Looking for inspiration in your quest for a strong portfolio in 2014? Equity strategists Dean Dusanic and David Cassidy of UBS gave their recommendations for the upcoming year and their insights as to what should guide investors' stock picks.
Within the model portfolio balance release they identified at least six stocks that will have a stronger year in 2014. Taking a look at these six, what do they have to offer?
Primary Health Care (ASX: PRY) provides healthcare technology solutions to medical practitioners, practices and hospitals through its medical centres and pathology centres. Since 2011, NPAT before abnormals has risen 44.7% from $105 million to $152 million. In 2013, its earnings increase was the result of both higher revenues and improved profit margins. The company said that it has considerable capacity to add to its current 58 large-scale medical centres.
JB Hi-Fi (ASX: JBH), the electronic goods retailer, will be benefitting from the housing market recovery. The UBS release said that housing related stocks were preferred, giving an overweight call on selected domestic cyclicals. In a previous article, I wrote about 2014 trends and JB Hi-Fi was one under the household items theme for an expected upturn in consumer spending.
Fortescue Metals Group (ASX: FMG) is within the theme of renewed strength in iron ore mining production. Mining may be pulling back in regards to greenfield development and exploration, but the iron ore miners are going hammer and tongs and pumping out as much ore to the international market as possible. Recent higher ore prices, earlier unforeseen by the market, are aiding Fortescue by giving it much needed capital to expand capacity as well as pay down its loans. It has reduced its debt by about $1.2 billion, with two more pay downs of about $1 billion each coming. If it can pay off about $4 billion – $5 billion, then gearing will be at the target 40% level.
Asciano (ASX: AIO) and Aurizon (ASX: AZJ) are following perhaps two themes for next year. Increased mining production requires more hauling to port, both for iron ore and coal. The major miners may have their own rail lines in WA, but these rail transport companies are working to expand their networks. Also, with higher consumer spending, there will be more need to ship goods and freight across the country, so the train companies benefit from higher volumes.
Macquarie Atlas Roads Group (ASX: MQA) is a global toll road operator and developer with assets in France, UK, Germany and the US. As the world economies recover more after the GFC, increased traffic volume is expected, thereby offering more toll road revenue. In the US the state governments of Illinois and Indiana are offering set payments instead of the right to keep toll revenue. This makes revenues more stable and consistent for the company.
Foolish takeaway
Overall the UBS model portfolio balance release gave recommendations for increased exposure to the mining and energy sectors, and also to consider those stocks that could benefit from a lower Aussie dollar. Banks are expensive currently in the strategists' view, and mining services companies should be underweight.
