Don’t be put off by the sharp market sell-off. I consider this the pullback we had to have, and I believe there’s more room for shares to fall before the end-of-year rally.
The S&P/ASX 200 (Index:^AXJO) (ASX: XJO) index is down by 1.2% to a four-month low in after lunch trade as just about every sector slipped into the red with Australia and New Zealand Banking Group (ASX: ANZ) and BHP Billiton Limited (ASX: BHP) among the worst performing blue-chips with losses of around 2.5% each.
But the sell-off represents a buying opportunity as our bull market is down but not out (click here to find out why).
If you are looking for places to put your capital to work, Macquarie Group Ltd (ASX: MQG) has outlined two of its best key investment thematic for the current market.
The first is general insurance where an expected margin uplift is about to flow through to the bottom lines of both listed insurers and brokers.
“Repricing of new business for Home risks remains below claims growth, implying material back-book repricing to spur margin expansion,” said Macquarie.
“We continue to prefer insurance brokers over insurers at this point in the insurance cycle.”
Health insurance provider Medibank Private Ltd (ASX: MPL) also has a positive margin outlook despite threats by the federal Labor party to impose caps on premium increases if it was to win office in next year’s election.
This is because industry reforms such as prosthesis and new membership classifications will help offset claims growth, according to Macquarie.
The second key idea relates to our national carrier Qantas Airways Limited (ASX: QAN) as Macquarie believes that domestic capacity has actually fallen 0.5% in the first half of the year versus expectations that capacity will stay flat.
“Our proprietary airfares data based on 100 monthly flights within Australia indicates Qantas Business/Leisure prices increases of 7%/2% in 1Q19,” said the broker.
“Qantas will provide its 1Q19 trading update on 25 October 2018 and may also provide 1H19 guidance.”
Macquarie is forecasting interim pre-tax profit to fall 17% over the same time last year to $812 million and is recommending investors buy the stock given its price target of $7.30 a share.
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Motley Fool contributor Brendon Lau owns shares of Australia & New Zealand Banking Group Limited, BHP Billiton Limited, and Macquarie Group Limited. The Motley Fool Australia has recommended Steadfast Group Ltd. 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.