5 stocks for Aussies to watch over the next 12 months
This article, written by Kylie Purcell with comments from InvestSMART portfolio manager Nathan Bell, was published in YourMoney on 29 October 2018.
The last 12 months have been underpinned by trade wars, a hoard of geopolitical dramas, sky-high oil prices and big trouble for the big banks.
With all that going on, it’s no wonder Australia’s stock market doesn’t know which direction to run. After all, when there’s so many distractions about, it takes a shrewd investor to dig out the best from the rest.
So, we asked five investment experts to name just one stock they thought we should be keeping an eye on over the next 12 months, and why.
Here’s what they came up with:
1. BlueScope Steel (BSL)
When it comes to the US-China trade war, our steel sector has managed to avoid most of the in-fighting, with policies from both sides actually benefitting our steel producers.
According to Eleanor Creagh, Markets Strategist at Saxo Capital Markets, that’s put BlueScope in a strong position for the year ahead.
Australia was offered a free pass when Trump imposed steel tariffs on other countries, while China has been cutting down on local production since 2015. Creagh says both of these have factors have lowered global competition.
“BlueScope’s free cash flow position is set to increase into 2019 to as much as AU$1 billion. This could result in BlueScope announcing another buyback in the first half of 2019,” says Creagh.
She also points to the company’s strong price to earnings ratio, which compares well to the ASX200.
“Therefore, it’s clear the increased returns are not being factored into the current valuation.”
2. NextDC (NXT)
We all know that with investing, timing is everything. Internet software company NextDC has fallen more than 20 per cent since its earnings results in August, and Michael McCarthy, chief market strategist of derivatives dealer CMC Markets believes it’s time to buy.
While the company reported a 16 per cent fall in profit, he thinks the stock market reaction was misplaced, considering they also reported around a 30 per cent lift in revenue.
“In my view, the share price fall is an opportunity to add a higher growth prospect to the portfolio at a reasonable price,” he says.
3. Trade Me (TME)
Online classifieds businesses, such as New Zealand’s Trade Me, have done particularly well in the last decade, according to Nathan Bell, portfolio manager at digital wealth platform InvestSMART.
Trade Me has jumped more than 140 per cent from the time it was listed, however profit margins have fallen recently thanks to big investments, including more staff.
“While the Marketplace division will face increasing competition, particularly for used goods, growth from the classifieds division should more than offset any damage,” says Bell.
“The forecast price-to-earnings ratio of 20 might not scream bargain, but with margins and profits set to increase, and the prospect of further special dividends in the years to come, Trade Me is currently our largest holding.”
4. Stock pick: Origin Energy (ORG)
With energy policy at the centre of Australia’s current political landscape, Origin Energy has landed firmly on the radar of investors, but not for the right reasons, according to portfolio manager Jun Bei Liu of fund management firm Tribeca Investment Partners.
“Because of the high oil prices, all the energy names have outperformed quite meaningfully recently,” says Liu.
But investors have focused too much on Origin’s exposure to electricity, rather than its ties to the LNG market, which means the stock has been undervalued, she says.
Origin’s investment in Australian Pacific LNG (APLNG) is forecast to contribute over 50 per cent of next year’s earnings, according to Liu.
“Yet the company is still being treated like AGL – which has a majority earnings from electricity pricing.”
The resulting low price puts this stock in a ‘buy’ position.
5. Stock pick: South32 (S32)
The Perth-based mining company South32 was spun off from BHP in 2015, and has recently acquired Arizona Mining. The new acquisition should mean very good returns, according to Dale Gillham, Chief Analyst of financial services firm Wealth Within.
“There has also been recent speculation that S32 may be a takeover target, which adds to my interest,” says Gillham.
“On a technical note, if the stock holds above $3.23, it will provide a springboard for higher prices. I expect S32 to break through the all-time high of $4.07 over the coming months and trade up to between $4.60 and $4.70.”