3 ASX conviction growth stocks for FY20

Growth will be hard to come by on the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index in the new financial year given the global economic outlook, but there are three that looks more likely than most to increase earnings over the next year or so.

| More on:
Strong ASX share price represented by man posing with muscular shadow

Image source: Getty Images

Growth will be hard to come by in the new financial year given the global economic outlook and I suspect the August reporting season could be a pretty ugly affair if earnings reality doesn’t match up with lofty valuations.

This leads me to believe that the strategy to outperform the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index should be focused on avoiding the disasters instead of trying to pick the winners.

Don’t count on interest rate cuts to make up for the lack of earnings growth either. Looser monetary settings are stimulatory for equities and worked a charm in the past. But back then, the market wasn’t trading at multi-year highs (in the case of the ASX) or near record highs (in the case of the US stock benchmarks).

Investors looking for growth will have a much shallower pool of stocks to choose from, in my view, although there are a handful of ASX stocks that I think are very likely to report a bigger profit in FY20.

This is primarily because growth has been just about locked-in from recent acquisitions. Unless something totally unexpected happens, these three stocks will be able to deliver growth even amid a broader economic slowdown.

Packaged for growth

The first of my conviction growth candidates is packaging group AMCOR PLC/IDR UNRESTR (ASX: AMC), which bought US-based Bemis Company, Inc. to become a global leader in consumer packaging.

Management is forecasting double-digit earnings per share accretion from the merger and is targeting cost savings of US$180 million on an annualised basis.

I find its geographical reach appealing as I favour large cap ASX stocks that make a significant proportion of their income from overseas markets.

While the stock can’t be regarded as a bargain after the AMCOR share price rallied 23% since the start of calendar 2019, it doesn’t look expensive to me given its double-digital earnings growth profile.

Engineering an earnings boost

Another stock that is expected to deliver a nice earnings boost is oil and gas engineering group Worleyparsons Limited (ASX: WOR) as it beds down its US$3.2 billion ($4.55 billion) acquisition of Jacobs ECR.

The transaction will give Worley a large foothold in the US oil market where there’s a strong pipeline of work from the shale producers who are winning market share from traditional oil majors like OPEC and Russia.

The oil price may have pulled back recently but activity in the industry is unlikely to slow – and even if it did, the oil price will jump higher due to lower production volumes. Both outcomes are positive for Worley.

Merger of mines

The latest miner to undertake an acquisition is Sandfire Resources NL (ASX: SFR) with the copper miner announcing yesterday that it was making a $167 million offer for Mod Resources Ltd (ASX: MOD).

The SFR share price crashed on the news while the MOD share price surged, which is quite typical, but broker reaction to the merger has been positive with JP Morgan upgrading the stock to “overweight” from “neutral” with an $8 per share price target.

Meanwhile, Shaw and Partners said it liked the deal on first glance and kept its “buy” rating on Sandfire. Sandfire is the second cheapest miner under its coverage and it has a price target of $9 a share.

Investors may need to wait till FY21 for the earnings increase from the acquisition to flow through given the timing of the deal.

But there are other ASX growth stocks that you should also be putting on your watchlist, according to the experts at the Motley Fool.

Follow the link below to find out what other high-growth names you should be watching in FY20.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the five best ASX stocks for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now.

*Returns as of May 24th 2021

Motley Fool contributor Brendon Lau owns shares of WorleyParsons Limited. Connect with him on Twitter @brenlau.

The Motley Fool Australia has no position in any of the stocks mentioned. 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.

More on Growth Shares