'Earnings upgrade cycle': 2 ASX 200 shares taking off right now

Some businesses are on an irresistible upward curve. Here's a pair of stocks Alphinity analysts are bullish on.

| More on:
one man in a classic navy blue business suit lies atop a wheelie office shair while his colleage, also in a navy business suit, grabs him by the legs and propels him forward with both of them smiling widely as though larking about in the office.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

It's a harsh reality that no matter how well run a S&P/ASX 200 Index (ASX: XJO) business is, some of their fortunes are heavily dependent on the whim of external cycles.

Conversely this also means that, despite the economic doom and gloom, some ASX 200 shares are currently in a position to ramp up their earnings.

Let's take a look at a couple of stocks cited by the analysts at Alphinity Australian Share Fund:

'Back to delivering above-market volume growth'

Building materials provider James Hardie Industries plc (ASX: JHX) is looking forward to a revival in the real estate and construction markets after they were battered by steep interest rate rises.

Already the share price has rocketed more than 54% since the start of the year.

The Alphinity team, in a memo to clients, described James Hardie as having "managed through a challenging industry environment and have come through at the other end in a good position to benefit as headwinds ease".

The company has also had to overcome recent internal challenges after its chief executive was booted out for behavioural reasons.

"Despite going through a potentially destabilising management change last year, and even though US mortgage rates have ticked up again, the company appears to have stabilised and be back to delivering above-market volume growth."

James Hardie shares are reasonably popular among the professional community. CMC Markets currently indicates 11 out of 17 analysts rate the stock as a buy.

A terrible 2022 in the rearview mirror now

The second example of a business that's now "firmly in an earnings upgrade cycle", according to Alphinity analysts, is AGL Energy Limited (ASX: AGL).

The energy provider has, to say the least, been through a lot the past 18 months.

"The company has been through the perfect storm of weak wholesale electricity prices, an ill-thought-through attempted demerger and subsequent management and board changes."

The Alphinity team feels like it could be through the worst of it, and that the energy market is turning in its favour.

"While the broader energy transition from fossil fuels to renewables remains a formidable challenge for AGL from an energy generation perspective, wholesale electricity prices have recovered strongly and now appear to be underwritten in the medium term by higher gas prices."

For AGL, these circumstances should mean more than just a "strong recovery" in earnings.

"It will improve its balance sheet strength, which will be an important factor in funding the capital expenditure required for the company to transition to a more renewables-based energy generation portfolio."

AGL shares also have many fans among professional investors. According to CMC Markets, seven out of 11 analysts currently rate the stock as a buy.

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Investing Strategies

A white and black robot in the form of a human being stands in front of a green graphic holding a laptop and discussing robotics and automation ASX shares
Investing Strategies

How to invest in the future with ASX AI shares

Discover the potential of AI in transforming industries and enhancing investment portfolios with ASX-listed AI shares.

Read more »

A man holding a cup of coffee puts his thumb up and smiles while at laptop.
Dividend Investing

Analysts say these ASX 200 dividend stocks are best buys in April

What are analysts saying about these high quality companies?

Read more »

A man in a business suit whose face isn't shown hands over two australian hundred dollar notes from a pile of notes in his other hand to an outstretched hand of another person.
Dividend Investing

Buy these ASX dividend shares for income

Analysts have put buy ratings on these income stocks.

Read more »

footwear asx share price on watch represented by look holding shoe and looking intently
Consumer Staples & Discretionary Shares

Does this ASX 300 retail stock really have a 7.6% dividend yield right now?

Is a 7.67% dividend yield too good to be true?

Read more »

A man in his office leans back in his chair with his hands behind his head looking out his window at the city, sitting back and relaxed, confident in his ASX share investments for the long term.
Dividend Investing

Brokers say these ASX 300 dividend stocks are top buys

Attractive dividend yields could be on offer with these shares.

Read more »

An ASX shares broker analysing a chart tracking the A2 Milk share price
Value Investing

3 ASX value shares to buy right now

Analysts think these ASX shares are great value at current levels.

Read more »

Happy woman looking for groceries. as she watches the Coles share price and Woolworths share price on her phone
Dividend Investing

Invest $20,000 in this ASX 100 dividend stock for $1,126 in passive income

Here's my take on this 5.6% dividend stock...

Read more »

chart showing an increasing share price
Growth Shares

Buy these excellent ASX growth shares for 15% to 20% returns

Analysts think big returns could be on the cards for owners of these shares.

Read more »