Buying high-quality stocks when the market's confidence is shaky can be one of the greatest ways to maximise your long-term returns.
While such opportunities have been difficult to come by in recent years as the Australian sharemarket has surged higher, investors have been presented with a great opening thanks to the situation currently unfolding in Greece and in global commodity markets.
With the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) hovering around the 5,600 point mark – down from nearly 6,000 points in April this year – Morgans' equity strategy analyst Andrew Tang has thrown up his opinion on eight stocks he believes could outperform the market.
As highlighted by the Fairfax press, these companies include:
- Amcor Limited (ASX: AMC)
- Australia and New Zealand Banking Group (ASX: ANZ)
- BHP Billiton Limited (ASX: BHP)
- Federation Centres Ltd (ASX: FDC)
- Qantas Airways Limited (ASX: QAN)
- Ramsay Health Care Limited (ASX: RHC)
- ResMed Inc. (CHESS) (ASX: RMD)
- Sydney Airport Holdings Ltd (ASX: SYD)
ANZ was perhaps the biggest surprise amongst that list. I would agree that ANZ Bank is the most attractive of any of the Big Four banks at today's valuation, particularly given its international growth prospects, but I certainly wouldn't classify it as a 'buy' today.
Australia's biggest banks are facing a number of headwinds which could seriously hinder their ability to grow earnings locally, while their ability to maintain their current dividend payout ratios could also be under threat. Although ANZ is most certainly a high-quality company, it's the wrong time of the cycle for long-term investors to buy the banks.
BHP Billiton is also a questionable bet, in my mind. Although it is perhaps the most well positioned mining corporation to weather the commodities storm, it is still exposed to negative movements in the price of resources such as iron ore, coal, copper and oil. Iron ore plunged 6% overnight and many economists fear even greater declines to come, highlighting the risks associated with the Big Australian.
Of the companies selected by Mr Tang, I would argue that ResMed Inc. is the greatest buy today. ResMed develops and manufactures medical products for the treatment of various respiratory disorders, including sleep apnea. Its shares have been hit hard in recent months following an unsuccessful SERVE-HR clinical trial, which investors hoped could be the company's gateway into the heart-failure market.
Since maxing out at $9.84 per share in April, ResMed has slipped 26%, yet the company's fundamentals and long-term potential remain unchanged.
