The rolling COVID-19 lockdowns to hit our major cities will leave a mark on next month's reporting season, but a top broker believes these ASX shares will outperform.
The Australian economy is likely to contract in the September quarter. This is threatening to derail the ASX's best earnings upgrade cycle in decades.
Against this backdrop with more than half of the country's population living in lockdown, the analysts at Macquarie Group Ltd (ASX: MQG) highlighted several ASX shares to buy.
ASX earnings growth under a COVID cloud
"Australia's run of positive EPS [earnings per share] revisions – the best in decades – is into its 11th month," said Macquarie.
"The key drivers were banks and resources; but both are cyclicals, and the cycle is slowing. Results for 2H21 should beat expectations, but this makes for a tougher comp for FY22."
Best ASX shares to buy for the reporting season
In this regard, the broker reckons the best ASX shares to buy ahead of the August reporting season are the COVID losers.
This is despite this group taking another beating from the current string of lockdowns to hit New South Wales, Victoria and South Australia.
Talk about a contrarian trade! ASX shares that are suffering under lockdowns are likely to provide dour outlooks. No one knows how long these lockdowns could go on for.
How ASX COVID losers could turn into winners
But Macquarie isn't fussed. It pointed out that the COVID hit to profits isn't expected to be as significant as it was in 2020.
"A miss on results could also cause a sell-off in these stocks, but we would buy the dips in re-opening plays, as they offer growth within a slowing cycle," said the broker.
Macquarie's best buy ideas for ASX shares favour defensives, growth and capital returns.
Defensive ASX shares to buy now
The defensive ASX shares that it likes includes the Amcor CDI (ASX: AMC) share price and Brambles Limited (ASX: BXB) share price, just to name a few.
Among the growth shares, it rates the Afterpay Ltd (ASX: APT) share price a buy even as expert opinion is dividend on its outlook.
Increasing competition and high valuation have taken the gloss out of the Buy Now, Pay Later (BNPL) posterchild.
Other ASX growth stocks on Macquarie's buy list include the Charter Hall Group (ASX: CHC) share price, Resmed CDI (ASX: RMD) share price and SEEK Limited (ASX: SEK) share price.
Capital return hopefuls to add to wishlist
The ASX shares that are likely to deliver capital returns that the broker rates a "buy" include three iron ore miners. These are the BHP Group Ltd (ASX: BHP) share price, Fortescue Metals Group Limited (ASX: FMG) share price and Deterra Royalties Ltd (ASX: DRR) share price.
Outside of these ASX miners, Macquarie also added the Ampol Ltd (ASX: ALD) share price as a capital return "buy" idea.
