As we head into 2017, investors are no doubt wondering what the biggest stocks of next year will be. The most likely winner will be some under-the-radar small-cap share, but that's not to say there aren't still opportunities in Australia's biggest companies.
Here are my 5 top blue-chip ideas for 2017:
- Wesfarmers Ltd (ASX: WES)
Wesfarmers has suffered a year to forget, but a growing market share in grocery sales, as well as operating improvements in its department store businesses could see the company return to form in 2017. Higher coal prices will also help, given that the coal division has held the company back in recent years. Higher prices could lead to a revaluation of its coal assets, and a divestment would likely deliver value for shareholders.
- CSL Limited (ASX: CSL)
Biotech company CSL has been sold off recently, with its former price tag too high for the kind of growth it is expecting to deliver. Yet the company continues to invest heavily in developing new products, and has a strong pipeline of new treatments. Improvements in the Seqirus business and the forecast 11% profit growth could see CSL have a strong 2017.
- Vocus Communications Limited (ASX: VOC)
Underperformance from a recent acquisition as well as the departure of half the executive team and fears of competition have absolutely crushed Vocus shares. Yet the company will generate cash from its assets for the next 20 years, and is expecting to double its revenues and pre-tax earnings next year. Vocus looks to have been oversold.
- Insurance Australia Group Ltd (ASX: IAG)
I actually think Insurance Australia Group, IAG, is overvalued at this point. The company will struggle to grow its premiums and has already suggested the coming year's results will be flat. Yet when interest rates rise, IAG will see a significant increase in its profit due to higher earnings on its multi-billion dollar investment portfolio. Shares will likely rise significantly well before interest rates do, meaning buyers expecting higher rates will have to get in first. For investors convinced that rates are going up soon, this could be a good option.
- XERO FPO NZX (ASX: XRO)
Accounting software company Xero continues to add customers at a rapid clip, and indeed the pace of customer acquisition accelerated even further in the first half of 2016. A combination of new customers, new features, new partnerships with financial institutions, plus the transition to a new data server should result in continued customer growth. As Xero moves closer to profitability, due to the continued growth in its customer base, the market's perception of its value should change.
