UBS just added these four stocks to its model portfolio for their big share price upside potential

The market is up again with resource stocks leading the charge while financials drag. This has been a pretty common theme for the ASX recently but miners and banks aren’t the only games in town.

The S&P/ASX 200 (Index:^AXJO) (ASX:XJO) is trading 0.2% higher led by S&P/ASX 200 Materials (Index:^AXMJ) (ASX:XMJ) with a 0.8% increase while the S&P/ASX 200 Financials (Index:^AXMJ) (ASX:XMJ) is struggling to stay above breakeven.

Most analysts have a downbeat view of the banks and are relatively more bullish on miners, but there are other good opportunities in the market outside of these sectors.

On that note, UBS has added four new industrial stocks to its model portfolio as it dumped Westpac Banking Corp (ASX: WBC) as the broker downgraded the banking sector weighting to “underweight” from “neutral”.

The first is fast food chain Domino’s Pizza Enterprises Ltd. (ASX: DMP) which has been under significant pressure recently as the parliamentary enquiry into unfair franchisor practices kicks off and worries that aggregators like Uber Eats will eat its lunch.

UBS thinks the market has overreacted to these issues and it describes Domino’s as a good business with leading technology and above-market earnings growth potential.

“We think DMP appears attractive versus other high-growth options available in the Australian market and versus global peers,” said the broker.

“While there is no doubt that in the new world of aggregators, risks have increased, our recent study… and industry discussion suggests these have been more than priced in, with risk to the upside.”

The second stock is engineering and construction group Downer EDI Limited (ASX: DOW). UBS recently initiated coverage on the stock with a “buy” recommendation and $7.60 price target.

“We like Downer’s exposure to an increasing public infrastructure asset base,” said UBS. “We are attracted to Downer’s solid earnings growth outlook, which is underpinned by the ongoing investment activity we anticipate in Australian infrastructure, particularly in rail, transport, power and utilities markets.

Another stock that the broker has started coverage on and have included into its model portfolio is Seven Group Holdings Ltd Fully Paid Ord. Shrs (ASX: SVW).

The diversified conglomerate is leveraged to infrastructure and mining construction through its WesTrac and Coates Hire heavy equipment businesses, which will drive earnings growth for the group.

UBS has a “buy” rating and $21.50 price target on the stock.

Finally, UBS has also added shopping mall operator Vicinity Centres Re Ltd (ASX: VCX) to its model portfolio as the stock is trading at the biggest discount to other large cap real estate investment trusts (REITs) covered by the broker.

While the retail environment is looking tough for mall operators, Vicinity has the option to turn some of its properties into mixed-use developments and it could restructure its portfolio to unlock value, according to UBS.

Meanwhile, the experts at the Motley Fool have also picked three blue-chip stocks that they believe will outperform the market in 2018.

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Motley Fool contributor Brendon Lau owns shares of Westpac Banking. The Motley Fool Australia has recommended Domino's Pizza Enterprises 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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