Top broker Morgan Stanley recently published their 10 best large cap stock ideas for November and 2020. The ASX companies that have made the list are from a wide range of sectors and are supported by a higher-than-average level of confidence among analysts.
Here’s a recap of Morgan Stanley’s pick of the ASX bunch.
APA Group (ASX: APA)
APA is one of Australia’s leading energy infrastructure businesses, boasting a market capitalisation of almost $13 billion. Based on FY20 guidance, analysts from Morgans think that APA is capable of growing dividends per share by 5% per annum across FY20 to FY24.
Telstra Corporation Ltd (ASX: TLS)
Morgan analysts are tipping the Telstra share price to improve by analysts on the back of positive market sentiment. The possible merger of TPG Telecom Limited (ASX: TPM) and Vodafone is expected to serve as the catalyst, with either outcome seen as a positive for Telstra in the short and medium term. A merger should make the sector more rational, whilst a non-merger will render TPG unable to build a competing mobile network.
Treasury Wine Estates Limited (ASX: TWE)
According to analysts, Treasury Wine Estates is a great example of leveraging a premium brand portfolio to generate strong results in China. As a result, Treasury is Morgan’s top pick for the consumer staples sector with its strong earnings visibility and a runway of earnings growth potential for 2020 and beyond.
Sydney Airport Holdings Pty Ltd (ASX: SYD)
Analysts viewed the final report by the Productivity Commission on airport regulation as partially positive for Sydney Airport, with international passenger numbers particularly important for the company’s earnings. Morgan Stanley considers Sydney Airport a high quality and well managed infrastructure asset that offers defensive attributes, strong balance sheet and solid distribution yield.
Sonic Healthcare Limited (ASX: SHL)
Sonic Healthcare is one of Australia’s top healthcare businesses, providing laboratory, pathology and radiology services. Revenue is generated from operations in the US, Germany and Australia. Recently, the company announced that it has raised $550 million in long term debt funding. Morgan’s analysts cite the company’s defensive earning capacity, growing momentum and a strong balance sheet to fuel a pipeline of future acquisitions as positive signs.
Westpac Banking Corp (ASX: WBC)
Despite issuing a sombre profit outlook for 2020, analysts at Morgan still champion Westpac as their preferred major bank. Analysts cite Westpac’s low risk position regarding loan books and low reliance of treasury income as positives.
Woolworths Limited (ASX: WOW)
As a dominant supermarket operator in Australia with defensive characteristics, Woolworths is a core holding by Morgan for November and 2020. The company has an experienced management team and boasts a healthy balance sheet.
Woodside Petroleum Limited (ASX: WPL)
Woodside is the largest independent oil and gas company in Australia, sourcing, producing and supplying energy. Analysts believe that the companies strong balance sheet puts it in a solid position to support new growth, whilst also maintaining a sustainable dividend profile.
Wesfarmers Limited (ASX: WES)
Wesfarmers is another core holding for Morgan, with analysts citing the company’s diversified business portfolio and core Bunnings division as positives. In addition, Wesfarmers has a healthy balance sheet with capacity for value-accretive investments.
Oil Search Limited (ASX: OSH)
Analysts like Oil Search for the company’s robust profitability and globally competitive LNG operations. Analysts believe that the company’s share price is at a discount following recent government changes in Papua New Guinea (PNG). The political risk in PNG is believed to have moderated and Oil Search is expected to secure the P’nyang gas agreement, allowing the company to move forward with its expansion projects.
Should you buy?
In my opinion, the ASX shares highlighted by Morgan analysts are of extremely high quality and the analysis is well balanced. However, I think it would be irrational for investors to jump the gun and start buying all the stocks listed. Especially with sectors such as banking under pressure, investors should do further research to determine whether these picks fit your investment strategy.
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Motley Fool contributor Nikhil Gangaram has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Sydney Airport Holdings Limited, Telstra Limited, and Treasury Wine Estates Limited. The Motley Fool Australia owns shares of Wesfarmers Limited. The Motley Fool Australia has recommended Sonic Healthcare Limited. 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.