Six top 100 stocks to buy in December

About the author:

Author name:

By Andrew Tang

Job title:

Analyst - Equity Strategy

Date posted:

01 December 2015, 8:41 AM

Sectors Covered:

Equity Strategy and Quant

The market is currently pricing in a 74% chance of the first official interest rate increase in the US when the FOMC meets on the 15-16 December. We urge clients not to be complacent ahead of this, as volatility can very quickly erode confidence. We suggest investors stick to stocks with higher levels of conviction and those that have shown resilience to a rising rate environment.

This month we have removed Challenger (CGF) and BHP Billiton (BHP) from our high conviction list:

Challenger Limited (CGF)

While we maintain a positive view, the stock has outperformed since its inclusion in the list 3 months ago (returning 21% in an otherwise volatile market). CGF has passed our share price target and we now see the stock as fair value. CGF still represents a solid investment in the current climate given its earnings growth profile and its leverage in the attractive annuities business.

BHP Billiton (BHP)

We maintain the firm view that BHP has drifted into oversold territory following the recent tragic incident at Samarco and recent bout of commodity price declines, and we believe BHP is an attractive long-term investment prospect. However, in the short term, we expect significant headwinds from an imminent US interest rate rise against a backdrop of continuing commodity price volatility. This has impacted our conviction for investors with a short-term investment horizon.

Top stocks to buy in December

Our high conviction picks are companies we think offer the highest risk-adjusted returns over a 12-month timeframe, supported by a higher-than-average level of confidence. They are typically our preferred sector exposures.

Here are our six top 100 stocks for December:

Amcor Limited (AMC)

Amcor Limited (AMC) is a global packaging company offering a range of packaging related products mainly servicing defensive sectors such as food, beverages, healthcare, personal and homecare and tobacco.

Reasons to buy Amcor Limited

• Its defensive characteristics are appealing in an uncertain environment. AMC generates 95% of revenue from sectors such as food and beverage, healthcare, personal care and tobacco packaging.
• A falling AUD has a positive impact on our AUD-based valuation and the translation of USD dividends.
• AMC is always a potential capital management candidate given its strong free cash flow generation. AMC recently completed a US$500m buyback and we see potential for further capital management opportunities down the track.

We retain our Add recommendation for AMC. Morgans clients can login to view our target price.

ANZ Banking Group (ANZ)

ANZ Banking Group (ANZ) is among the top 20 banks globally and has the largest Asian exposure of the Australian banks.

Reasons to buy ANZ Banking Group

• ANZ is the cheapest bank on every metric and is executing well domestically.
• ANZ has the largest currency exposure and has leverage to Asian lending where growth should comfortably exceed the anemic growth in domestic lending.
• Domestic high yield equities including the major banks should remain well supported with further interest rate cuts looking likely in Australia.

We retain our Add recommendation for ANZ. Morgans clients can login to view our target price.

Qantas (QAN)

Qantas (QAN) is the largest airline in Australia providing domestic and international passenger services via its Qantas and Jetstar brands, as well as owning Australia's largest loyalty program.

Reasons to buy Qantas

• The capacity growth outlook is the most favourable for some time providing increased revenue opportunities via increased load factors and ticket prices.
• Lower oil prices and a A$2bn internal cost-out program are providing a materials earnings benefit, with QAN likely to sustain near record levels of profitability.
• News flow is a key share price driver with the next 6-12 months looking positive with monthly operating statistics and further capital management upside.

We retain our Add recommendation for QAN. Morgans clients can login to view our target price.

Ramsay Healthcare (RHC)

Ramsay Healthcare (RHC) is Australia's largest private hospital operator and is expanding into the UK, France and parts of Asia.

Reasons to buy Ramsay Healthcare

• Strong demand growth for medical services is driven by a global demographic shift.
• RHC has consistently delivered above market earnings and dividends growth (last 17 years averaging 16.8% and 16.6% pa, respectively), and for the next three years we forecast both metrics to grow at c13% per annum.
• RHC is expected to benefit from further public hospital outsourcing opportunities.

We retain our Add recommendation for RHC. Morgans clients can login to view our target price.

ResMed (RMD)

ResMed (RMD) is a world leader in the development and manufacturing of medical products to treat sleep apnoea.

Reasons to buy ResMed

• RMD controls c40% of the respiratory and sleep-disorder breathing market which is underpinned by a large and growing customer base, with favourable trends in obesity, aging, cardiovascular diseases and increasing diagnosis rates.
• Double-digit sales growth is underpinned by strong US flow generator uptake and continued strength in masks beating market growth rates.
• RMD is supported by structural growth, a weakening AUD, a strong net cash position and ample balance sheet capacity.

We retain our Add recommendation for RMD. Morgans clients can login to view our target price.

Sydney Airport (SYD)

Sydney Airport (SYD) is the 100% owner of a long-term leasehold of Kingsford Smith Airport, Australia's busiest airport.

Reasons to buy Sydney Airport

• SYD provides exposure to a premier infrastructure asset and prime retail space leveraged to Asian travel growth, as well as commercial property and parking.
• Interest costs are expected to fall materially, as out-of-the-money interest rate swaps expire and are replaced at far lower interest rates.
• The combination of solid earnings growth and falling interest costs should generate strong distribution growth and potential for capital management initiatives.

We retain our Add recommendation for SYD. Morgans clients can login to view our target price.

More information

Morgans clients can access our detailed research on companies in our high conviction list. If you would like more information, please contact your nearest Morgans office.

Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.