Don’t mind the market drop. The outlook for equities isn’t as dire as the recent share price falls suggests and there are two large cap stocks that are about to take-off, according to Morgan Stanley.
That contrarian call comes as the S&P/ASX 200 (Index:^AXJO) (ASX: XJO) index tumbled 1.2% in the last hour of trade with online property classifieds Domain Holdings Australia Ltd (ASX: DHG), consumer finance group Afterpay Touch Group Ltd (ASX: APT) and building materials supplier CSR Limited (ASX: CSR) leading the falls.
While the stocks are down between 1% and 2% at the time of writing, the broker believes both shares will outperform the market in the next few weeks.
Link looks enticing after its 14% plunge over the past six months as its outlook has improved considerably.
“Recent data points suggest an improved outlook for Fund Administration revenues – Jobs growth remains strong at +2.5% y/y, while Industry superannuation funds are seeing accelerated inward rollovers from bank-owned retail funds post the Royal Commission,” said Morgan Stanley.
“The AUD/GBP has depreciated 7% over the last 2 months, positive for Asset Services earnings and valuation. Balance sheet remains robust with A$300-500m of capacity for acquisitions.”
Morgan Stanley sees an 80% probability that Link’s share price will rise over the next 30 days and it has an “overweight” recommendation on the stock with a price target of $9 a share.
Meanwhile, Amcor is also well placed to outperform, particularly after management’s trading update this week that reaffirmed its FY19 outlook.
“This points to (at least partial) normalisation of constant currency growth after a challenging FY18. Further, board/management commentary suggests limited (if any) risk that the Bemis acquisition deal terms will be altered – a key concern for some investors,” said the broker.
Amcor is acquiring US-based Bemis in an all-scrip deal but many were concerned that the 14% dive in Amcor’s share price since August would put the deal at risk.
Morgan Stanley estimates that there is a 60% to 70% chance that Amcor will outperform the market over the next 60 days and has an “overweight” rating on the stock with a price target of $15.20 a share.
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Motley Fool contributor Brendon Lau owns shares of AFTERPAY T FPO. The Motley Fool Australia owns shares of AFTERPAY T FPO. 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.