On Tuesday, the Reserve Bank of Australia (RBA) released the first statement of monetary policy under new RBA Governor, Phillip Lowe. In what many market commentators are interpreting as a more hawkish policy stance under the new chief, the official statement implied that Australia may have seen the last set of interest rate cuts for a while.
The RBA noted the current monetary policy was consistent with achieving sustainable growth and reaching the target 2-3% inflation target over time. However, with Australia’s September quarter inflation figures to be released on 26 October, all eyes will be checking to see if the current monetary policy stance is sufficient to reach the core inflation target. Any disappointment or weakness in the inflation numbers could see the RBA ease in November, boding well for stocks like Flight Centre Travel Group Ltd (ASX: FLT) and Sydney Airport Holdings Ltd (ASX: SYD).
The $3.7 billion travel giant continues to kick goals after announcing a third acquisition in the space of a month on Thursday morning. Shares in the ubiquitous travel agent currently trade on a modest trailing price-earning multiple of 15x, which analysts at UBS regard as pricing in earnings attrition to perpetuity. This places Flight Centre shares on a noteworthy discount to online travel agent peers Webjet Limited (ASX: WEB) and Corporate Travel Management Ltd (ASX: CTD), making it a buy today, in my opinion.
Although Flight Centre trades on an unexciting dividend yield of around 4.5% at current prices, I believe any hint of further easing from the RBA could provide a catalyst for this star stock, given its shares offer solid growth potential (through its new acquisitions) and a stable income stream to investors.
Securities in Sydney Airport have fallen almost 5% this week as the owner-operator of Sydney’s Kingsford Smith Airport loses its lustre as a yield play, given the RBA’s intent to cease easing if inflation targets are met. With the prospects of a further rate cut diminishing, investors appear to no longer covet Sydney Airport’s predictable earnings and reliable income stream, pushing its shares lower in the hunt for alternative growth stocks and other asset classes.
Nevertheless, I believe this unique infrastructure stock deserves a place in any portfolio given its monopoly rights over Australia’s most visited capital city. Although its securities offer a mediocre forecast yield of 4.7% (unfranked and assuming 20% distribution growth is achieved), long-term investors should take the pullback opportunity to buy Sydney Airport given its potential for consistent, long-term growth.
Whilst it may be true that Australia has seen the last rate cut in this easing cycle, I believe Flight Centre and Sydney Airport offer solid upside in any interest rate environment. Accordingly, investors should add these two superstar stocks to their watch list, using any weakness in their share prices to add to their portfolios.
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Motley Fool contributor Rachit Dudhwala 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.