The profits of Australia’s biggest listed companies appear to have hit bottom and are about to start climbing again.
“Accelerating global growth suggests we are nearing the end of the Australian profits recession,” write Credit Suisse analysts Hasan Tevfik, Peter Liu and Damien Boey in a note to clients.
The combined earnings per share (EPS) of the ASX 200 has declined 13% over the last two years.
However, the Credit Suisse analysts now forecast single digit EPS growth over the next year,
“Against a backdrop of rising EPS we expect the ASX 200 to grind higher to 6000 by December 2017,” they say.
The premium associated with growth stocks should diminish as profit growth becomes less scarce.
“The coming end of the profits recession suggests a new phase of the market cycle,” the trio say.
They believe lowly valued companies will benefit, including Bluescope Steel, Caltex, Computershare, Macquarie Group and Myer.
Here are the shares favoured by the analysts in an EPS recovery: