The S&P/ASX 200 Index (ASX:XJO) is a perennial underperformer in June for a whole host of reasons (tax and non-tax), with history suggesting that a drop in May is likely to lead to further falls in June.
This seasonal underperformance trend has become even more pronounced in recent times with the index falling an average 4.2% in June based on five out of the last seven years. Accordingly, with all signs pointing to further falls in the index, I thought it wise to dust off the shopping list and add these seven stocks to your watch list for June.
Commonwealth Bank of Australia (ASX: CBA)
CBA’s share price slumped almost 10% in May as the Federal Government’s newly announced bank levy and growing concerns over Australia’s housing market weigh on Australia’s largest lender. Nevertheless, with the bank due to announce full-year results in early August and still commanding healthy return on equity rates, any further pull-back in June could be a good time to pick up some more shares.
Wesfarmers Ltd (ASX: WES)
Wesfarmers shares got crunched on Thursday after Morgan Stanley said Amazon’s arrival could lead to Wesfarmers losing $400 million in earnings by 2026, due to the conglomerate’s reliance on discount department stores Kmart and Target. Whilst the story remains to play out, I believe Wesfarmers’ diversified operations warrant closer attention if its share price falls further.
Healthscope Ltd (ASX: HSO)
Private hospital operator Healthscope rebounded 6% on Thursday following a continuous 10 days of declines (out of 11). Whilst the recent pull-back is still unexplained, a key risk for the private hospital industry is its heavy reliance on private health insurers like NIB Holdings Limited (ASX: NHF) and Medibank Private Ltd (ASX: MPL) continuing to pay growing benefits to service providers like Healthscope. Even so, I believe the industry tailwinds within the healthcare sector should see the company perform well over the long-term, making a drop below $2 a good time to buy.
Automotive Holdings Group Ltd (ASX: AHG)
Unlike other retail stocks, the arrival of Amazon is unlikely to cannibalise sales at Australia’s largest automotive retailer, given customers will still need to visit dealerships to buy cars. However, AHG appears to be dogged by weak consumer sentiment, amidst nascent economic growth. Accordingly, whilst its problems are systematic, I believe the company is trading at cyclical lows and could rebound higher in the medium-term if, and when, consumer spending recovers.
Select Harvests Limited (ASX: SHV)
Select Harvests’ share price plummeted after the almond producer downgraded earnings guidance following a weaker-than-expected crop yield. Whilst the result is disappointing for shareholders, Select Harvests’ strategy for long-term growth and reinvestment remains intact, making any further pull-back in share price a good time to get exposure to this food stock.
Myer Holdings Ltd (ASX: MYR)
Myer’s shares have slumped following the voluntary administration of Topshop Australia (in which Myer holds a 20% stake). Whilst this has been compounded by Myer’s own battles against Amazon and a softening retail environment, given potential for competitors like Premier Investments Limited (ASX: PMV) to make a takeover tilt at Myer, I believe any further decline to share price makes for an opportune entry point as a speculative investment.
RCG Corporation Ltd (ASX: RCG)
Whilst the arrival of Amazon is likely to impact footwear retailer RCG the most (out of this list), RCG’s current price-earnings of just under 9x and trailing fully-franked yield of 10% appears too cheap to ignore. Accordingly, any further pull-back in share price demands closer attention as RCG appears to be a genuine high-risk, high-reward, investment proposition at the present time.
Whilst it’s no guarantee that either of these stocks will continue to fall over June, I believe any pull-back during June should be seen as an opportunity to buy any of these companies given their long-term value potential.
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Motley Fool contributor Rachit Dudhwala owns shares of Medibank Private Ltd. The Motley Fool Australia owns shares of Premier Investments Limited and Wesfarmers Limited. 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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