Are big bank and energy shares your best bet for FY 2017?


Could last financial year’s worst-performing sectors turn out to be this year’s top performers?

For the financial year (FY) just ended, the two worst-performing sectors were the Banking and Energy sectors which recorded declines of around 16% and 25% respectively.

While trying to forecast the near term performance (for example over a set 12-month period) of any stock or sector is fraught with danger, there is a reasonable precedent for previously underperforming stocks and sectors to enjoy turnarounds and indeed be amongst the future’s top performers.

Hence, selectively acquiring shares in certain bank and energy companies over the course of FY 2017 could turn out to be a smart move for long-term investors.

As I recently noted here, energy companies such as Santos Ltd (ASX: STO) and Woodside Petroleum Limited (ASX: WPL) have suffered significant falls in response to the crash in the oil price. In the near term, oil prices could head lower once again, however at some point in the next 12 months there could be a great opportunity for savvy long-term investors to acquire energy stocks at attractive prices.

While many global investors are pointing towards the sky-high relative pricing of Australian banks, it’s a different story for Australian investors who view bank shares as relatively cheap on a historic basis compared to the broader ASX market.

Concerns about a tightening credit cycle are justified. However, with interest rates at record lows, the relative appeal of fully franked dividends such as Australia and New Zealand Banking Group’s (ASX: ANZ) 7.4% yield could well support their current price levels.

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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. 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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