Argo Investments boss Jason Beddow says it’s still too risky to buy the banks

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Argo Investments boss Jason Beddow says it’s still too risky to buy the banks

It’s probably too early for investors to be buying back into the big four Australian banks even though they have fallen close to one-year lows, says the managing director of the $6 billion listed investment company Argo Investments.

Jason Beddow said the risks are still too high with the big four banks, ANZ, Commonwealth Bank, NAB and Westpac, even though they have already fallen sharply because of the Hayne royal commission fallout and some value may appear soon.

“I think most people want to see a set of clear recommendations from the royal commission, and have that certainty,” Mr Beddow said on Monday.

“It would be very bold to head back in right now.”

But there may be a surprise bounce back in some of the stocks trading on high price-earnings multiples that have suffered the heaviest falls during the broader October sell-off, if markets become more settled over the next few weeks.

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“We often use the rubber band analogy,” Mr Beddow said.

“If things settle down a bit they will go back up because people are still wanting growth. But perhaps not back up to where they were,” he said. ASX companies with lofty P/E multiples including Wisetech Global, Afterpay, Treasury Wine Estates and CSL were sold off hard in early October.

Cochlear price baffles

But Mr Beddow said Argo was still steering clear of hearing devices maker Cochlear, which although a well-managed company, was just too expensive, trading on a P/E multiple of 40 times. “We just can’t get our heads around the multiple the market is paying for Cochlear,” he said.

Argo will be avoiding buying shares in the telecommunications and transport sectors, with profit growth likely to be elusive. But Mr Beddow said Australian companies broadly are still generally expected to continue growing at about 7 per cent on average in 2018-19, with the domestic economy gaining momentum and interest rates still at historical lows.

Most political experts are predicting a Labor victory at the next federal election due by May 2019 at the latest, and Mr Beddow said if that transpired there were two major factors that investors would need to contend with.

He said Labor governments historically tended to increase spending levels, which would be good for the domestic economy. Infrastructure spending in particularly, was likely to remain strong over the next few years.

But there would be a large amount of angst for investors over which sectors to be in over the longer term, because of the Labor promises to make substantial changes to franking credits, negative gearing and capital gains tax.

“People are not going to know which way to go. All of the areas they traditionally look at will be affected,” Mr Beddow said.

“That’s going to cause a lot of disruption”.

Argo’s new chairman Russell Higgins earlier told shareholders at the annual meeting in Adelaide that Argo was vigorously opposed to the removal of refundable franking credits, which is being proposed by the Labor Party. Mr Higgins, who has just stepped down as a director of Telstra after nine years on the telco’s board, said those franking credits should have the same value to all Australian taxpayers regardless of their marginal tax rate.

Ramsay tipped to keep growing

Mr Beddow said Argo was still a believer in the long-term value of private hospital operator Ramsay Health Care, which had been de-rated by the market since hitting a share price peak in September, 2016.

He said other investors weren’t prepared to pay for the slower growth profile of Ramsay into the future, after the pace of profit growth slowed. But Argo expected the dividends to keep rising.

“The dividend is growing into the future,” Mr Beddow said.

Argo had also been acquiring Oilsearch shares because of its PNG assets and its exposure to the LNG sector, which would experience robust demand over an extended period.

Argo was formed in 1946 and one of its previous chairmen was Test cricket great Sir Donald Bradman, who worked as an Adelaide stockbroker when he retired from the sport. The Argo annual meeting was held at the picturesque Adelaide Oval on Monday.

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