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Analyst report
Stocks to hold in turbulent times
January 16, 2008
Brendon Lau, ShareAnalysis
This year is likely to see the S&P/ASX 200 post its sixth year of consecutive gains. Just as in 2007, most of these gains will come from a relatively small handful of stocks, and investors' stock picking skills will really be put to the test.
This could spell anxious times for those who are relatively new to the market and for those who lack the time to do their own research. Fortunately, Aegis Equities has three model portfolios you can follow. The stocks we have selected for our portfolios are mainly larger cap companies with stronger market power relative to their peers.
This is an important consideration during these turbulent times when practically every sector is facing the challenge of rising costs. Companies in a dominant market position are better placed to pass on additional costs to consumers.
The Balanced Portfolio is designed for investors who are seeking a portfolio of stocks that provide a combination of income and capital growth. The overall portfolio dividend yield is close to the market average.
Stocks in our Balanced Portfolio include Allco Finance (AFG), ANZ Bank (ANZ), Babcock & Brown Infrastructure Group (BBI), BHP Billiton (BHP), Macquarie Group (MQG), News Corporation (NWS), Orica (ORI), St George Bank (SGB), Toll Holdings (TOL), Transurban (TCL), United Group (UGL) and Westfarmers (WES).
The other two portfolios are Growth and Income. As its name implies, the Growth Portfolio contains stocks with strong capital growth potential at the expense of a dividend yield. Growth is often an antithesis to Income because companies with significant room to grow would generally use their cash flow to expand their business as opposed to returning cash to shareholders in the form of a regular dividend.
Stocks in our Growth Portfolio include Allco Finance (AFG), BHP Billiton (BHP), Boart Longyear (BLY), Computershare (CPU), Macquarie Group (MQG), News Corporation (NWS), Orica (ORI), QBE (QBE), Toll Holdings (TOL), United Group (UGL), Woodside Petroleum (WPL) and WorleyParsons (WOR).
It is important to remember that growth stocks usually trade at premiums to the overall equity market and may, therefore, have a higher than average risk profile. Considering the severe bout of risk aversion sweeping through global markets since the subprime mortgage fallout, some may feel less comfortable being overweight on the Growth Portfolio.
Risk-shy investors might prefer to devote a greater percentage of their capital towards our Income Portfolio, which is designed for investors who desire above average market income yields, primarily through fully franked dividends. Accordingly, any capital gains from this portfolio may be modest.
Stocks in our Income Portfolio include ANZ Bank (ANZ), Babcock & Brown Infrastructure (BBI), Macquarie Communications (MCG), Pacific Brands (PBG), QBE (QBE), St George Bank (SGB), Tabcorp (TAH), Transurban (TCL), Wesfarmers (WES) and Westpac (WBC).
The Aegis 200 stock universe is likely to deliver double-digit returns for 2008, and we are forecasting EPS growth of about 14%. If you think this sounds optimistic, equities analysts surveyed by Thomson Financial are expecting average earnings growth of about 15% for US stocks, although more conservative analysts believe this is too high and are predicting 7% EPS growth instead.
Regardless, our forecast for the Aegis 200 certainly looks achievable when compared to these estimates, considering that the Australian economy is on a far stronger footing than the US.
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:
Stocks: Uranium stock picks for 2008
Investing: Stocks to hold in turbulent times
Resident Trader: Making typos when inputting trades can cost you big time
CFDs: how do margin calls work on CFD trading?
Analysis: The Recession we don't have to have
Smart Investing: Taxation of super savings upon death
US: Citigroup has $10b loss, US markets dive
Commodities: China coal shortage to continue
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. |
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