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UBS picks these oversold growth stocks for your watch list

“Buy the dip” is the current market mantra from experts and the recent pull back in the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) presents a chance to exercise your stock-picking skills.

There are a number of interesting looking stocks to put on your radar but those looking for a place to start would be keen on hearing what UBS has to say on current market anomalies.

The broker noted that the market is still willing to cough up for growth stocks like blood products developer CSL Limited (ASX: CSL) and wine maker Treasury Wine Estates Ltd (ASX: TWE) – stocks that released pleasing profit announcements in February.

However, there are a number of growth stocks that seem to have lost favour with the market for no apparent reason. The broker thinks the spike in market volatility may be a big factor behind their underperformance.

This is unusual because stocks that have enjoyed consensus earnings per share upgrades tend to outperform the market, while those suffering from downgrades like fast food chain Domino’s Pizza Enterprises Ltd. (ASX: DMP) and retailer Harvey Norman Holdings Limited (ASX: HVN) have moved in the opposite direction.

Interestingly, a number of growth “outcasts” reporting strong results and outlooks only two months ago have not been performing particularly well.

Energy stocks Woodside Petroleum Limited (ASX: WPL) and Oil Search Limited (ASX: OSH) are two more interesting examples because the oil price has been particularly strong in recent times, which means another round of earnings upgrades if the oil price holds around current levels.

The miners have also featured heavily among the upgraders from the recent reporting season but shares in the likes of BHP Billiton Limited (ASX: BHP) have actually suffered a de-rating since. The stock remains one of the top buys in my book.

Other growth stocks that have suffered an unexplained pullback are steel producer BlueScope Steel Limited (ASX: BSL), gaming machine maker Aristocrat Leisure Limited (ASX: ALL) and wealth manager JANUS/IDR UNRESTR (ASX: JHG), which is more commonly known as Janus Henderson.

As they say, don’t let a good correction go to waste!

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Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited and BlueScope Steel Limited. The Motley Fool Australia has recommended Treasury Wine Estates 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 Scott Phillips.

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