Stockbroking and wealth management firm RBS Morgans has provided a rather optimistic outlook for equities markets over 2014, based on evidence of a progressive recovery in earnings as well as in the overall market.
In fact, it has predicted that the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) will finish at around 5810 by the end of the next calendar year. This represents a 12% climb from where it sits today, suggesting that there is still plenty of value to be realised from equity markets despite the pending tapering of the US Federal Reserve's stimulus program.
In addition to the forecast, the firm also released a list of 12 companies that are leveraged to an improving local economy that it expects to outperform next year. Here are three companies from that list that I believe could offer investors the best value.
Silver Chef (ASX: SIV) is a promising small cap that operates in hospitality, providing equipment funding to small-to-medium sized businesses through the 'Rent.Try.Buy' and 'Rent.Grow.Own' solutions. Whilst the company continues to grow its net profit and offers an attractive, fully-franked 3.9% dividend yield, it is the future that investors should be excited about. A pickup in business confidence across the economy should continue to boost the company's profits for years to come.
Whilst Morgans has set a price target of $8.57 per share by the end of 2014, it could very well climb even higher from its current price of just $7.60.
Improving consumer confidence should also boost returns from Australian retailer Harvey Norman (ASX: HVN). Although the rapid rise of the online retail sector continues to pose as a major threat to the business, the company continues to expand its own online presence, which is creating new opportunities for growth.
Whilst a 'relentless focus' on delivering customers with quality, value and service will help to ensure a strong customer base, investments in core systems, productivity, supply chain and development programs will also boost returns in the long run. Shares are currently priced at $3.10 and Morgans has set a target of $3.60.
Mining heavyweight BHP Billiton (ASX: BHP) could also be one for investors to look out for. Although the industry remains volatile, BHP could certainly outperform if the Australian dollar continues to weaken and if commodity prices remain as strong as they have in recent times.
The company's shares have climbed 21% since June to $36.75, and Morgans believes they could be sitting as high as $43.10 by the end of 2014. From today's price, this would resemble a 17% return for investors.
The other companies that Morgans has high hopes for next year include global packaging company Amcor (ASX: AMC), Crown (ASX: CWN), Fletcher Building (ASX: FBU), FKP Property (ASX: FKP), GWA Group (ASX: GWA), Sonic Healthcare (ASX: SHL), Select Harvests (ASX: SHV), Super Retail Group (ASX: SUL) and SMS Management (ASX: SMX).
