Our stock market could be in for a bumpy ride over the next two months as natural disasters and rising geo-political tensions conspire to knock down equity prices, which are trading at a relative premium to historical value.
Never let a good sell-off go to waste. Any share price weakness represents an opportunity to pick up high-quality stocks that are well placed to deliver growth over the next year or three.
If you are wondering where to start looking for these opportunities, Morgans has two ideas that are worth looking at as the broker has added Aventus Retail Property Fund (ASX: AVN) and data centre operator NextDC Ltd (ASX: NXT) to its high conviction buy list.
Aventus manages and invests in large format retail (LFR) property assets and owns around 20 LFR centres around the country.
The stock has underperformed the All Ordinaries (Index:^AXAO) (ASX:XAO) over the past year with a 6.1% decline when the broader market is up by nearly the same amount.
The threat facing the retail sector from the arrival of online shopping titan Amazon.com is no doubt contributing to the weakness, but Aventis appears to be well placed to weather the challenge, according to Morgans.
This is because Aventus can change its tenant mix at its centres. Not all retailers will be under pressure from online competition and having this flexibility to replace weaker tenants with stronger ones should help management stay out of trouble.
It also helps that the company doesn't need much capital to maintain its properties. This means it is facing less financial pressure if push comes to shove.
Further, there is limited new supply of properties in the areas where Aventus operates and there are a number of acquisition opportunities that will allow the company to consolidate a fragmented market.
The stock will appeal to income-seeking investors as it is trading at around a 7% yield and a modest 4% premium to net tangible asset value.
Unlike Aventus, NextDC has outperformed the broader market with a gain of over 12%. The stock is still looking good value in my opinion given management's guidance for a 14%-25% earnings before interest, tax, depreciation and amortisation (EBITDA) growth in the current financial year.
This isn't the only reason to watch the stock. Morgans highlights a number of near term catalysts that can drive the share price higher.
The first is a potential resolution of the Asia Pacific Data Centre Group (ASX: AJD) debacle. NextDC put its properties into Asia Pacific Data Centre and floated the property trust. NextDC is the only tenant at the three facilities held by the trust and a fund manager is trying to oust the management of the property trust. It looks like NextDC will buy back Asia Pacific Data Centre to end the siege.
The second is the potential signing of new cornerstone customers at NextDC's new generation facilities. The new facilities in Melbourne and Brisbane will open within the next six months while the one in Sydney will be operational within 12 months.
Investors would welcome either or both of these developments.
Interested in other investment ideas? See below to find out what other stocks the experts at the Motley Fool are tipping as the next big winners.
