|
|
 NEWS |
|
|
|
|
Analyst report
Stocks and sectors set to beat the market in 2008
December 19, 2007
Brendon Lau, ShareAnalysis
Some investors believe that sectors or stocks that have performed poorly over the year are likely to outperform the next year. Since this is the last newsletter for 2008, we examine this rumour and give our predictions on the stocks and sectors that are likely to generate returns above those of the S&P/ASX 200.
The three worst performing sectors over the past 12 months have been Utilities (-0.6%), Consumer Discretionary (-0.1%) and Financials (+5.5%). Over the same period, the S&P/ASX 200 rose over 16%. Considering we have above-average forecast returns for these three sectors for 2008, this rumour might hold some weight, at least in this case.
The Consumer Discretionary sector is likely to lead the charge with an expected total 12-month return of around 19%, thanks largely to the robust job market. While many retail-related stocks have zoomed ahead, a few are struggling against specific headwinds such as exposure to the waning US economy and the related negative impact of the stronger Australian dollar.
Some of these fears could be overplayed, especially considering the strong US retail sales figure for November. Even if we account for these risks, a number of unloved stocks in this space are looking like good bargains.
Meanwhile, several media stocks (part of the Consumer Discretionary sector) are likely to outperform in 2008 on the back of a strong advertising market after underperforming the broader market since the start of this year. Furthermore, we believe investors are undervaluing the growth potential of many media businesses, particularly in relation to new media.
The second best performing sector (as of late last week) is probably going to be Energy. The sector is no laggard though, as it was the second best performing sector this year as oil continues to flirt with the US$100/barrel mark. We have long believed in the bullish fundamentals for oil, and the latest US Energy Information Agency's (EIA's) 2008 forecast has validated our view.
The EIA said that the collective oil inventories of the US and other industrialised nations would drop to just 49.3 days of expected needs by February, the smallest buffer since December 2004. Another important factor supporting our bullish view on a number of energy stocks is the strong pipeline of projects that are expected to come on-stream over the next few years.
Information Technology is expected to post the third best returns in 2008. However, this is primarily due to Computershare (CPU). Its weighting in the sector and our bullish outlook on the stock have skewed the results. In fact, we have no other BUY recommendations in this sector. As for the other two sector laggards (Financials and Utilities), we are forecasting average total returns of 15.9% and 13.8% for 2008, respectively, compared with a 13.7% gain for the broader benchmark (as of last Friday).
As a final point of interest, our stock market may have been one of the best performing equity markets in the developed world over 2007, but these gains are skewed very heavily towards a handful of stocks. BHP Billiton (BHP), Rio Tinto (RIO), Fortescue Metals (FMG), WorleyParsons (WOR) and Incitec Pivot (IPL) accounted for over 7% of the S&P/ASX 200 gains. Of the top 10 best performing stocks, nine were leveraged to the resources sector.
Of the six stocks we have highlighted, two that might be of particular interest are News Corporation (NWS) and Computershare (CPU).
Stock: News Corporation
ASX code: NWS
Current price (18/12/07): $24.29
12-month forecast: $31.53
News Corporation (NWS) reported a 26% increase in 1Q08 adjusted net profit (excluding non-recurring items) on the pcp.
Key drivers were double-digit percentage increases in its film and cable network businesses, as well as a US$61M improvement in Direct Broadcast Satellite. NWS warned that the US advertising market was expected to weaken in CY08, although it reaffirmed its guidance for FY08 operating income growth in the low teens. We have a BUY on the stock with a 12-month price target of $31.53 (Technical recommendation: BUY).
Stock: Computershare
ASX code: CPU
Current price (18/12/07): $9.50
12-month forecast: $12.48
Computershare (CPU) could face challenges next year as M&A activity worldwide slows due to the credit crunch.
However, CPU is well placed to weather the storms ahead. CPU's primary differentiating factor has been its competitive and scalable technological platform or service offering from a client perspective. We have a BUY on CPU with a 12-month price target of $12.48 (Technical recommendation: BUY).
Brendon Lau is the editor of ShareAnalysis, a premium retail investment service offered by Aegis Equities Research. Click here for your free trial.
More articles from this edition of CompareShares:
Investing: How investors will be impacted by a Rudd Government
Stock picks: Fund manager stock picks: WPL, CCP & WWA
Stocks: Stocks and sectors set to beat the market in 2008
Book Review: Trade Your Way to Financial Freedom
Resident Trader: Handling a trade dispute with your broker
Markets: US breaks from booming global economy
Expert Panel: Why it may pay to buy shares before the ex-dividend date
Debt: Super won’t help mortgage woes
Rates: Rising costs add to rate risk
Please note that CompareShares.com.au simply publishes analyst reports on this page. The publication of these reports does not in any way constitute a recommendation on the part of CompareShares.com.au. You should seek professional advice before making any investment decisions. |
|
