Despite the central banks in Australia and the US raising interest rates this week, more than one expert is predicting share markets will rise heading into the new year.
Shaw and Partners portfolio manager James Gerrish noted that the S&P/ASX 200 Index (ASX: XJO) is now within striking distance of the psychological 7,000-point barrier.
"The 'risk on' theme is slowly gathering momentum courtesy of fund managers holding their highest cash position in more than 20 years," he said in the Market Matters newsletter.
"There's nobody left to sell, and a degree of 'fear of missing out' (FOMO) feels inevitable if stocks remain firm."
Gerrish's team is aiming for a Santa rally to push the index up to 7,200 by Christmas.
"That is now only 3% away, hence I remind subscribers of our caveat that surprises are likely to be on the upside."
So considering this bullish outlook, what are the best stocks to take advantage?
Gerrish named one example each from his growth, income, and emerging companies portfolios:
All-time high share price within reach
Funnily enough, National Australia Bank Ltd (ASX: NAB) is the pick from Gerrish's growth stable.
The team believes NAB and its big bank mates will all rally through November with three of the four expected to pay massive fully franked dividends.
"NAB is set to report in a week's time and we believe it will perform strongly," he said.
"Even though they are experiencing below-sector growth in total mortgage and business lending, this is a time to be prudent. It's forecasted to pay an 82c fully franked dividend on the 16th."
Believe it or not, NAB's all-time high was 15 years ago, when the share price breached the $40 mark.
Gerrish's team is targeting the bank stock to set a new all-time high.
"However we do caution that we are only looking for a 5% to 10% move plus a dividend making it a very active play from here."
Not just a boring infrastructure stock
Among the income producers, Gerrish likes toll operator Transurban Group (ASX: TCL).
"On face value, the toll road operator is a solid defensive stock, offering a reasonable ~4%, largely unfranked yield while their high levels of debt are seen as a risk in this sort of interest rate environment," he said.
"However, there is more to this story which underpins our positive view on the stock."
New assets like Sydney's WestConnex stage 2 and NorthConnex will drive 8.5% annual growth in earnings and dividends over the coming five years, according to Gerrish.
"This is also supported by revenue linked to CPI, which as we all know is running hot, along with expected capital releases, which will also support dividend growth over the coming years."
He forecasts that, by financial year 2024, the dividend yield will be above pre-COVID levels, then "rise steadily from there".
The Market Matters team is bullish on Transurban shares for the long run.
One door closes, 60 more open
Carbon capture technology provider Calix Ltd (ASX: CXL) is the favoured pick from Gerrish's emerging companies portfolio.
Horrifyingly, the stock has halved in value since Easter.
Just in the past week, Calix shares lost more than 22% after the federal government withdrew $41 million of funding for its projects with Boral Limited (ASX: BLD) and Adbri Ltd (ASX: ABC).
"The company was hugely disappointed with the news… particularly given it came just a few days after a federal budget which promised spending on green initiatives with an explicit focus on cement," said Gerrish.
"Despite the news, Calix noted that both Boral and Adbri had firm commitments to reduce carbon emissions by 2030, and will need to act now to hit their targets, with the company confident it remains part of this plan."
Calix has stated its services have considerable global interest, with more than 60 projects underway that are in total worth far more than the lost government funding.
Calix shares closed Wednesday at $4.27. Gerrish's team remains bullish about the stock if it can be purchased around that price.
