Sector outlooks and preferred picks

About the author:

Tom Sartor
Author name:
By Tom Sartor
Job title:
Senior Analyst
Date posted:
28 November 2019, 12:20 PM
Sectors Covered:
Junior (Emerging) Resources, Bulk Materials

  • Morgans research analysts provide an update on key dynamics, the outlook and nominate their preferred picks by sector. The most pertinent sector views are featured in our upcoming Investment Watch – Summer 2020 outlook edition.
  • Australian shares are again testing record highs, but traditional valuation metrics still look stretched versus tepid profit growth. We see the most compelling opportunities among healthcare, telco and consumer discretionary stocks. 

Mixed economic data 

Recent Australian economic data (other than some housing price recovery) has been disappointing, notably around retail sales, jobs and a slight up-tick in unemployment.Recent business surveys confirm a period of sluggish business.

Results from NAB’s latest business survey ‘continue to point to only modest outcomes in the business sector, though forward-looking indicators have improved slightly and may be pointing to a stabilisation in conditions’.

Our best interpretation of recent mixed data is that the economy is in better shape than the press perhaps suggests, but that we can expect more of the same sluggish activity as a base case.

Trade hopes and monetary policy support recent strength 

Investor sentiment has improved due to the potential for (if only partial) resolution to the ongoing US-China trade dispute. However, Industrial companies (ASX200 ex-Resources) grew their profits by only 1.0% in FY19, and a very mixed AGM season (crystallising further downgrades) suggests we may see profits fall for this cohort in FY20. This reflects the challenging economy and ongoing remedial actions required from the major banks.

The improvement in equity investor sentiment is occurring globally, and further cuts to local interest rates may help sustain Australian shares near their record highs. However we see a material risk of an eventual disconnect between ever higher equity prices and the earnings results companies print at half yearly reporting seasons.  

Compelling opportunities amongst the noise 

Morgans' sector analysts provide updates on key dynamics, the outlook and nominate their best buys per ASX sector.

Standout opportunities at present include Telstra (Add, 27% forecast 12m return), Treasury Wines (Add, 12%), and Oil Search (Add, 21%). 


Best Buys by sector

 Banks Westpac
Diversified Financials Link Administration, Kina Securities, Generation Development
Industrials Orora, Cleanaway, PWR Holdings
Healthcare ResMed, Sonic Healthcare, Promedicus, Volpara
Telco, IT & Software Telstra, Over the Wire
Consumer Staples _
Consumer Discretionary Lovisa, Baby Bunting, Super Retail Group
Resources Oz Minerals, Orocobre, Red 5
Energy Woodside, Oil Search, Cooper Energy
Food, Agriculture & Chem Treasury Wine Estate
Infrastructure & Utilities Transurban, APA Group
Online Media Iress, Frontier Digital Ventures
Property Aventus Group, APN Convenience Retail REIT, Viva Energy REIT

More information

To view further analysis, Morgans clients can view our full research note. Alternatively, please contact your Morgans adviser or nearest Morgans office for access.

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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