CREDIT SUISSE: These once on-the-nose Australian shares now have a 'positive alpha' aroma

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Some of the most unloved shares on the Australian market are starting to acquire a positive aura.

The half year reporting season just closed was the strongest since February 2010 with analysts upgrading their earnings per share forecasts by 1.6%.

Credit Suisse believes the earnings expansion has begun and the global economic backdrop supports further gains in profits ahead.

This prospect of rising earnings is behind analysts at Credit Suisse forecasting the ASX200 index to reach 6000 by the end of the year. Today, the index is still below 5800.

“Previous earnings expansions have been periods when investors shift their focus to companies which are under-valued and under-earnings,” write analysts Hasan Tevfik and Peter Liu in a note to clients.

Credit Suisse says these shares now include James Packer’s Crown, drug company Mayne Pharma, department store Myer and online property classified player REA.

Here are Credit Suisse’s picks of shares likely to benefit from an earnings expansion.

“These companies are certainly not the prettiest,” the analysts write.

“Many have suffered an earnings contraction recently, some are in industries that are in long-term decline, others have been poorly managed.

“But this is the reason why they remain cheap. And while we continue to experience the rising tide of an earnings expansion, we expect these companies will continue to perform well.”

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