Morgans releases its “conviction buy” stocks for February

Credit: Pictures of Money

Investors are heading into the profit reporting season in a very good mood but don’t get too used to the carnival atmosphere as things are about to get a lot more interesting.

We are already starting to see more volatility in the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) as the spike in US government bond yields is reverberating around the world.

Morgans is also predicting that the “goldilocks” environment isn’t likely to continue given the number of geopolitical risks that are knocking on the doorstep.

However, the broker believes that solid returns are still up for grabs but warns that these shouldn’t come at the expense of investors taking on excessive amounts of risk.

To give your portfolio a performance edge over the market, Morgans has picked seven “high conviction” stocks that offer the best risk-adjusted returns (stocks that offer the most upside based on their risk profile) for the year.

The latest stock to be added to this list is Corporate Travel Management Ltd (ASX: CTD) as the travel management solutions company is expected to generate strong double-digit earnings per share (EPS) growth over the next few years.

“Even against a strengthening AUD vs USD, we still expect a strong 1H18 result on 21 February and believe CTD will resume making accretive acquisitions in 2018,” said Morgans.

“The highly fragmented nature of the global corporate travel market means there are significant market share opportunities for CTD to realise over time.”

The addressable size of the global corporate travel market is estimated to be US$1.4 trillion and it is forecast to grow at around US$40 billion a year.

Corporate Travel Management only has a less than 1% market share of the European and US markets, while its market share in Asia stands at a little over 1%.

This means the company has plenty of room to grow over the coming years and Morgans has a $23 price target on the stock.

Other stocks outside the S&P/ASX 100 (Index:^AXTO) (ASX:XTO) that are on the broker’s conviction list include automotive cooling solutions company PWR Holdings Ltd (ASX: PWH) and oil and gas company Senex Energy Ltd (ASX: SXY), which is no doubt benefiting from the stronger-for-longer oil price.

Blue-chips that are on Morgan’s conviction list include sleep disorder treatment device maker ResMed Inc. (CHESS) (ASX: RMD), banking giant Westpac Banking Corp (ASX: WBC), oil and gas major Oil Search Limited (ASX: OSH) and share registry services company Link Administration Holdings Ltd (ASX: LNK).

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Motley Fool contributor Brendon Lau owns shares of Westpac Banking. The Motley Fool Australia owns shares of and has recommended Corporate Travel Management Limited. The Motley Fool Australia has recommended ResMed Inc. 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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