At the start of each month analysts at Morgans reveal the shares that they rate as buys with the highest conviction.
These high conviction shares are the ones that the broker believes offer the highest risk-adjusted returns over a 12-month timeframe.
This month the broker has removed PWR Holdings Ltd (ASX: PWH) and Volpara Health Technologies Ltd (ASX: VHT) shares after strong gains limited their upside potential, leaving the following five shares:
Oil Search Limited (ASX: OSH)
Morgans is a big fan of this energy producer due to the strength of its earnings and quality of its growth profile. It has been pleased with the way the company has continued to “make progress on its global-scale organic growth profile, with high margin/value growth from expansion of its PNG-based LNG operations and the upsizing and development of its large greenfield oil project in Alaska.”
Reliance Worldwide Corp (ASX: RWC)
Its analysts rate this plumbing parts company as a buy due to the leading position that its push to connect (PTC) products have in a number of product categories. It also believes Reliance Worldwide’s earnings growth profile is stable thanks to its focus on the less cyclical residential R&R sector. In addition to this, with the penetration of PTC fittings in the United States at ~12%, it believes there’s potential for further meaningful penetration over the long term.
ResMed Inc. (ASX: RMD)
This sleep treatment-focused medical device company is another that Morgans rates highly. The broker believes ResMed is well-positioned for continued growth thanks to its pipeline of new products, expanding digital platform, and the growing demand for masks and devices. Furthermore, the broker notes that The National Heart Blood and Lung Institute estimates that 12 million Americans suffer from sleep apnoea, giving ResMed a massive market opportunity in this region alone.
Sonic Healthcare Limited (ASX: SHL)
Morgans feels this global medical diagnostics company would be a good investment due to its belief that Sonic is “ideally positioned as a global diagnostic and pathology provider, backed by defensive earnings, growing scale and a strong balance sheet.” It expects the company to achieve high single digit earnings growth through to 2021.
Westpac Banking Corp (ASX: WBC)
The final share on Morgans’ high conviction list is this banking giant. It likes Westpac ahead of the rest of the big four due to its strong capital position and “relatively low risk profile in terms of loan book positioning and low reliance on treasury and markets income.” Its analysts also believe the bank will benefit the most from the re-pricing of investor home loans.
Whilst I think Morgans makes great points on all five shares, the three that I would buy at present are Reliance Worldwide, ResMed, and Westpac.
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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of VOLPARA FPO NZ. The Motley Fool Australia has recommended PWR HLDING FPO, Reliance Worldwide Limited, ResMed Inc., and VOLPARA FPO NZ. 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.