Morgans thinks these 4 stocks have the power to drive earnings

2 themes for potential returns this year and the next.

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Are you confident about the rest of this year? It may seem too early to think about that, but the first quarter of the year is done and dusted and the financial year end is not too far away. It’s time to strategise and set yourself up for the next eight months and further.

We still have the troublesome months of May and October ahead of us, but there’s no need to get scared. If the market corrects itself, then those with a game plan will be ready to pick up stocks on the cheap.

The economy is in an odd place, with a rising Aussie dollar and low interest rates. The RBA was hoping the exchange rate would drop far enough to avoid lowering the target cash rate to stimulate the economy.

Week by week the Aussie has ticked up from January’s low of about 87 cents to the US$, now reaching 94 cents. For those going on holiday overseas, you’ve got some spare money in your pocket now.

For the rest of us, we can get our extra by following some simple themes and moving on the stocks that should benefit from them. The broker Morgans thinks these four stocks will work well with lower rates and overseas growth. I have written about these companies recently as well.

1. Lower for longer

Low interest rates not only spur on business and consumer spending, they also make some investments more attractive than others. The RBA has signalled that we could be looking at a period of stable rates.

If you have fixed investments that are based on government notes or bond returns, then you may be getting a lower return than in the share market. Bank deposit interest rates aren’t that high, either.

You are going to want bond-like investments that pay a steady dividend and aren’t too volatile. Real estate investment trusts (REITs) could be a good choice. Transurban Group (ASX: TCL), the infrastructure and toll road operator and developer, has a number of major motorways and tunnels in Melbourne and Sydney. Toll road traffic is up, pushing earnings higher. It has a 4.7% dividend yield.

Lower rates will also drive a domestic cyclical recovery, so stocks like Stockland Group (ASX: SGP), a commercial and residential property developer, will benefit from a growing housing market and subsequent growth in retail business.

2. Higher international growth

Overseas markets are tipped to grow faster, so companies with operations abroad should benefit. If the Aussie dollar does weaken again, these stocks may have the added bonus of more earnings at reporting time.

Global supply-chain logistics service provider Brambles Limited (ASX: BXB) has close to 90% of its revenue coming from outside Australia.

Another would be Domino’s Pizza Enterprises Ltd (ASX: DMP), which is expanding store numbers in Japan after taking a 75% stake in the existing pizza chain there. Estimates were that another 340 stores could be potentially opened beyond the current 260.

Foolish takeaway

Take advantage of the low point in the business cycle that we are at now. Once the economy is strong again, the need to raise interest rates will come eventually.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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