FYI | Jan 23 2019
By Peter Switzer, Switzer Super Report
Over the week we learnt that China was going long stimulation and a Trump trade deal looks closer and better than expected. And if the Fed is “patient” with interest rate rises and US companies keep reporting better than expected, we could see smaller companies get some real oomph from the more positive attitude towards stocks over 2019.
There is division amongst market experts, with some telling us to be ready for a retesting of the December lows, while others say to put your seatbelts on as stocks in the US head towards nosebleed levels!
I’m not as aggressively bullish for local stocks but I am still positive so let’s look at the ASX 21 to 50 stocks to see which ones analysts believe have potential for double-digit gains. Remember, these are smaller companies than their top 20 rivals, but they are still big quality companies by Aussie standards and the potential upside for the eight stocks I found with double-digit gain potential are all household names.
So here they are:
1. Aristocrat Leisure (ALL) is loved by many pros and if they’re right, there’s a 35.7% upside in 2019! With the current price at $23.56, the greatest fan of the stock is Deutsche Bank, which has a $37.85 target on the stock. The next biggest supporter was UBS, which has a target price of $34. Cashflow and digital acquisitions are the company’s big plus and UBS noted that “the PE multiple has de-rated to a 20% premium to the ASX 200, which has only occurred on 17 days in the past five years. Hence, with the outlook for the company not changed enough to justify such a move down in valuation, the broker retains a Buy rating,” reported Eva Brocklehurst of FNArena.
2. Caltex Australia (CTX) has an 18.5% uplift factored in by the consensus of analysts. With the current price at $26.68, both UBS and Citi think the company should be more at the $33 plus level. And given Caltex is also a supermarket play and Citi is a respected retail analyst, the stock has more appeal. And even though retail has not been shooting the lights out, supermarkets have been. “Over the year to November, seasonally adjusted growth of spending at supermarkets and grocery stores rose by 4.5% – the strongest growth rate in four years,” observed CommSec’s Craig James earlier this month.
3. James Hardie (JHX) is earmarked for a huge 38.8% ride higher by the consensus of analysts. With a price right now at a low $15.15, you have to ponder who’s got it wrong — the market or the expert analysts looking into their crystal balls? Macquarie is the most bullish, with a target of $23.40 and if these guys are right, that means there could be a 54% upside! A curve ball plus for JHX could be the likelihood that US interest rates won’t rise as quickly as once thought and interestingly US building stocks and economic data might be positively influencing Macquarie’s more bullish call.
4. The inconsistent Lend Lease (LLC) is said to have 25.2% upside if it can get its act together and prove the recent market sell off was over-the-top. The current share price for the company is $12.27. In August, it was a $21 stock. Credit Suisse is the company’s biggest fan, with a target price of $16.20, which implies it sees a 32% upside, if its assessment that the company’s troubled engineering business is not as important as others think it is.
5. The always-in-favour Oil Search (OSH) is tipped to trend up 14.7%. The current price at the time of writing is $7.72 and at $9.50 Macquarie is leading the cheer squad. The future of the company’s share price clearly hinges on the outlook for the oil price, OPEC and what US shale oil producers do. The consensus is that the oil price goes up in the first half and down in the second but it’s this price-dependency and the unusual players in the oil game that always makes me have little or no exposure to the stuff. That said, a small exposure for alpha returns in the short-run might be a play worth considering.
6. Energy play Origin Energy (ORG) has the makings of a 21.5% more valuable company, with its current price at $7.20 and Ord Minnett predicting an $8.95 price is in the offing on the belief that it will make more out of gas retailing and higher depreciation. In the past, Citi has argued a rising oil price would help the company so what we’re seeing price-wise looks like a plus for the company.
7. The very unreliable QBE (QBE) is said to have 11.8% upside and it would’ve been better if the Federal Reserve had not bowed to President Trump pressure to slow up the interest rate rises in the US. Higher rates have always helped QBE’s bottom line and share price, but if the slower rate rises avert a too early US recession, then there might be method in the President’s and the Fed’s madness! The equal biggest QBE lover is Macquarie with a rating of “overweight” and a target of $12.50 and its assessment is matched by Ord Minnett, which agrees on the target price. Both analysts think the company has a share price potential which is 14% higher!
8. And the once-troubled Santos could be worth 15.7% more than it is today if the analysts are on the money. With a current share price of $6.06, its biggest fan is Morgan Stanley with a target price of $8.30 which implies this company could shoot up by 36% if the analyst at MS is right. I like the CEO, Kevin Gallagher, and the company has benefitted from his arrival in February 2016. He inherited a company with a share price of $3.30 and two years before it was a $13 stock. It’s a different beast from its disappointing days after the GFC but it’s still a more speculative company where my exposure would be reasonably small.
Last week, I identified the following as double-digit gainers in the top 20 list on the ASX:
- Amcor (AMC) 14% upside
- ANZ 15.1%
- Coles (COL) 12.9%
- Macquarie (MQG) 13.2%
- South 32 (S32) 15%
- Suncorp (SUN) 20.6%
- Westpac (WBC) 12.7%
- Woodside (WPL) 12.8%
And while some of these have already had a good week and some of the gains have been already claimed, when you put these together with the eight I’ve gleaned from the 21-50 top stocks, you could end up with a reasonable portfolio. While it might be a little too exposed to financials, there’s a pretty good smattering of stocks from sector’s that the pros think have upside.
Peter Switzer is the founder and publisher of the Switzer Super Report, a newsletter and website that offers advice, information and education to help you grow your DIY super.
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