Seven top 100 stocks to buy in March

About the author:

Author name:

By Fiona Buchanan

Job title:

Co-Head of Research, Senior Analyst

Date posted:

09 March 2015, 8:10 AM

Sectors Covered:

Property, AREITS

Our high conviction picks are companies we believe will outperform the market based on short to medium-term catalysts.

After a number of changes in February we have made just two changes to our Top 100 High Conviction list this month. We have removed Stockland Group (SGP) due to strong share price appreciation and have added Federation Centres (FDC) following the announcement of the proposed merger with Novion (NVN).

Here are our seven top 100 stocks for March:

ANZ Banking Group (ANZ)

ANZ Banking Group (ANZ) is among the top 20 banks in the world, operates in 33 countries globally, and has the largest exposure of domestic major banks to the emerging Asian economies.

Reasons to buy ANZ Banking Group

• With further interest rate cuts looking likely in Australia, we think the domestic banks should continue to perform well.
• ANZ is the cheapest of the major banks (on a PER and yield basis), has potential for ROE expansion (as it gains economies of scale in its Asian operations), and has strong cash generation (and the lowest dividend payout ratios).
• ANZ has the largest currency exposure and has leverage to Asian lending where growth should comfortably exceed the anaemic growth in domestic lending.

We retain our Add recommendation for ANZ with a revised share price target of A$36.34ps (previously A$37.15).

Federation Centres (FDC)

Federation Centres (FDC) is a significant owner and manager of Australian retail assets.

Reasons to buy Federation Centres

• The new merged entity will be a top 30 stock with a market cap of c$11bn and the 3rd largest REIT with $22bn of assets under management.
• Given the increased size and scale we expect the merged group will become meaningful for both offshore and domestic investors.
• The deal is expected to be highly accretive and we expect it will deliver a yield of around 6%.

Our share price target for FDC is A$2.90ps.

Macquarie Group (MQG)

Macquarie Group (MQG) is a global provider of banking, financial advisory, investment and funds management services.

Reasons to buy Macquarie Group

• MQG recently upgraded its earnings guidance, expecting to achieve 10-20% growth on the prior year. This highlighted MQG's earnings momentum and provides near-term earnings certainty for investors.
• Around 65% of MQG's earnings are derived offshore, giving earnings leverage to the falling A$ versus other currencies. We believe this will continue to provide a small tailwind.
• We believe MQG's valuation is reasonable at current levels whilst providing a solid yield (partially franked).

We retain our Add recommendation for MQG with a revised share price target of A$73.50ps (previously A$62.08).

Ramsay Healthcare (RHC)

Ransay Healthcare (RHC) is Australia's largest private hospital operator and more recently has expanded its operations into the UK, France and parts of Asia (around 25% of revenue is now generated overseas).

Reasons to buy Ramsay Healthcare

• RHC is benefiting from an aging population which uses more medical services.
• RHC consistently delivers above market earnings growth (last three years averaging 18% per annum) and for the next three years is forecast to grow at 15% per annum.
• RHC is expected to benefit from further public hospital outsourcing opportunities.

We retain our Add recommendation for RHC with a revised share price target of A$70.98ps (previously A$64.12).

Resmed (RMD)

Resmed (RMD) is a world leader in the development, manufacturing and marketing of medical products to treat and manage sleep-disorded breathing, more commonly known as sleep apnoea.

Reasons to buy Resmed

• 2Q15 results exceeded market expectations with double digit sales growth (+14%).
• New product (AirSense 10 platform) launch is likely to drive sales growth in subsequent quarters, reflected in forecast earnings growth of 13% per annum over the next three years.
• Strong balance sheet with net cash of approx. US$700m.

We retain our Add recommendation for RMD with a share price target of A$8.63ps.

Seek Limited (SEK)

Seek (SEK) is the leading provider of online employment services in Australia, China, Southeast Asia and Latin America. The company also owns a rapidly expanding online education business.

Reasons to buy Seek

• The Australian recruitment cycle is at or near to all-time lows in churn rates and recently volumes have begun to rebound.
• Year-to-date job ad growth is higher than we have assumed in our forecasts.
• Seek's offshore operations will deliver high double-digit growth in FY15 as the benefits of the Jobstreet acquisition become available. The company is achieving strong growth while simultaneously de-leveraging its balance sheet.

We retain our Add recommendation for SEK with a share price target of A$19.97ps.

Transurban Group (TCL)

Transurban Group develops, operates and maintains toll roads in Australia and the USA.

Reasons to buy Transurban Group

• We expect TCL to generate double-digit EBITDA growth over the next three years driven by traffic growth, CPI/CPI+ toll increases, ongoing cost control and contribution from growth projects and acquisitions.
• We expect this traffic and earnings growth to translate into double-digit growth in distribution per share.
• Confidence in this growth outlook can be gained from the management incentive plan, which rewards management for growing free cashflow per share at 10-13% per annum across FY14-17.

We retain our Add recommendation for TCL with a revised share price target of A$9.46ps (previously A$9.26).

More information

Morgans clients can access detailed reports on all our high conviction stock picks. 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.