Final thoughts for 2023: Trading strategies, Ridley Corp (ASX:RIC) and LendLease (ASX:LLC)





The following companies have been discussed this week:

The following transcript was AI-generated.

Hello. My name's Chris Pedersen, and this is Stock Watch for Wednesday, the 20th of December 2023. This is the last day of the year that I'll be doing stock watch. I'll see you in January. Advice is general advice and might not be suitable for you. Always consultant advisor before making any investment. All questions from viewers should be sent to stockwatch@fnn.com.au. Couple of market observations by May one interest rates have come down a lot, which we know inflation is under control. Well, it's getting there in the United States. If you strip out rental increase as their inflation rate is 2% or less. So that's significant. In our country, rental increases big part of inflation also nominal GDP is still growing over 5% here in Australia, which by the way, feeds corporate profits just fine.

My recommendation overall is if you don't know what individual company are by, just buy the ASX 200 ETF. The code is S-T W right now. You can't go wrong. Yes, t w is on a draw and my feeling is we're going to see this continue to go up through January into the February reporting season. Here is a chart of the ten year Aussie bond yield.

This is very significant. What you see is on the right towards the peak that's just under 5%. Wasn't that long ago. We're now down around 4%. This is very significant. It helps drive equity prices higher. When you look at the longer term bond yields and their interest rate drops. That means equity prices go up because they're usually priced off a discounted cash flow model.
And the discounted cash flow interest rate used is a longer term rate. So on seven year bonds, ten year bonds decline, that discount rate interest level is lower, which increases the output price. Here is a chart on housing affordability. This is fascinating because the number one factor that people say to help housing affordability is they are comfortable with councils making it easier to build supermarkets and their market share.

This is pretty significant. It's worth taking a look at. Trading Strategy results for 2023. I caught this in Bloomberg. This is actually very significant. The number one strategy for making profits was buying and holding. The reason this is very significant is because all the other strategies which you're using technical analysis does underperform. Let me repeat this. The best strategy is buying and holding trading based on other technical analysis factors underperforms.

Think about it. It's worth understanding fundamentals, learning about earnings per share growth rates, revenue growth rates, free cash flows, dividend growth rates. It makes a difference long term. I only have two companies this week I wanted to share with you. The first is Ridley Corporation. The code on the ASX is ah, I see. Close at $2.58. This is a five year chart.

Have you seen many companies that look this attractive? It just keeps going up and up and up. Let's look what the numbers tell us. Will it continue going up? Well, if you look at revenue growth rate for 2023 to 2026, it is around 6.6% per annum. Earnings per share growth, however, in this period is 9% per annum and the dividend growth rate is even better at 17% per annum.
I have a price target of $2.90. I feel this is probably on the low side, but I didn't want to be overly aggressive. If the stock in 12 months gets to $2.90, that's a total shareholder return of 17%. I look at it the peak of a 2025 earnings estimate, $0.16. It's only 16 times. So a company that has these growth rates.

That's a very low p e the yield on a 2025 dividend estimate of $0.12 is 4.6%. Free cash flow is 5% payout ratio of 70. Ridley Corporation produces animal nutrition solutions Bulk and packaged feed. Continued growth opportunities remains in the market for them. I rated a by the second company today and the last one for the year. It's Lendlease Corporation on the ASX Trades under LLC and it's right now it's $7.31.

This is also a five year chart looking at it. It is a company you would not want to touch. However, you know, companies don't always go down. Sometimes they stabilize and then go back up. Is Lendlease one of these? Let's take a look at revenue growth rate basis 2023 to 2025. I estimate it's only growing at 2.7% per annum.

However, the earnings growth is excellent 16% and dividend growth is also excellent 13%. The p e a next year's earnings estimate, $0.70 is only ten times the yield on next year's dividend of $0.22 is 3%. However, this is a big problem for me. It's free cash flow is negative and its dividend payout ratio is 30%, which is okay because it gives them room.

When they get better free cash flow, they can increase their dividend, increase yield. It's an international property development and investment company. I do not have huge confidence in their growth. However, a lot of brokers tend to like the Lend Lease right now. Perhaps they know something I don't know. It is trending up. I'm willing to give it a buy half way, but this is on a short term basis.

I'm not going to buy and hold this forever. I would review this every couple of months to see if it remains a buy simply because it has a potential to really grow and reverse the long term trend. However, I'm a little bit of a skeptic. Thank you very much for your time, as always. If you want to learn more about anything I cover today, send an email request to stockwatch@fnn.com.au and direct it to me. Chris Pedersen. I hope you have a profitable week and 2023 has been an excellent year for you and 2024 will be even better. Thank you.


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