wsDKII's Stocks to Watch - Then Buy During the Next ASX Crash

[wsDKII]

Hi guys, I want this thread to be ASX limited so no international tickers please - that can be in another post

Basically, there is an increasingly large number of indicators pointing towards the next market correction occurring within the next 24 months. I don't want to discuss IF the crash will occur, but rather the companies that would become attractive if it did. Think the Commonwealth Bank in Jan 2009, when it was $27

I'm putting together my own list of about 10-20 (max) companies that I would consider, and I will continue to update this thread as I flesh this out. The criteria that ill be using (and if you want to contribute I suggest a similar approach so we are comparing apples with apples) are as follows:

1 - Entrenched in Australia. Essentially a large enough company with a proven track record for surviving crashes (probably using the 2000 and 2008/9 crashes for this)

2 - Strong demand for services in 10 years time. Essentially a company that isn't dealing in tulips

3 - Large Domestic and/or Foreign customer base. Essentially enough customers around the place that would continue to require services even during an economic downturn.

4 - Simple enough. Essentially a business that is easy to understand (in principal) and one that the economy requires to operate at a minimum (e.g. banks, utilities, retail).

Note, this is meant to be a simple sanity check - IF a crash happens then proper analysis will still have to be done, but this would allow us to be 1 or 2 steps ahead of others.

If you think that more criteria is required please shout out

Finally if you're game include a price that you would realistically be looking to pick it up for.

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Ill start us off:

CBA.

1 - Wasn't really effected by the 2000 crash, doing very well after 2008/9
2 - Is Australia's largest bank and little reason to suspect this will change anytime soon + if it does, it would still be in the top 4
3 - Many domestic customers...not sure on foreign however
4 - Simple to understand and required by the economy

Would aim to pick it up between $20-$30

CSL.

1 - Wasn't really effected by the 2000 crash, stagnated for a few years after the 2008/9 but doing really well at the moment
2 - successful Multi-national company dealing in health products - a sector that is forecasted to see huge demand as more and more middleclass are created around the world
3 - Healthy numbers of local and foreign customers
4 - A bit complex to understand, however is entrenched in the industry and underpins a potential knowledge sector of a 'knowledge economy' that Australia is moving towards.

Would aim to pick it up between $25-$35. $40 at a pinch.

 

[Logique]

Good choices.

Cochlear is another one, currently $89.

BHP and RIO will be juicy as well.

 

[The Falcon]

I like the idea of a short list, but you might want to rethink the numbers, this is approx 70% crash from where we are today.....I dare say you will be waiting for a very long time. A look at the history of markets show that GFC type events are exceedingly rare. For your numbers to happen we'd be looking at XJO around 2000, at which point all bets are off. I'd suggest looking in the 20-25% range which is far more common historically...and you will need to reset those prices to account for growth.

 

[systematic]

Fun question (and am answering in that light)

Just looking at the ASX20 (as I assume the idea is to catch some of those 'blue chip' stocks when they are priced reasonably post-downturn....and the question is: "which one?"

My pick of them (ASX20 according to my numbers)...would be CSL. I just realised (did this first before referring back to first post, which I'd read earlier today) that wsDKII picked that one as well! Well, there ya go!

Going out further (but still in ASX100)...and this rates higher than CSL overall...is REA.

Kind of a moot answer for me...as what I do is dynamic; i.e. I don't have a watchlist where I'm waiting for a certain price.

It's probably more fair to say that if CSL or REA had major down turns in the near term and came up as value stocks for me....they'd certainly seen as decent quality, value stocks.

 

[wsDKII]

I like the idea of a short list, but you might want to rethink the numbers, this is approx 70% crash from where we are today.....I dare say you will be waiting for a very long time. A look at the history of markets show that GFC type events are exceedingly rare. For your numbers to happen we'd be looking at XJO around 2000, at which point all bets are off. I'd suggest looking in the 20-25% range which is far more common historically...and you will need to reset those prices to account for growth.

Good point, I wont include the price.

Now updating to include Vanguards VGS (Index International Shares ETF). I think that this ETF (which excludes AUS) is a good all-rounder to have in a core portion of a portfolio. I don't think you need to wait for the market to move either way to purchase it either, as it is a very long term holding.

I appreciate that it might have a slightly higher fee structure compared to others, and this is a very new ETF so performance data is limited.....but there seems to be good feedback from investors who have purchased this one.

So now:

In:

CBA
CSL
VGS (ETF)
REA - I believe that with the continued interest in Australian property (regardless of if house prices rise or fall) there will be a continued need for their services, and with their recent innovations and potential overseas markets they stand to remain relevant for some time.

Maybe:

BHP - I'm still uncertain as to the long term prospects of the Australian arm of this business. Whilst I believe that the resource prices are to increase over the next 6-18 months, the profitability of BHP may be severely impacted for a while longer...any maybe indefinitely.

COH - With a limited diversification of products sets I would need to understand the future prospects of this company long term, given that other R&D could overtake them in the short term (possible...not sure of likelihood)

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Any thoughts about VGS?
Also, there is a bit of discussion about VGE...not sure about that one either.

 

[Knobby22]

I bought back in too early at the last crash.

Cba may be too risky. Banks are highly geared and we have not had a recession since 87-89 which nearly sent Westpac broke. Proprty prices crashed and Cba could lose billions. Sure if the Australian economy holds up then Cba would be a good bye but it is a big if.

Csl is easily Australia's highest quality top 50 company. I am having trouble thinking what other companies.would hold up. Maybe TPG? People will keep wanting data and will look around for alternative suppliers during a recession.

 

[wsDKII]

OK, well I have spoken to many people about this, done my own research (for most, but not all of these) and I have compiled a list (this specific set was given to me) of companies that would seem to be the cream of the crop to buy at the next crash. Thing is, there are too many for me to focus in on as per my money management rules.

Not sure if we can get this list down to about 5-7 which would be the absolute best.

Code Name

ANN - Ansell Ltd
COH - Cochlear Ltd
CSL - CSL Ltd
MTU - M2 Group Ltd
REA - REA Group Ltd
RHC - Ramsay Health Care Ltd
SHL - Sonic Healthcare Ltd
TPM - TPG Telecom Ltd
SRX - Sirtex Medical Ltd
TNE - TechnologyOne Ltd
SEK - Seek Ltd
DMP - Domino's Pizza Enterprises Ltd
CAJ - Capitol Health Ltd
SGH - Slater & Gordon Ltd
CTD - Corporate Travel Management Ltd

 

[pixel]

I would add PRY and TLS to your latest list.

My reason for placing PRY above the other health services:
If, under your assumption, we suffered a significant crash, then the clientele for Private Hospitals will probably be greatly diminished and many more will choose to attend a lower-cost General Practice like the ones operated by PRY. In addition, the number of disadvantaged strugglers will have been multiplied, further adding to the numbers that need Primary care.

Regarding TLS, I'm puzzled why they're not on your list. Given their size and ability to squeeze any Government of the Day into concessions, their survival carries far less risk than picking someone like MTU or TPM. Either of those could recover at a faster rate and multiple; but quite possibly, they might also drop off the perch.

That aside, I reckon your suggestion is a great idea. Any chance you're a Scout Leader? "Be Prepared!"

 

[wsDKII]

I would add PRY and TLS to your latest list.

My reason for placing PRY above the other health services:
If, under your assumption, we suffered a significant crash, then the clientele for Private Hospitals will probably be greatly diminished and many more will choose to attend a lower-cost General Practice like the ones operated by PRY. In addition, the number of disadvantaged strugglers will have been multiplied, further adding to the numbers that need Primary care.

Regarding TLS, I'm puzzled why they're not on your list. Given their size and ability to squeeze any Government of the Day into concessions, their survival carries far less risk than picking someone like MTU or TPM. Either of those could recover at a faster rate and multiple; but quite possibly, they might also drop off the perch.

That aside, I reckon your suggestion is a great idea. Any chance you're a Scout Leader? "Be Prepared!"

Hi Pixel, I like your idea about PRY, although I would need to look into this further.

With TLS, I have thought about this a lot. There are a few issues with Telstra - they main customer bases are retiring, dying, or having their consumption methods change (within AUS anyway). Even though the mobile division is fantastic, and effectively been keeping them alive for the last 5 years, I don't see the ability to squeeze much more (from a growth perspective) out of this.

Even though the NBN deal does give Telstra a good supply of cash, I'm not convinced management can spend it properly to grow the business in the domestic markets. There are good opportunities (like partnering with Netflix) that have been missed so far.

Telstra is also having a net downsizing of their employee base, and they have a high turnover (10-20% in some areas each year). This is (from what I am told) due to management treating employees poorly, and failing to create the right working culture. This is obviously bad for a business as happy employees are more productive, and bring more to the table. Also there is the constant drain of IP to deal with.

Furthermore, Telstra doesn't seem to have a plan with capturing the SEA markets - they keep talking about connecting people / companies together, but I cant see anything that would make them more appealing compared to AWS, or VMware or Microsoft in this space.

Telstra were once one of our most fantastic engineering successes, and put Australia on the map technologically (especially in the early broadband, and wireless days where they made a lot of the technology that is in use today).

However Telstra is now a company that consumes other companies services, and onsells these to the consumer base - both retail and enterprise grade. I don't see anything that would make Telstra stand out amongst the crowd in 10 years time.

This may all change of course, with new management and proper direction.....but their new CEO...well he is an accountant who will probably do well short term (2-3 years) and keep the share price healthy, but I doubt he can grow the company. Also, the new CIO is someone who doesn't want to build anything - just consume others stuff. Like I said before, this will possibly result where Telstra cant differentiate themselves from any other like company.

So yea, with the exit of David Thoedy, and the introduction of many new members in the senior leadership team, im not sure they can continue to grow the company in the right way.

 

[galumay]

One thing to consider with TLS is they have long been a badly managed company, the entire corporate structure is basically disfunctional and made up of lots of 'silos'. They are regarded as a poor company to work for as you noted and they have always rated as one of australia's worse telco's from a customer support and service point of view.

They have treated customers with disdain, price gouging and deliberate infrastructure throttling. (RIMS etc).

Anyone who has dealt with them on either a retail or wholesale basis can tell horror stories about them, TLS have also been slow to see opportunities in the broad market and have then used their size and influence with government to try to destroy competition and innovation.

Despite all the negatives about TLS look at their financial performance over the last decade, if they have survived and in fact prospered the way they have been managed, then I think they will do ok! The opportunity if someone can unwind the dysfunctional management and extract the value from the potential is another plus.

TLS would be one of my first picks if looking for a really recession proof company in Australia.

 

[Melthar]

I would personally be looking at the big two in non-discretionary retail: WES and WOW, with maybe a small dose of MTS.

In the end, I would all depend on the price, but if they took a decent hit in a recession/GFC/crash situation, I would be going roughly equal weight in the main two. They may lose some market share to Aldi or similar, but that is going to take a bit of ramp up time to make it noticeable, and none of the other options really have the volume to be able to make them price competitive. Add in the fact that people will likely switch to homebrands (which equal more profit for the parent company) within their local supermarket before they go searching elsewhere.

Question beyond that is weighting based upon the other aspects of the companies beyond the grocery aspect.