Leading broker names 5 high-conviction ASX shares to buy

Leading broker Morgans Financial has named five high-conviction ASX shares to buy and beat the market over the next year.

With quantitative easing starting to unwind and volatility increasing, Morgans analyst Andrew Tang has outlined five ASX 100 shares that could offer the highest risk-adjusted returns over a 12-month timeframe.

Here are those picks:

Cleanaway Waste Management Ltd (ASX: CWY)

The waste management business is the first on this alphabetically-sorted high-conviction list. There are three main reasons to consider it, according to Mr Tang.

New management has worked to improve the cost base, capital intensity, revenue generation and balance sheet over recent years. Defensive and solid earnings growth will be driven by organic sources, announced major contract wins and the acquisition of Toxfree. The third reason is that with growing sustainably, waste management should grow as an important sector, where Cleanaway is a leader.

OZ Minerals Limited (ASX: OZL)

The copper-focused business is attractive because of its robust cashflows from an established copper production base, which has a good outlook due to the electrification of the developing world. OZ Minerals’ balance sheet and cost structure also supposedly provide good downside protection.

Mr Tang also said that the company’s counter-cyclical growth strategy will be rewarded as the Carrapateena development project is ‘de-risked’ over the next year or two, justifying a price of close to $12.50.

ResMed Inc (ASX: RMD)

The global healthcare business that produces devices to help respiratory disorders is well positioned with its core mask & device products, it has a solid pipeline of new products and an expanding digital platform helping drive resupply, low setup costs and improve adherence rates.

ResMed is delivering double digit sales growth every quarter and it has a very large potential opportunity with around 12 million Americans suffering from sleep apnoea, but only four million are diagnosed or treated annually.

Reliance Worldwide Corporation Ltd (ASX: RWC)

The world leading manufacturer of push to connect plumbing fittings and specialist water control valves is worth considering because it has a market share of 80% in the US on a volume basis – it’s hard to dislodge that type of dominance.

It has a stable earnings growth profile, it isn’t cyclical like some other property-related businesses. Mr Tang said that given the PTC product’s strong value proposition, Morgans believes there is still a lot of potential for further penetration of the category over the long-term.

Westpac Banking Corp (ASX: WBC)

Finally, Morgans chose Australia’s oldest bank as the pick of the banks because of its relatively low risk profile of loan book positioning and low reliance on treasury and markets income.

It’s also a pick because it stands to benefit from the re-pricing of investor home loans and Morgans expects Westpac to comfortably meet APRA’s ‘unquestionably strong’ capital benchmark through undiscounted dividend re-investment plans.

Foolish takeaway

An interesting group of companies. I generally tend to avoid cyclical businesses, so I personally wouldn’t go for Westpac or OZ Minerals. However, I do like the idea of ResMed, Cleanaway and in-particular RWC after its recent acquisition.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has recommended ResMed Inc. 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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