If you’re an Australian stock investor looking to rejig your portfolio, particularly at a time when the ASX 200 is sitting at a near two-year high, UBS equity strategists David Cassidy and Dean Dusanic may have exactly what you’re looking for.
In a research note released on Tuesday, the pair outline which stocks in the ASX 100 they expect to outperform, and which ones to avoid over the next 12 months based on factors such as earnings delivery, valuation and the bank’s macroeconomic views.
The good news for investors, if they’re right, of course, is that they see plenty of stocks delivering total returns in excess of 20% in the year ahead, and in some instances even more.
Here’s the stocks they expect to be market darlings ahead based on metrics such as price-to-earnings, price-to-book, dividend yields and earnings per share growth. We’ve highlighted the bank’s expected total return for each.
There’s certainly some bold calls, none so less than those for JB Hi-Fi and Healthscope who, based on their expectations, are likely to return in excess of 40%.
While they’re expected to offer the greatest returns, Cassidy and Dusanic say that Bluescope Steel, BHP Billiton and Boral look “potentially most attractive within this group”. They also say that Origin Energy appeals on the basis of “emerging macro tailwinds and turnaround potential”.
On Bluescope, they say that it is trading on a significant discount to the market which reflects expectations for peak earnings conditions, while they suggest BHP Billiton is well positioned “given its long-life, low-cost, well-invested assets in low-risk jurisdictions, as well as a strong balance sheet and attractive growth options.”
Boral is expected to benefit from US home construction which “is still well off mid-cycle”.
So they’re expected to deliver the strongest returns, but what stocks should you avoid?
Cassidy and Dusanic have that covered too. Here are the potential market “dogs”, in their opinion.
With the exception of Newcrest Mining which it expects to underperform significantly, the expected declines are significantly lower, perhaps reflective of UBS’ broader view that the average 12-month expected return for large-cap stocks is currently 10%.