It’s been a tough year for Australian equities.
The ASX 200 index has lost 3% in value since the start of calendar 2015.
But the local equity analysts at Credit Suisse, in writing their 2016 Aussie Equity Outlook, believe the ASX 200 index will rally to 6,000 by the end of December in 2016.
With the index today sitting around 5,265, this implies a 14% rise in capital returns. That could increase to as much as 20%, including dividends.
“While the Australian economy and corporate profits look set to grow slowly, akin to a lost decade perhaps, we do not forecast a sharp contraction which is what is usually is required for a decline in company distributions,” write analysts Hasan Tevfik and Damien Boey in a note to clients.
“With a subdued backdrop we believe the future direction of stock indices should largely depend on how companies respond to the current sustained period of weak growth.”
Tevfik and Boey like stocks:
- which provide a reasonable dividend yield and solid dividends per share growth
- are in a position to conduct buybacks
- are beneficiaries of Mergers and acquisitions; and
- those where valuations are yet to reflect the solid growth outlook.
Here’s Credit Suisse’s list of companies looking good for 2016:
“While the growth outlook for Australia Inc is poor, in our view, there remain pockets of expansion which are yet to fully re-rate,” the analysts write.
- AGL Energy which should benefit from rising electricity prices.
- carsales.com which is expected to benefit from the consolidation of recent acquisitions.
- Aristocrat where the outlook is for double digit EPS growth supported by is expansion in the US.
“We remain cautious on expensive companies generating little free cash-flow. We add Healthscope to our Short portfolio and remove Treasury Wines,” they write.