Ask Peter Switzer for his best investment advice and he’ll usually tell you to look for “quality stocks that have been beaten up by the market”. We asked an expert what currently fits that description when it comes to ASX stocks, and got five good prospects.
FNArena founder Rudi Filapek-Vandyk – speaking on this week’s new-look Switzer TV – says the market’s rotation out of quality growth has run its course.
The Australian sharemarket has spent the better part of a year punishing quality growth. The rotation into commodities, energy and banks that defined 2025 came at the direct expense of the technology and high-multiple names that previously could do no wrong. According to Rudi Filapek-Vandyk, founder of FNArena, that rotation has now overshot, and the conditions are in place for the patient investor to be rewarded.
Rudi said the trigger for the recovery is already visible in the bond market. As inflation fears give way to growth concerns, the case for quality compounders strengthens.
“Everyone is now piling into energy stocks and mining stocks because they protect you against inflation,” he said. “The bond market is focused on inflation. I think the longer this continues in the Middle East, the longer we have no solution, the longer the interruption to the oil price, the more likely the market will switch its focus away from inflation towards growth.”
The implication is that the names that were sold down hardest on inflation and AI-disruption fears are also the ones best positioned for the rebound.
1. TechnologyOne (ASX: TNE)
TechnologyOne is the case study that anchors his entire thesis. The stock fell from above $44 to around $20 in the broader sell-off, before recovering to around $30 on the back of a strategic update from management.
“A company like TechnologyOne — just go back in history,” he said. “They double in size every five years. There is no reason if you talk to management, you talk to analysts, you look at the numbers. There’s no reason why they wouldn’t double in five years from here. What happens in the meantime is volatility.”
The recovery, in his view, was earned. “TechnologyOne gets sold down with everything else. Share price goes back towards twenty dollars. It was more than forty four at one stage. And then management comes out and basically says to the market, listen, we are actually going faster than we thought previously. We are going to make our targets. We are buying in shares, and we are the first company in Australia to successfully launch an AI embedded suite of products. The market went, fair enough. All right. You’ve convinced us. Back to thirty dollars.”
For Filapek-Vandyk, that response is the template every other quality growth name now needs to follow.
2. Xero (ASX: XRO)
Xero has been one of the most prominent casualties of the AI disruption narrative, with the market discounting its earnings on the assumption that generative AI tools could erode its accounting software moat. Filapek-Vandyk does not buy that.
“The Xero CEO has basically said, I gave Claude a chance and didn’t hold a candle to what we’re doing,” he said. “It’s not going to be a threat to our business. The market still didn’t buy it. They agreed, but sometimes the time is not right.”
The signal is that the fundamentals are intact and the CEO has gone on the record to defend them. The market simply has not yet rotated back. For investors who can wait, that is the gap.
3. Pro Medicus (ASX: PME)
Pro Medicus has long been a Filapek-Vandyk favourite, and it has been one of the harder-hit names through the recent volatility. The drivers, he said, are familiar: high valuation, AI threat, and the broader quality-growth sell-off compounding the move.
“Still am,” he said when asked whether he remained a fan. “I think so, I think so, to be honest. I think there’s multiple elements that have come together again. High valuation, et cetera, et cetera. AI threat. You name it.”
His thesis on Pro Medicus is the same as on TechnologyOne and Xero. The market is selling on a sentiment overlay that the fundamentals do not support, and the recovery will come once management has the chance to demonstrate that the underlying business is intact.
4. Aristocrat Leisure (ASX: ALL)
Aristocrat is one of the names Filapek-Vandyk flagged as having a near-term chance to follow the TechnologyOne recovery template. With results due, the company has the opportunity to demonstrate that the fundamentals justify a re-rating.
“That’s basically what the market is now expecting from all the stocks that you can throw on the table,” he said. “They now have to convince the market, listen guys, we’re not being interrupted. We’re actually getting stronger. We think it’s a benefit to us. Customers are loyal. Profits are rising. Markets stay intact. Basically, they have to convince the market now.”
“Some of those companies will come out over the next few months, even before August, and they will report. Aristocrat Leisure, Xero, TechnologyOne as well. So they will all report.”
The reporting calendar, in other words, is the catalyst.
5. Block (ASX: SQ2)
Block sits in the same category as Aristocrat. It has been caught in the same indiscriminate sell-off of quality growth and high-valuation names, and its results will be a chance to prove the case to a sceptical market.
“The block will report,” Filapek-Vandyk said. “So they will have a chance with their results. But of course, if the result doesn’t really convince them, then shareholders have to wait. The market took the view because we can’t at this point in time decide which one is going to be. We just sell them all. And it went well beyond the technology. I mean, you go into everything that was basically quality growth just got smashed. Everything on the higher above-average valuation that previously could do no wrong. All smashed.”
The risk is that Block, like any of these names, may not convince the market on a single result. Filapek-Vandyk’s view is that the patient investor accepts that and waits.
This article does not take into account the investment objectives, financial situation or particular needs of any individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances. Before acting on anything we discuss, we strongly recommend you seek the appropriate professional advice.
