The Big Picture: Why stock picking matters more than ever

Rates are staying higher, costs are rising and investors are paying heavily for certainty.

What we saw this week is that inflation and interest rates are not going south any time soon. We’ve seen US Treasury manipulation – using short-term debt to try to manage long-term expectations – patently failing. The US 30 year bond yield remains around 5.2%, above where it was prior to the onset of the 2008 financial crisis.

Inflation & household spending data

On the domestic front we’ve seen stronger than expected inflation and household spending data put another interest hike on the cards by the end of the year. We’ve already had 3 in the space of a few months earlier in the year.

On top of this we’ve seen a reporting season reflect what we already know, commodity prices are strong and costs are rising.

What does this add up to?
Stock picking is more important than ever. Below are some highlights from our Blue Chip Research, which I think you’ll agree are pretty interesting.

ASX Blue Chip Stock Action

Both Coles $COL and Woolworths $WOW are high quality companies, dominating a big market with a unit cost advantage that can’t be matched. But both have a price, or a value. This time last year we saw that one looked much cheaper than the other and we advised a switch: sell $COL, buy $WOW. Then we upgraded to hold.

 

If you followed our advice and kept a holding in $COL you might have made up to 50% on the trade.
See the table below.

These are among the safest and most boring companies on the ASX. But if you look at relative value, you can profit. This is never going to be captured in the S&P/ASX 200 Index, which is pretty much where it was 12 months ago at around 9,000 points.

FY2026 Results: Sales Momentum

Like Coles, Woolworths FY26 results was well received. This is in stark contrast to the red flags raised by discretionary retailers raise red flags as interest rates and fuel costs bite. The important distinction between discretionary and nondiscretionary consumer spending has sharpened, reflected in share price performance. Like COL, WOW rose 5% after its results, which showed continued sales momentum.

But now the stocks look expensive. Woolworths trades on a forecast PE  multiple of over 31 times, while Coles is 26 times. Both dividend yields are not much to talk about. Investment security is a fallacy. It’s the price you pay for the assets (whatever they are) which gives you security.

We are seeing investors pay a bigger and bigger premium for the relative certainty that comes from companies that can deliver earnings independent of the pain being felt by consumers as costs bite.

The need to look through this pain and to see the value of the underlying assets has never been more important.

Downer (DOW) and Worley (Worley)

Downer (DOW) and Worley (Worley) are both stocks that have had a difficult time.

This makes them an interesting proposition. They also pay dividends, which makes the uncertainty more bearable as their respective management teams work hard to correct the ship. Read our analysis in Blue Chip.

Right now is the time to looking harder than ever. That’s what we’re doing.

Learn more about small cap investing in growth stocks.

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