Top fund manager Paul Xiradis believes there are plenty of opportunities for investors on the Australian share market.
This morning the chief investment officer and head of equities of Ausbil Investment Management provided investors with a breakdown on where he thinks the economy is going and on the ASX shares to buy.
Mr Xiradis believes Australia's economic recovery will be U-shaped.
He commented: "We believe Australia is heading for a U-shaped recovery. But what this looks like across the equity market differs by sector and company. At this stage, balance sheet strength trumps everything. We are making sure that the balance sheet is great, the business model is intact, and there is a safe foundation from which earnings can normalise and grow as the economy enters recovery."
Which shares should you buy?
The chief investment officer believes investors should be focusing on balance sheet strength and earnings outlooks.
"We have been stress testing every company as the fundamental first step in evaluating the outlook and glide path for earnings, before even considering increasing existing positions, or adding new names to our portfolios," he added.
After doing this, in some sectors Ausbil Investment Management is seeing some of the best buying opportunities in over a decade. Though, Mr Xiradis warned that investors need to be "very selective in both sectors and stocks, regardless of the low prices prevailing across the market."
He explained: "Both balance sheet strength and earnings outlook are critical in making the right decisions. It is now a 'buyer's market' for carefully selected high-quality stocks that stand to benefit from global stimulus and the eventual shift to recovery, particularly in the Health Care, Software & Services, Transportation, Energy, Banks and Resources sectors."
Data centre operator NEXTDC Ltd (ASX: NXT) and property group Goodman Group (ASX: GMG) are two companies the fund manager likes. He notes that both companies' "earnings are showing resilience with an outlook for growth."
Resilient options.
There are a number of companies which Ausbil Investment Management expects to come out of the coronavirus crisis relatively unscathed.
These include mining giants such as BHP Group Ltd (ASX: BHP) and Rio Tinto Limited (ASX: RIO), retail conglomerate Woolworths Group Ltd (ASX: WOW), healthcare shares CSL Limited (ASX: CSL) and ResMed Inc. (ASX: RMD), software company Altium Limited (ASX: ALU), and telco giant Telstra Corporation Ltd (ASX: TLS).
These companies "are likely to see earnings relatively unscathed, and in some cases, rise."
Don't be too defensive.
Ausbil Investment Management believes investors shouldn't be overly defensive right now and should be looking at taking advantage of favourable prices.
Xiradis explained: "In terms of outlook, at this stage, the market is still looking for hard information and guidance from companies on which to base forecasts. Many have withdrawn guidance, and consensus has still not caught up. Regardless, we believe that quality companies will settle back on the growth paths along which they were headed before the crisis."
"This crisis has offered a rare opportunity to cycle capital into the highest quality portfolio at the most favourable prices, ultimately setting a foundation for future outperformance. The key to success in the current environment is not to be overly defensive, but to remain invested for the recovery that will come," Mr Xiradis said.
Capital raisings.
Mr Xiradis revealed that Ausbil Investment Management has taken part in a number of capital raisings in recent weeks.
This includes those undertaken by banking giant National Australia Bank Ltd (ASX: NAB), NEXTDC, insurance company QBE Insurance Group Ltd (ASX: QBE), and private hospital operator Ramsay Health Care Limited (ASX: RHC).
It certainly didn't do this out of generosity. The fund manager appears confident he will make a strong return on these investments.
Mr Xiradis explained: "We participated in these capital raisings because of their strength now, and the earnings growth opportunities ahead when the market normalises. We believe that the capital raisings in which we have participated will contribute to future outperformance for these companies."
