Four top stocks to buy in March

About the author:

Andrew Tang
Author name:
By Andrew Tang
Job title:
Analyst - Equity Strategy
Date posted:
03 March 2016, 4:16 PM
Sectors Covered:
Equity Strategy and Quant

With 1H FY16 reporting season over, we make a number of changes to our high conviction list this month.

Results provided enough reason to start accumulating in stocks that have, in our view, been weighed down by market sentiment despite relatively robust earnings.

In our ASX100 list, we add Westpac Bank (WBC), AMP (AMP) and Orora (ORA) and remove ANZ and Qantas. See key reasons below.

In our ex-100 list we add IPH (IPH), APN Outdoor (APO) and RCG (RCG). While volatility may drive short-term performance, the quality of earnings and relatively attractive valuations give us confidence of outperformance over the next 12 months. Clients can view further detail on these ex-100 stocks and key reasons to buy in our full High Conviction Stocks March report.

As the focus shifts from earnings to the macro-economic environment, volatility will again remind us why it’s important not to be complacent with exposure to the equity market. The strong divergence in performance between outperformers and laggards has widened significantly so it remains firmly a stock pickers’ market. Our strategy of holding relatively higher levels of cash and sticking to strong conviction ideas remains intact.

Here are our four ASX100 high conviction picks for March:

ASX100 stock picks

Westpac Bank (WBC)

Westpac (WBC) is Australia's oldest banking and financial services group, with branches and operations throughout Australia, New Zealand and the near pacific region.

Reasons to buy Westpac

  • Relatively low risk profile in terms of loan book positioning and low reliance on treasury and markets income.
  • Westpac stands to benefit most from re-pricing of investor home loans.
  • Relatively low risk of dividend cut as a result of strong regulatory capital position and good organic capital generation capacity.

Sydney Airport (SYD)

Sydney Airport 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.

Orora (ORA)

Orora Limited is focused on fibre packaging and beverage packaging in Australia and packaging distribution in North America. ORA has manufacturing plants and 83 distribution sites across seven countries.

Reasons to buy Orora

  • Since demerging from Amcor (AMC) in December 2013 ORA has experienced strong double-digit earnings growth in both the Australasia and North America divisions.
  • We estimate ORA derives around 60% of revenue from highly defensive sectors such as food and beverage. Given the volatile market, we think the stock should receive good support.
  • ORA has made a number of growth investments in the last two years that should set it up for solid earnings growth over the medium term (forecast 3-year EPS CAGR of 12%).

AMP (AMP)

AMP Limited is Australia and New Zealand’s independent wealth management company, with an international investment management business and a retail banking business in Australia.

Reasons to buy AMP

  • Strong earnings growth of >10% across most divisions at the recent result, with the overhang of the life business slowly turning around.
  • Trading at around 13.5x FY16F PE versus an historical average PE of around 15x.
  • Strong net funds flows of +A$2.8bn for Contemporary Wealth Management, with net external cashflows of +A$4.4bn for Capital investors. While AMP’s excess capital position remains a healthy A$2.5bn.

More information

Morgans clients can access our detailed research on companies in our high conviction list by accessing the full High Conviction research report or by viewing their company profile page. If you would like more information, please contact your adviser or 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.

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