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Morgans picks the best FY21 ASX buys for the COVID-19 world

The 2021 financial year looms large and a top broker shows its hand at picking the best ASX large cap stocks for the year ahead.

Investors will need all the help they can get. While the S&P/ASX 200 Index (Index:^AXJO) is on track to close FY20 on an upbeat note, FY21 is promising to be volatile.

No one knows how the COVID-19 story will end and companies will have to live with the uncertainty for many more months.

Those looking for an injection of confidence might want to look at Morgans’ best ASX picks. These stocks offer the highest risk-adjusted returns over a 12-month timeframe supported by a higher-than-average level of confidence, in Morgans’ view.

Aristocrat Leisure Limited (ASX: ALL): The company is a leader in land-based gaming machines you see in bars and clubs, and its digital (social gaming) apps are also taking off. Morgans believes the company is well placed to start leveraging its meta-game capabilities to increase monetisation.

Coles Group Ltd (ASX: COL): The supermarket chain is a beneficiary from the COVID-19 lockdown and its gaining ground against rival Woolworths Group Ltd (ASX: WOW) since the start of the quarter.

Santos Ltd (ASX: STO): Morgans believes the gas producer’s diversified portfolio makes it resilient to the volatile oil price. This includes its Dorado and its newly acquired Darwin LNG projects. The bigger risk is its PNG project as the government there wants a bigger cut of the action.

Macquarie Group Ltd (ASX: MQG): The nearer-term earnings outlook for the investment bank isn’t so great but it remains well positioned to ride out the current COVID-19 period and seize opportunities on the other side.

Westpac Banking Corp (ASX: WBC): Morgans calls Westpac the cheapest among the big four banks. In terms of quality of overall risk profile, the broker believes WBC is a close second to sector leader Commonwealth Bank of Australia (ASX; CBA).

Aurizon Holdings Ltd (ASX: AZJ): The rail operators defensive quality makes it a winner in Morgans’ book. The broker said its below rail business (~50% of earnings) is volume protected via regulatory regime. Above rail coal haulage business (~43% of earnings) is partly protected by capacity charges.

AMCOR PLC/IDR UNRESTR (ASX: AMC): Morgans calls Amcor a “very defensive business”. Over 95% of its revenue is generated from the food, beverage, healthcare, personal care and tobacco packaging sectors. These are deemed to be essential regardless of the COVID-19 situation.

Rio Tinto Limited (ASX: RIO) and BHP Group Ltd (ASX: BHP): Rio Tinto is Morgans’ top pick among large cap resource stocks as it’s one of the most resilient global resource franchises. The broker sees BHP as a relatively low risk proposition given its superior diversification relative to its major global mining peers. Both miners have very strong balance sheets that will weather the crisis.

Computershare Limited (ASX: CPU): The broker thinks CPU is a quality franchise with defensive characteristics. While it faces multiple near-term headwinds, demand for its services will get a boost from capital raisings, rising delinquent US mortgages and bankruptcy administration activity.

APA Group (ASX: APA): Morgans calls the gas pipeline group “best-of-breed” among ASX energy infrastructure stocks. Based on FY20 dividend guidance and the current share price, forward cash yield is mid-4% plus ~35% franking. The broker believes APA is capable of growing DPS by mid-single digit CAGR across FY20-FY24.

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

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Motley Fool contributor Brendon Lau owns shares of Aristocrat Leisure Ltd., BHP Billiton Limited, Macquarie Group Limited, Rio Tinto Ltd., Santos Ltd and Westpac Banking. The Motley Fool Australia owns shares of and has recommended Amcor Limited and Macquarie Group Limited. The Motley Fool Australia owns shares of APA Group and COLESGROUP DEF SET. The Motley Fool Australia has recommended Aurizon Holdings 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.

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