Investors should be pretty pleased with the share price performance of many of our large cap stocks with the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) breaking comfortably above the psychologically important 6,000 barrier.
Most experts believe there are more gains to be had in 2018 even though the average price-earnings ratio for the top 200 stocks has inched up to around 16 times based on 12-month forward consensus forecasts.
However, several brokers, including Deutsche, notes that equities still look cheap relative to bonds and that should keep stocks well supported into the new year.
"FY18 is likely to see a step-down in earnings growth after a strong FY17, but earnings revisions have been resilient of late and there were no major downside surprises during AGM season," said the broker.
"Pleasingly, earnings have taken over as the key driver of market upside this year."
While Australian stocks have lagged their global peers by around 10% this year and their earnings outlook is not as strong as those in other offshore markets, particularly outside of resources, Deutsche believes our market offers more attractive dividend yields and there are still pockets of value.
The question then is what stocks should you be targeting and which ones should you be avoiding (or dumping)?
A good place to start might be to look at stocks with the most number of "buy" recommendations by brokers.
You shouldn't use consensus as the only filter when picking stocks as "majority" views can often be unreliable, but it's still useful to know what stocks are the current favourites of analysts.
Banks are still hot property despite the threat of a Royal Commission while resource stocks have dropped down the ranks (probably due to the strong share price performance). Defensive industrials are also popular as cyclicals have gone the other way, with the exception of domestic cyclicals which seem to be coming back in vogue.
As for specific stocks, the top three broker favourites are gaming machine maker Aristocrat Leisure Limited (ASX: ALL), building supplies group Boral Limited (ASX: BLD) and property developer Stockland Corporation Ltd (ASX: SGP).
On the flipside, the least popular stocks (based on the number of broker "sell" recommendations) include stocks like stock exchange operator ASX Ltd (ASX: ASX), telecoms services group Vocus Group Ltd (ASX: VOC) and rail operator Aurizon Holdings Ltd (ASX: AZJ).
There are other blue-chips that you should also be watching. The experts at the Motley Fool have uncovered a number that you should be paying attention to. Click on the link below to get your free report.
