UBS

We didn’t have to get too far into 2023 for China’s reopening to become the most-watched theme for markets. It’s already proving a solid foil against fears of monetary tightening, and this week, the UBS Australian equities team raised its ASX/200 Index Target to 7,500 (from 7,250) on the back of the global economic.

Last week, the benchmark hit 7,393 on Wednesday – its strongest level in more than eight months.

In 2023, UBS reckons market moves will be dominated by corporate earnings, which comes around twice a year in Australia. And it expects Aussie corporate earnings to somewhat more positive than those in the US, which falls nicely in line with UBS’ expectations that in 2023, investors are likely to be seeking “more structural and consistent sources of revenue growth”.

Broadly, UBS has upgraded its sector recommendations for Infrastructure/Utilities and Insurance to Overweight, and knocked Mining back into the Neutral box.

But we’re here for the stock picks, right?

UBS keeps things simple by maintaining two lists – Best Preferred and Least Preferred. And because we’re keeping it brief, it’s added South32 and Suncorp to its Best Preferred list and dumped BHP and Super Retail.

On the Least Preferred side, Pinnacle Investment Management scored the red card along with Vicinity Centers. Escaping the glare are Lifestyle Communities and – hello, what’s this? – Magellan Financial Group.

 

Barry FitzGerald

Victoria’s brown trout population has a brief reprieve now Garimpeiro’s packed away the fishing rods for the holiday season and is back Polaroiding for small cap resources bargains.

And he’s starting the year with some REE speculation. That’s rare earth elements, which as 2022 wore on, became something of a scene-stealer as punters grew wary of lithium’s potential to maintain its ridiculous momentum.

Fitz likes a bit of potential upside. If you do too, and were watching Meteoric (ASX:MEI), you’ll know and probably bemoan the fact it shot from 1.5c a share to 6.5c in December after acquiring a privately owned REE project in Brazil called Caldeira. Have you missed the boat?

Consider this, Garimpeiro notes. Grade is king when it comes to REE, and the advanced Serra Verde REE project in Brazil comes in around the 1500ppm mark. That’s good enough for a couple of noted resource investment funds to lob US$150 million at it.

In China, 600ppm is the typical mark. Caldeira, according to $5m Japanese drilling program between 2016 and 2019, comes in around the 4000ppm level. The very definition of “off the charts”.

And the deposit is the good stuff, ionic adsorption. For the uninitiated, that means the rare earth elements can simply be “washed off” the clay.

Meteoric has a maiden resource estimate for Caldeira pegged for the June quarter, but drilling is about to start, so expect some price action earlier as results start to come in.

One person cheering them on will be Tolga Kumova – he has a 13% share in Meteoric.

 

Martin Pretty

Director, Equitable Investors

Pretty reckons beaten-down tech stocks could reward the patient investor in 2023 – especially those with a “fresh” and “optimistic” approach who’re looking for “value” lying on the battlefield that was 2022.

His top pic is WA-based marine propulsion and stabilisation systems maker Veem (ASX:VEE) which has seen its market cap drop from around $130m at the end of CY2021.

“Beyond the negativity from the broader market, the decline in market value for VEE has really been about the gyroscopic stabilisers (gyros), opportunity being slow to kick into gear, along with cost inflation,” Pretty says.

“Its gyro business was expected to see stronger sales in FY23 with a strong level of quality leads and enquiries – overall, the company was expecting its half-year earnings to return to traditionally higher levels.”

Next on the list is software developer Prophecy International (ASX:PRO), with annualised recurring revenue (ARR) that surged 71pc over the previous financial year.

“Across its two key lines of software, PRO had ARR of $19.4m as at September 30, 2022 (up 5.4 per cent since June 30) – the cash and ARR figures alone start to make PRO look very interesting to us,” Pretty said.

The final pick is expense management software company 8common (ASX:8CO) which reported 43pc year-on-year revenue growth to $1.6m for the three months to September.

In 2021, its expense management software solution was mandated as part of “GovERP”, a project to standardise software across federal departments – and there are more than 90 Commonwealth agencies participating and another 89 agencies who could opt in.

“This meant 8CO would add around 110,000 users – but it wouldn’t happen overnight,” Pretty says.

The views, information, or opinions expressed in the interviews in this article are solely those of the interviewees and do not represent the views of Stockhead. Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.

Featured Companies

You might be interested in