if I'm looking for background or maybe the answer on something, you know, that could come off the that might have required analysis that required a couple of hours of data digging, you know, that can now be pulled up at your fingertips. So look, I'd say I use it every day. I I think the reality is there's that um, you know, the ability for you to use AI to think forwards and to, you know, to somewhat be entrepreneurial with it still, I think, relatively limited, but coming pretty quickly. Um, you know, but like perhaps like on the financial analysis side, you know, the thing the functions that you used to have available in a Bloomberg or a fact set or a you know a Reuters or something like this, I think a lot of that you can actually now generate with AI. So I think it's actually democratizing information better than what it was, which is great, I think, for the world. Um, and you know, perhaps if I look at a research report that we might write, you know, say we've got a 30 or 40 page research report, I think you know, 25% of that research report you can pull now out of a system that might tell you now, yeah, you've got to provide some oversight. Um, but hey, it's good to break the back of things. And uh I think that only gets better from here.
SPEAKER_00:Yeah, I tend to agree. I must admit that uh um it's um I had a a fascinating chat yesterday. I was talking to uh Armina Rosenberg at Minotaur Capital, and they are just killing it in terms of how they're using AI in their business. It was uh it was really um an eye-opener for me, and I guess you know I'm an old fuddy-duddy, I'm an old dinosaur. But um, you know, it was just uh extraordinary the the the the leaps and bounds these guys have made. Now, this is what people really love you for, Jonathan. It's just talking about some of the stocks that you like at the moment. We've we've talked about technology, the themes that maybe it is straw hats in winter. Are there any stocks that stand out at the moment you go, this is gonna be an absolute cracker in a year, two years time, and everyone's gonna be going, why didn't I buy that back in January 2026? Is there anything that stands out there is on your shopping list?
SPEAKER_01:Yeah, there's there's probably a couple, and let's I mean, let's go with the straw hats in winter thematic, I think to start. So I'll give you one on the micro cap end of the spectrum and um in summer, sorry, I'll give you one on the micro cap end of the spectrum and one on the macro cap on the bigger cap, but um, on the micro cap, you've heard me talk about this stock before, but um you know the recent sort of I think you know fall in the share price creates an opportunity. But energy one, EOL is the code of that business. I think we've spoken about it on the podcast before. It I think it's it's done pretty well on a multi-year view. So, like Energy One is the uh is the number one provider of wholesale um energy management services in Australia, and it's got about 15 to 20 percent market share in in Europe and the UK. It's a highly profitable software business. Um, it's recently, I think, probably fallen about 30% off its highs from what I've seen. I expect them to have a very strong set of earnings in the first half and to, I think, report well over the next couple of years. This is a business which effectively sits there as the wholesale manager from a software point of view. So if you think about Iris or Bloomberg, it's like the Iris or Bloomberg of energy markets. So, you know, somebody like your AGL uses it in Australia, maybe your traders and the like use it. And and this is a business where, you know, anything that's related to more people generating power on the grid, the volatility in energy markets, the arbitrage, these types of businesses, people trading, um, this is what these guys do. So it's it's not like a gen track, it's not like an octopus or any of these like these businesses. It's a market-leading business with a very strong management team and plenty of operating leverage to come through in long-term growth. I think that's a a microcat business that can expand itself at 20% plus per annum organically. It can undertake acquisitions and you know that'll be a stock that hopefully some much larger brokers are talking about in the future.
SPEAKER_00:Um on the larger side of things, I was just gonna stop you there, Jonathan, because I think you're doing yourself a bit of an injustice because you've absolutely nailed this one. And and I I remember you were talking about this, I think at you know, 10 bucks or something. It's been an absolute cracker. And I know that many of our members have done very well out of it, and despite the fact that it has pulled back, you know, from 20 bucks to 17 bucks or 16 bucks or whatever it is now. I've got to say, congratulations, mate. You you picked this early, you picked it well. And as I say, I've had you know emails from members that just go thank you, thank you, thank you. So um yeah, I think you're just being a little bit hiding your um hiding your light under a bushel there a little bit. I think you've you've killed that one. So let's go on in that vein. What's the next one?
SPEAKER_01:Well, I appreciate that. I just think you can get a second bite of the cherry for what it's worth on that one. Sure. On uh the second one's a um uh a lot of this is a very large stock and it it's in all the headlines, but I think Wise Tech on a multi-year view is one of the great opportunities on the ASX. And the reason why I say that is because if you put all the noise to the side and you forget about what's happening with valuations or anything to do with the noise with that business, they are a genuine market leader, probably one of the highest market share businesses you'll see in on the ASX, or even in the world for that matter. They move 25 to 30 percent of all the containers around in the world in the freight forwarding space. So you're talking about a couple hundred million containers that move annually because of this software. It's a homegrown Australian business. It's got founder management ownership and that has a high percentage. It's trading at the cheapest valuation that it's ever traded at since it listed in terms of WiseTech. And a lot of the scrutiny putting aside any of the personal things in the like for the company, and we can come back to that if you'd like. But the reality with WiseTech is it's a business that runs a 50 to 60 percent software margin, it's um a monopoly in its space, and you know, where all the scrutiny has been is they've been pushing towards what they call a new commercial model over the last 12 months or a cargo-wise value pack for the listeners, where effectively they are trying to move their entire business from a seat-based model towards a transaction-based invoice model. And so there might be some noise around this, and there's quite a bit of noise around it, but effectively Wise Tech Cargo-Wise, which is their core product, generates about a billion dollars of annual revenue a year against the 250 million containers you sort of heard me talk about. So they're charging three to four dollars to move around a container, and it's a lot more effective than that. And so what they're trying to do is they're trying to move from a seat-based model, which may be under pressure from AI and under pressure from pricing and the like, towards a transactional model. And so I think there's the potential that as this comes through, and it might take six months or 12 months to get right as the bigger guys come on board, but I think as they get this transactional-based business model right, I think they can move from three or four dollars per container moved up to multiples of that number over time, really flex their muscle, generate substantial double digit growth. Um, and I think you can do that at the lowest valuation in history. And so it might not be a popular pick, it might not look so great on the charts, but if you want a stock that's a straw hat in summer, the reality is uh a straw hat in winter. The reality is why WiseTech is um is one of the great opportunities in Australia, in my view. You just have to be, I think, somewhat patient on a couple year view as that change of business model comes through.
SPEAKER_00:Does the um I guess does the the founder led's great? We we we know that sometimes that's great, but it also can be a bit of an Achilles heel, uh, you know, key man risk, etc. Does the does what's happened in the background affect your view of the stock, or do you or do we have to just look through that as noise?
SPEAKER_01:Yeah, look, I I think the reality is is that you know there are there are there for some of these entrepreneurs, there are some, you know, there's effectively, I think, some truly brilliant entrepreneurs. And I think when you look at the Wise Tech business, um, you know, the the relationship of board management is intrinsic to how that business has managed to outperform over time. And I would expect on a medium and long-term view that that continues to be the same. I think, you know, the uh a vast majority of what we've seen that's I think resulted in several evaluation declines in WiseTech have actually literally been from a four to six month period in the business that's been an overhang. And so I suspect that that headwind um baits over time would be the comment. And if you were to sort of sit back and think, would you prefer to own WiseTech with or without the board management, I would say that you'd you'd much prefer to own it with those guys involved. And I think that over time what we're seeing is we're seeing more independent directors being added to that board. You know, we've seen Richard White sort of, I think, step to the side and appoint um who I think is a very well-credentialed person in terms of Zoom into the CEO role. And so I actually think that they are, you know, it's a very popular thing to be sort of negative on that business and their stock in particular. But I think that the reality is like if you look at the sum total of the last couple of years, they've done a significant body of work, I think, that's improved the corporate governance and the potential for that business to re-road over time. We're just not seeing it because we're also seeing them looking to transition their business model, which is a business model that may be under threat, but also looking to transition their business model in a very tough period for global trade scrutiny and the like. And so, you know, we at Unified, we're fundamentally biased towards you know, board management structural growers, and you do have to take sometimes the good with the bad, but invariably I think when you have good people and brilliant people around you, it's much better to back them over the long term. So, yeah, it's a it's a long way of saying, Um, you know, effectively, I think we're very confident in a multi-year earnings trajectory from WiseTech, and we've got a good valuation for it at the moment.
SPEAKER_00:That's uh that that's fair enough. Now, Jonathan, you've you and I have talked many times about zip, um, and I know you're still a bull of zip. Um, there's been a lot happening, I guess, in the background uh with zip at the moment, with the credit card fees in the US, and I guess bond yields pushing up is is suboptimal for zip in some respects. But the US consumer just continues to spend like it's like it's going out of fashion, doesn't it? I mean, the the the November click frenzy continued. Well, what where do you stand at the moment on zip?
SPEAKER_01:Yeah, it's a good question. Look, uh, I think if we roll back just a quarter ago into when they reported in October, that you know, the business had done very well from a share price point of view. You know, they had very strong Augusts, they were trading at 30 times cash earnings, you know, in line with the peers we see, like a firm and the like. And so they were really primed, I think, in price to perfection at that point. Roll forward to today, you know, Zip today is trading at about 13 to 14 times cash earnings. I think there's upside in terms of the earnings into the next half. And the management team that we have in charge of Zip, in terms of Cynthia and Gordon, the CEO and CFO of that business, respectively, they just do not disappoint when it comes to earnings seasons. Every earning season that they've been in charge of the business, the business has done an average of a 25% return, whether it be in August or February. Um, you know, they guide expectations well and they run the business very professionally. And so, you know, I think we're coming into February, it's a very liquid stock. I think there's the potential for it to materially outperform in February from the valuation that we're at. More, you know, talking more towards the macro side of things, which you're speaking towards, Henry. Um, you know, zip is very much a US business now. So although they've got debt in Australia and they've got quite a bit of TTV, 90% of the earnings come from the US. Um, and it is one of the few businesses. There's probably 15 or 16 businesses on the ASX in the 200 that have got, you know, over 30 or 40% of their income coming from the US. And zip would be right up there. Now that was a headwind when we saw the Liberation Day tariffs come through last year. I think this year it's completely turned on its head. What we're seeing in the US, and I spoke about it earlier in the podcast, is effectively we're seeing accelerating growth, and we're seeing a relatively docile environment for interest rates in the short term. So, you know, they're dropping interest rates, um, growth accelerating. Um, we've, you know, we've recently had the this is the seasonal peak that they'll be reporting on. You know, we've had reports that by now pay later volumes have picked up in the back end of the quarter. Um, you know, I've seen some app-based download data that talks about the business having accelerated. And, you know, at the last quarter, they spoke about upgrading their ambitions in the US for um for growth from 30% to from 35%, sorry, up towards the 40% level. So, you know, this is a business where um, you know, realistically, you've got front row seats to extraordinary leverage in the US. I think, you know, for all the noise, you shouldn't be bearish on the US, you should be positive. Retail sales have been accelerating, everyone's got a job still, and so credit should hold up pretty strongly. So I'm very fundamentally constructive. I think you know, this is a business which is also pretty liquid. So, you know, we can see extraordinary turns in terms of the valuation in this business, depending upon how the market's feeling at any one point. But I think back towards where we're at now, I I usually comp zip against a firm. A firm's trading at twice the valuation of zip today, and 50% of its business comes from interest rates. It has an interest rate in it. So I'm not so much a believer that he'll be able that Donald Trump will be able to bring in changes to interest rates for the next year. But the reality is zip doesn't charge any interest rates, charges fees. I don't think there'll be anything in terms of the APR of those fees. And so if there was a scenario where they brought in a reduction of fees, I think that's good for the buy now payload of players. I think it's good for zip. And I think um post several years of having delivered probably the best performance in the ASX 200, I think we're primed to continue it in the next six months. So um it's probably hard because probably most of your listeners always hear me very positive on zip. But I think stepping back, this is a business that's growing 50 or 60 percent per annum organically. Um, it can sort of be a bit of noise, bit of noise around the way, with depending upon which way it goes on re-rating. That's really the only thing that matters from it from period to period.
SPEAKER_00:Yeah. Cool. All right. Well that that that's certainly zip. And and I guess it's um, you know, it was interesting the other day when we did see the eruptions in the bond market because of uh the tariff threat to Europe, etc. It was very much the the the tens and the 30 years that uh got sold off and the yields rose. Whereas the the two-year, which I guess is a guide to what's gonna happen with short-term rates and and and Fed fund rates, was pretty much nothing. It was very steady, um very little fireworks in that particular instrument. So clearly the US does, you know, we are gonna see rate cuts in the US, although, you know, having said that, you know, GDP now is saying 5.3% is the growth rate, and you're compiling on you know the big beautiful bill with the tax cuts, and then you put in interest rate cuts, that could really turbocharge the US, couldn't it? I mean, that could that could really do some serious mileage. There we go.
SPEAKER_01:Yeah, I think that's right. And I think you need to look at, you know, everything's relative at the end of the day for markets. They look from one market to the next. And you know, today in Australia, we've had what was a better than expected jobs report, which the market hasn't liked. Um, probably because a lot of those jobs are coming from the public sector. But you know, we'd be lucky in Australia to be running a 2% GDP growth rate with potential for interest rate rises. Like sure, our property market's like been going coming back to business and all sorts of things, but there's no productivity growth in Australia. Commodities are buoying it, but it's not the average person on the street, and public spending is is um is is at elevated levels. Um, productivity in the US is ramping. AI is creating a huge capex boom, and um there are manufacturing that's moving back to the US, and the average American's got a job and they're continuing to spend. And so I think you just have to look at the data as it comes. And the reality, I think, in the data in the last nine months is that it's been improving in the US and it's been declining in Australia. And so um, outside of the US dollar affecting how you're doing things from Australia into the US, um, I think there's better earnings growth prospects offshore outside of commodities for the ASX.
SPEAKER_00:Excellent. Yeah, excuse me. Now we've talked Energy One, we talked WiseTech, we've talked zip. Anything else on your radar at the moment that you go, whoa, this is either either one that I guess that you like, or even one that you you say, well, I'm still avoiding this one because I I think it's too expensive or it hasn't finished its re-rating. Is there anything out there that you go, this is very much on my watch list either for a positive reason or for a negative reason?
SPEAKER_01:I think the negative, I'll give you a negative one and then I'll give you a sector with a couple of peers for the positive. So on the negative side of things, I think you still do just have to be a little bit cautious of businesses that remain at elevated valuations with the potential for negative earnings. So I think Life 360 is one of those for context. I mean, that's a pretty popular stock on the ASX. I think it's done well over the last couple of years. You know, people have probably experienced in their daily life when they might have interacted with family tracking and the software there. I mean, it's a good business, it's a good app. But I think even after a hefty fall, that business is probably still trading, you know, eight to nine times sales, doesn't really make much money when you account for the share-based payments and the like. You know, and they're they're relying on a lot in terms of advertising and and some of the leverage into you know some things that might have to go right for it to make money into the future. You know, I sit and look at a business like that, and if it was at three or four times sales and transitioning further through operating profit, I might feel differently. But you know, I look at a business like that with the rotation that we've spoken about and think you have to be cautious. You know, that it still remains an expensive business versus offshore peers. Um, you know, and if it has a negative catalyst in the first half results, which it may do, then you know that could still have a long way to fall. So I I you know I still remain sort of pretty watchful of businesses of that. In terms of positivity, um, look, we've done pretty well out of the contractors, um the industrial leverage contractors that are listed on the ASX that have a leverage to, you know, the electrification thematic, which we've spoken about before, but also services. You know, we've just had all the major mining companies, I think, or most of them coming through, as you spoke about, you know, they're all making high, all in sustaining um margins, you know, if you exclude the capital and the like. You know, we just had, I think, a couple of the iron ore players, BHP, Rio, Fortescue talking towards record shipments, you know, all looking to maximize production. I think the contractors remain a very well-bidden sector. So in that context, there's a couple that probably stand out to us and we can get into them if you like. But um, probably on the electrification side of things, I think Southern Cross Electrical uh SXE, um, which had the highest rate of wins that it's had in the last six months, sorry, in the last decade, in the last six months, come through. It's obviously leveraged to data centers. It's probably the cheapest play in electrification on the ASX. Um, you know, we like that. Um, we like a business called Vice Arm, which has leveraged the water thematic in WA, run by, I think, a very impressive management team, um, which I think is a great business. I think that remains one of our key picks. Um, one that I've covered, probably the longest running analyst in, I think, in Australia, in terms of who's covered, is MADAR. MAD is the code of that one. One of the best businesses you'll see, um, leveraged into mobile plant and the like. That business grows, you know, 15 to 20% plus per year and has American leverage. That hasn't really rallied alongside most of the coverage. So I remain sort of very positive in MADA. And probably the last one, and this one we have spoken about in the podcast, which I think's gone up since we've spoken about it, but remains a laggard and there's the cheapest point of leverage in services on the ASX is MLG. MLG, 90% of the business is gold. As you said before, you cannot find a gold company that wants to ship less tons. That business is trading a 30% discount to NDA, it's trading on eight times PE. Founders and board own about 60% of the company. Um, and it would be very hard not to, I think, see some really specific catalysts. It's more on the small end of the cut spectrum. Um, but the average mining services company in Australia is now trading sort of 14 to 15 times PE. These guys are trading about half of that multiple, they're trading a discount to replace in value. Um, and I think if you're in the gold mining sector, then it's a good place to be. And they've also got some iron or leverage. So there's quite a few things on your plate there, Henry.
SPEAKER_00:There is, there is. I'm I'm already uh I added uh MLG after we last spoke about it to uh the portfolio. I'm still along of uh zip as well. So um, and uh I've always been a big fan of S uh Southern Cross. So um, yeah, and SKS has done us proud as well. They've been um very good with the with the uh the uh the family-owned Jinx team behind it, which I I I really like that story as well. So um that there's some good stories out there, isn't there, Jonathan? There are some good stories out there.
SPEAKER_01:Absolutely. Um and I think you know, like if you've got a laggard in the sector that's got a bit of positive momentum, then you know the reality is like we're we're in a bull market for some of these things. It's if you think it could go right, it probably is going to go right, at least in the short term. So um I suspect, you know, whether it's the right thing to say to people or not, it's probably the right time to act on your instincts. That's your comment.
SPEAKER_00:Now we are we're doing this podcast in uh the middle of January. Uh January's actually slipping by quite quite quickly. Um, we've got quarteries out at the moment. We've got earnings season coming up, I guess, for real. Um last August we saw an earnings season, like I've never seen an earnings season. Not so much the actual earnings from the companies, but the actual reaction from the market to the uh the earnings reports. Do you think we're gonna see another you know another momentum bloodbath for some and and a momentum champagne run for others? Is are we gonna see continued volatility like we saw last August? Is is this now is this now the um the way of things? Is this it?
SPEAKER_01:Well, yeah, it's hard to bet against it. I I think yeah, I think the the short answer is yes. Um, you know, I think the reality is that with the moves in some of these stocks, if you have a good earnings report, you can be violently to the upside. I think the exception will be if you're um if it's a meet or a slight miss that you could be really heavily hit in this reporting season. I think that there's a there'll be a shoot first, ask questions later type scenario. That the quarterlies that we have seen calendar year to date that have you know been slightly below expectations have been absolutely punished. So I think if you're feeling nervous about a stock, you know, you're probably best to just sort of drop your weighting into those businesses is sort of the current read of things. Flows are moving out of the market rather than moving into the market, it feels like in some of these sectors. And um, you know, but like always, if you if you're very confident in the earnings trajectory and you think there's going to be a good February or August, then um I think it can go the other way. But um, but we are coming from a period, it just depends on your sector. There are businesses that are now trading at highs, and there's now businesses trading at lows. And so if you've got elevated expectations, it'll be hit hard. I think that's the problem.
SPEAKER_00:Yeah, so just be cautious. Certainly, uh, you know, the last few days, things like ARB and Coreia um been hit hard uh on the back of uh their quarterly. So, yes, I think it's going to be another interesting and volatile period during reporting season. Jonathan, thank you so much for your time again today. Really, really do appreciate it. It's always a pleasure talking to you. You bring such a wealth of knowledge and generosity to the podcast with your your tips. And uh what I love about you is you're not afraid to put put your um recommendations out there. And uh, you know, sometimes, you know, that's um that's rare these days. Some people tend to um be a bit wishy-washy and um hedge their bets, but uh marks to you for that. And as I say, you know, you've done so well for uh for our members over the years. Uh we're always delighted to have you on the show. So thanks very much for being on today, and good luck with the reporting season. No worries.
SPEAKER_01:Thank you, Henry, and uh thank you for all the listeners for coming on today. I appreciate it, and um anything that we can help with always let us know. So thank you. All right, thanks, mate. I do appreciate it. Thanks a lot.