Here are 4 unexpected ASX 200 stocks you should sell

Nick Sundich Nick Sundich, July 2, 2024

Here are 4 ASX 200 stocks you should sell in FY25

One of the common criticisms of brokers and analysts is that they are fast to tell you when to buy a stock, but hesitant to tell you when to sell. Even when some will tell you when to sell a stock, the buy or hold recommendations will easily dwarf the sell recommendations. We haven’t often done lists of stocks to sell, but we thought it was time for that to change, especially as a new financial year gets underway.

We’ve also decided to focus on ASX 200 stocks, because many candidates to sell may not be obvious. It is easy to point to a small cap biotech that just failed a clinical trial, or an explorer that had bad drilling results. But more difficult to assert that a company which has had good times will cease to make hay when the sun stops shining, or perhaps that the sun will stop shining at all.

So, here are 4 ASX 200 stocks you should sell in FY25, that is, in our humble opinion. This is not financial advice! If you don’t own them, investors with high risk appetite could perhaps short them.

 

Commonwealth Bank (ASX:CBA) … really?

We’d like to start by acknowledging income-oriented investors would have no reason to sell this stock – at least not before it pays its FY24 dividend. CBA pays out one of the highest dividends on a per share basis, although it isn’t necessarily the highest yielding. We also acknowledge that there have been so many bears in the last 12 months have called that CBA will drop, and all the Big 4 banks for that matter, and they’ve been proven wrong. And perhaps a major correction (i.e. a drop of over 20%) will not happen barring a pandemic or major geopolitical scare, such as if China invaded Taiwan.

 

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But please hear us out. Although CBA shares are up 50% in 5 years, it has not all been linear growth. Between July 2020 and October 2023, there were at least 5 times where CBA shares fell by 10% or more in 12 months or less. Our biggest fear is that the direction of interest rates could hurt CBA either way. If rates come down, so could the bank’s Net interest margins (NIM). The other, even if rates go up again, this could cause a deterioration in confidence in the economy and it would flow through to CBA’s bottom line.

We think a potential 14th RBA rate hike would be a greater shock than any of the previous 13, because consumers and businesses alike have long thought rates would go down. And even if it was only an 0.25% hike, it would lengthen the time towards any rate cut – in our view. It wouldn’t be too unreasonable to think if rates went up in August, we may not see rate reductions until FY26.

 

Helia (ASX:HLA)

The mortgage insurer once known as Genworth has a 34% market share in spite of only having CBA among the major banks as a client. This has been the case since 2020 when NAB defected to QBE. But CBA is putting the contract, which accounts for over half of Helia’s gross written premium, up for tender. Although this is not a done deal, we expect a major shock if the deal is lost.

Even if Helia can retain CBA, it isn’t a good time to be in mortgage insurance. The banks are withdrawing from high loan-to-value loans (i.e. those where it covers over 80% of the purchase price and mortgage insurance is consequently a legal requirement) and the federal government has introduced a home guarantee scheme. Add it all up, and it is not a good time to invest in Helia.

 

Fletcher Building (ASX:FBU)

It is a bad time to be in building materials, period. Inflation in the sector is well ahead of the broader economy and it is impacting companies’ margins, particularly Fletcher’s. Although Fletcher hasn’t collapsed at a time so many builders are dropping like flies, what do you think it does to the confidence of consumers who want to build new homes?

In its 1HY24 results, Fletcher announced an NZ$120m loss, impacted by writedowns of its plumbing supplies business and the NZICC project. Although EBITDA was positive, it shrank by over 25% with softening demand. It is not the only company to have suffered a falling profit, but was one of the few to have Moody’s publicly warning that its credit rating was at risk of being downgraded, and it had to reduce debt and sell assets to avoid a hike in borrowing costs. We’re not expecting much better in its FY24 results, nor in the year ahead.

 

Transurban (ASX:TCL)

Transurban is down 17% in the last 12 months. It has enviable monopolies on several toll roads around Australia. People have complained, but have kept paying nonetheless. After all, if you don’t use their roads, you can either not reach your destination, take unreliable public transport or get there far slower on non-toll roads.

The Minns NSW Labor government commenced a $60 weekly cap on tolls from January 2024, with claims beginning from April 2024. This may not seem like much, but it could be the tip of the iceberg. A recently released independent review led by former ACCC chair Allan Fels and David Cousins revealed Sydney motorists would pay $195bn in tolls up to 2060 (a significant proportion of which would be for WestConnex that would be paid for ‘three times over’) and made recommendations to reduce the burden. In particular, the report recommended the government take control of tolls and set prices for itself.

Anything the government does may not necessarily be bad news. It might involve extra charges for some drivers. And the report also found motorists are withdrawing from toll roads and clogging up others to avoid paying them. We think it is best not to invest in a company with lingering uncertainty, especially if you are expecting ‘the best’.

 

This article is not financial advice!

 

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