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.
One share that didn't make the cut and has been replaced this month is Reliance Worldwide Corporation Ltd (ASX: RWC). Due to the weaker-than-expected downgrade by the plumbing parts company last month, the broker has changed its recommendation to hold.
Here are the five high conviction picks for June:
Oil Search Limited (ASX: OSH)
This leading energy company is Morgans' top large cap pick in the oil and gas industry due to the strength of its earnings and the quality of its growth profile. The broker feels that its current share price adequately reflects the value of existing production from its PNG LNG T1 & T2 operations, but "remains too conservative on the upside potential for the PNG expansion and Alaska projects."
OZ Minerals Limited (ASX: OZL)
This copper producer is the new addition to the high conviction list. Morgans likes OZ Minerals due to its robust cashflows from an established production base in copper. It also notes that copper has one of the best outlooks in the commodities suite, driven by electrification of the developing world. In light of this and its recent share price weakness, the broker thinks now could be the time to pick up shares.
ResMed Inc. (ASX: RMD)
This sleep treatment-focused medical device company remains a high conviction pick for Morgans. It believes ResMed is well-placed due to "continued growth across masks and devices, a solid pipeline of new products and an expanding digital platform helping to drive resupply, low setup costs and improve adherence rates." It was also impressed with its recent second quarter update which revealed yet another quarter of improving leverage and strong profit growth.
Sonic Healthcare Limited (ASX: SHL)
Morgans rates this global medical diagnostics company highly and believes it is capable of high single digit earnings growth through to 2021. This is due to Sonic Healthcare being perfectly positioned "as a global diagnostic and pathology provider, backed by defensive earnings, growing scale and a strong balance sheet." The broker also sees a lot of value in its recent acquisition of Aurora Diagnostics. It expects this to increase scale in anatomical pathology, create cross-selling opportunities, and underpin margin expansion.
Westpac Banking Corp (ASX: WBC)
The broker's top pick in the banking sector continues to be Westpac. It remains its favourite due to its strong capital position and relatively low risk profile. It also believes that concerns over the bank's high interest-only home loan exposure are overblown. It notes how Westpac has reduced its interest-only exposure from 50% of its Australian home loan book in March 2017 to 32% in December 2018 without its asset quality underperforming its peers.
