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5 companies you need to sell before it’s too late and 5 to buy instead

Credit: NAB

Financial commentator and former Morgan Stanley Strategist Gerard Minack wrote a thought-provoking note last week that concluded with:

“There are reasons to be positive about the medium term outlook for Australia. But the problem for investors is that increasingly the equity market does not reflect the economy. Australia’s listed market has a much larger exposure to financials and materials (which includes miners) than other markets – and these sectors’ share of market capitalisation are much larger than their share of the domestic economy. Put simply, Australia’s equity market is overweight two sectors at the end of their super-cycles; it is overweight the past and underweight the future.”

What does he mean?

If there are two sectors of the local economy that are under the greatest stress and have the greatest headwinds to battle, they are the mining and banking sectors. Mining has been decimated by the plunge in the price of all major commodities, while the banking sector is facing a period of stagnant or falling profits and dividends following regulatory change and the end of the east-coast housing boom.

5 companies you need to sell before it’s too late

Many will argue that it’s already too late and you should have sold these stocks 12 months ago. While probably true, that sentiment doesn’t help us a great deal when all five have lost investors money (even after dividend returns) in 2015. These five face years of questionable earnings growth and commentators now believe a reduction in their dividend payout is a real possibility. They are:

  1. Australia and New Zealand Banking Group (ASX: ANZ)
  2. National Australia Bank Ltd (ASX: NAB)
  3. Rio Tinto Limited (ASX: RIO)
  4. BHP Billiton Limited (ASX: BHP)
  5. Santos Ltd (ASX: STO)

5 companies to buy instead

These five have great growth profiles and offer growing dividends or the prospect of paying dividends soon. They also offer exposure to industries not directly impacted by the housing or mining situation.

  1. Carsales.Com Ltd  (ASX: CAR)
  2. Domino’s Pizza Enterprises Ltd (ASX: DMP)
  3. QBE Insurance Group Ltd (ASX: QBE)
  4. Brambles Limited (ASX: BXB)
  5. CSL Limited (ASX: CSL)

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Motley Fool contributor Andrew Mudie owns shares of QBE Insurance Group Ltd.  You can find Andrew on Twitter @andrewmudie.

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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