The market has started the week on a firmer footing but that’s no thanks to the big banks and major miners. It’s the other sectors like Staples and Real Estate that have been doing most of the heavy lifting to send the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) up 0.2% yesterday.
This may not be an abnormality. There are some stocks in these outperforming sectors that are expected to power ahead in the new financial year, according to UBS.
The broker has dumped three stocks and added two in its latest reshuffle of its model portfolio, which is a basket of recommended stocks that UBS believes will suit most investors.
The stocks that got dumped include home builder Mirvac Group (ASX: MGR) as its analysts downgraded the stock to “sell” on concerns about its large exposure to Sydney and housing investors – two parts of the residential property market that are showing the most stress in this downturn. It also dumped sleep disorder treatment device maker RESMED/IDR UNRESTR (ASX: RMD) after ResMed’s recent share price surge.
UBS also had to remove Westfield Corp (ASX: WFD), but that’s because the shopping centre giant was de-listed following its takeover by French property group Unibail-Rodamco.
The takeover of Westfield looks timely as shopping centre operators are suffering from falling foot traffic through their malls due to the growing popularity of online shopping.
But that isn’t putting UBS off as the broker has added Scentre Group (ASX: SCG) to its model portfolio due to its attractive valuation and forecast yield of around 5.4%.
“Despite the gloom around the Australian household/Ecommerce penetration, we see a scope for moderate in-store specialty sales growth supported by solid employment growth (circa 3% p.a.), tax cuts ($4bn or 0.4% p.a. to consumption), some improvement in household cash flow (circa +4% growth in 2019) and continued strong population growth (+1.6%),” said the broker.
Scentre operates the Westfield malls in Australia while the takeover target housed Westfield’s international assets.
The second stock to make it into the broker’s model portfolio is wine maker Treasury Wine Estates Ltd (ASX: TWE) even though the stock has surged ahead by 31% over the past 12 months when the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index is up 5%.
“The stock has retraced circa 12% since our last rebalance on May 10 providing a reasonably attractive entry point in our view. We view FY19 as a strong year for earnings growth (34% growth expected) backed by good volume, a good vintage, acquisition benefits and US distribution upside,” said UBS.
“We view the medium-term outlook for TWE as also strong, with Asia providing significant (and growing) demand at a premium price point, while also lifting profitability in other regions via supply constraints.”
The broker is tipping around a 15% total return for both stocks over the year.
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Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia has recommended ResMed Inc., Scentre Group, and 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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