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Next phase of bull market could see ANZ Bank outperform Afterpay

Don’t let today’s weakness on the S&P/ASX 200 Index (Index:^AXJO) fool you. The new bull market is here to stay although the next phase of the rally could see investors rotate to value stocks from growth.

It’s growth stocks, including tech darlings like the Afterpay Ltd (ASX: APT) share price, that’s stolen the lime light since our market hit its bear market bottom in March.

But we may soon see the ASX value shares outperform as conditions seem ripe for these laggards to outperform.

Why value can outperform growth

The recent steepening of the yield curve and expectations of a V-shape recovery favour these underachievers, according to Morgan Stanley.

While there’s great debate over the shape of the ongoing economic recovery due to the COVID-19 crisis, the broker is more convinced than ever of a quicker rebound.

“Our global team’s increased conviction in a sharper and shorter economic downturn has projected a V-shaped recovery in global markets,” said the broker.

“Coupled with ongoing stimulus roll-out across regions and within country, [these are] providing the support for improving Value signalling and performance over the near and long term.”

What are value stocks?

Value stocks are those that tend to trade at a discount to the market or to their historical valuations. Growth stocks are those that trade at a premium as investors are willing to pay up for companies best placed to increase their earnings coming out of the recession.

“Expensive valuations and better growth should push bond yields higher and the curve steeper – a ‘normal’ early cycle pattern, with the global rates team forecasting steeper yield curves into year-end for both the US and Australia,” added Morgan Stanley.

Top stock picks for new year

The broker highlights 11 ASX value stocks that it believes are the best of the bunch. Financial stocks on its list include Australia and New Zealand Banking GrpLtd (ASX: ANZ), Bendigo and Adelaide Bank Ltd (ASX: BEN) and Link Administration Holdings Ltd (ASX: LNK).

In the industrials space, its top picks include cement supplier Adbri Ltd (ASX: ABC), building materials group Boral Limited (ASX: BLD), casino operator Crown Resorts Ltd (ASX: CWN), alcoholic drinks maker Treasury Wine Estates Ltd (ASX: TWE) and national carrier Qantas Airways Limited (ASX: QAN).

There’re also one stock from property and materials each that Morgan Stanley favours. These are DEXUS Property Group (ASX: DXS), retailer Harvey Norman Holdings Limited (ASX: HVN) and BlueScope Steel Limited (ASX: BSL).

Looking for more buy ideas for FY21? The experts at the Motely Fool have picked their best ASX stocks to buy now.

Click on the link below to find out for free what these stocks are.

5 stocks under $5

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*Extreme Opportunities returns as of June 5th 2020

Brendon Lau owns shares of Australia & New Zealand Banking Group Limited and BlueScope Steel Limited. Connect with me on Twitter @brenlau.

The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Link Administration Holdings Ltd. The Motley Fool Australia owns shares of and has recommended Treasury Wine Estates Limited. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Crown Resorts Limited and Link Administration Holdings Ltd. 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.

BrenLau owns shares of Australia & New Zealand Banking Group Limited and BlueScope Steel Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Link Administration Holdings Ltd. The Motley Fool Australia owns shares of and has recommended Treasury Wine Estates Limited. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Crown Resorts Limited and Link Administration Holdings Ltd. 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.

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