Top bank picks 5 stocks to buy now

Deustche Bank believes Australian stocks are undervalued and identified AGL Energy Ltd (ASX:AGL), Aristocrat Leisure Limited (ASX:ALL) and Qantas Airways Limited (ASX:QAN) as worthy recipients for cash in the next three to six months.

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According to Fairfax, prominent investment bank, Deutsche says Australian shares are undervalued.

Following recent falls in the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) Deutsche believes the market is around 5% undervalued based on its price-earnings ratio of 15x.

In addition to a lower-than-fair P/E ratio, 15% corrections in Australian shares are generally followed by a market bounce (provided no recession ensues), superannuation funds are ploughing more money into shares (due to the record-low interest rates on offer), and economic concerns out of China and the USA have abated.

"If the market rises as we expect, correlations are likely to drop, providing a good environment for stock-picking," Deutsche said in a report cited by Fairfax.

The bank identified five stocks for strong share price performance in the next three to six months, including:

  • Aristocrat Leisure Limited (ASX: ALL) – P/E ratio: 26x
  • Qantas Airways Limited (ASX: QAN) – P/E ratio: 9x
  • AGL Energy Ltd (ASX: AGL) – P/E ratio: 15x
  • Iress Ltd (ASX: IRE) – P/E ratio: 26x
  • James Hardie Industries plc (ASX: JHX) – P/E ratio: 21x

Ironically, the average P/E ratio of the five stocks above is roughly 19x – well above the market average.

Nevertheless, Deutsche's suggestion that the Australian market could be undervalued echoes the forecast of AMP Capital economist, Dr Shane Oliver, who was cited in Fairfax yesterday as saying a 'Santa rally' could be imminent.

Foolish Takeaway

Focusing on short-term market movements is a (lower-case-f) – fool's errand in this (upper case-f) Fool's opinion. Indeed, while pundits may be right from time-to-time I prefer to be right over time because successful investing is about time in the market – not timing the market.

I think the best strategy for long-term investors is dollar-cost averaging (i.e. adding money to your brokerage account rain, hail or shine). This'll enable you to benefit from the long-term appreciation of share prices — one of the very few free lunches in investing.

Find great businesses at good prices and hold for the long-term.

Motley Fool contributor Owen Raskiewicz has no position in any stocks mentioned. Owen welcomes your feedback on Google plus (see below), LinkedIn or you can follow him on Twitter @ASXinvest. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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