Ten best large cap ideas in November
About the author:
- Author name:
- By Andrew Tang
- Job title:
- Analyst - Equity Strategy
- Date posted:
- 04 November 2019, 12:55 PM
- Sectors Covered:
- Equity Strategy and Quant
Our best ideas are those that we think offer the highest risk-adjusted returns over a 12-month timeframe supported by a higher-than-average level of confidence. They are our most preferred sector exposures.
Here are our ten best large-cap ideas this November:
Telstra Corporation (TLS)
Our view on TLS is predicated on improving market sentiment. The merger or not of TPM and Vodafone is the key catalyst for this and perversely we view either outcome as a positive in the short term. Either they merge and the market becomes more rational or they don't merge and TPM is unable, at least for a while, to build a competing mobile network as they've told the high court of Australia they will not.
Click here to see our latest research on Telstra Corporation.
We see WES as a core holding. It has a diversified portfolio of businesses and the outlook for the core Bunnings division remains solid. Balance sheet remains healthy leaving capacity for value-accretive investments.
Click here to see our latest research on Wesfarmers.
Treasury Wine Estates (TWE)
Treasury Wine Estates is a great example of a company leveraging the premium status of its brand portfolio to generate strong results in China. TWE remains our key pick in the sector due to the strong earnings visibility and long runway of earnings growth its growing Luxury inventory balance affords. While the stock has performed strongly, we believe it remains attractively priced.
Click here to see our latest research on Treasury Wine Estates.
Dominant supermarket operator in Australia with defensive characteristics, an experienced management team and a healthy balance sheet. We view WOW as a core holding in a long-term diversified portfolio. Company.
Click here to see our latest research on Woolworths.
Woodside Petroleum (WPL)
WPL boasts the largest and most sustainable dividend profile in our oil & gas coverage universe (sustainable yield +5% fully franked). It also has the strongest balance sheet amongst its large-cap peers, in a solid position to support new growth while maintaining yield.
Click here to see our latest research on Woodside Petroleum.
Oil Search (OSH)
We like OSH for its robust profitability and its interests in globally competitive LNG operations. The PNG political risk has moderated with the government confirming it would honour the existing Papua Gas Agreement (while a discount for the recent government changes is still evident in OSH's share price). We expect OSH and its partners to also secure the P'nyang gas agreement, which would remove the final hurdle preventing the PNG expansion projects moving into FEED.
Click here to see our latest research on Oil Search.
Westpac Banking Corp (WBC)
WBC is our preferred major bank. It has a relatively low risk profile regarding loan book positioning and low reliance on treasury and markets income. WBC reported a CET1 capital ratio of 10.6%, above APRA's 'unquestionably strong' benchmark. Strong capital position and sound asset quality support dividend.
Click here to see our latest research on Westpac Banking Corp.
Sonic Healthcare (SHL)
Defensive earnings, with growing underlying momentum and a fairly benign regulatory backdrop. Strong B/S capacity (cA$1bn headroom) fuelling a pipeline of future acquisitions/JVs. Undemanding valuation (YE20 20x) and an attractive 3.1% yield.
Click here to see our latest research on Sonic Healthcare.
Sydney Airport (SYD)
We consider SYD to be a high quality, well managed infrastructure asset, with defensive attributes, a solid distribution yield, a strong balance sheet, and exposure to the international travel thematic. The final report by the Productivity Commission on airport regulation was benign, if not partly positive, for SYD (should assist price negotiations with airlines). Look for monthly pax releases to track passenger volumes, with international pax particularly important for earnings. SYD's investor day is on 6 December.
Click here to see our latest research on Sydney Airport.
APA Group (APA)
We view APA as best-of-breed among the ASX-listed energy infrastructure stocks. Based on FY20 DPS guidance and the current share price, forward cash yield is mid-4% plus ~35% franking. We believe APA is capable of growing the DPS by ~5% pa CAGR across FY20-FY24F, even with the ramp-up in tax paid. Next key event is the investor day on 21 November.
Click here to see our latest research on APA Group.
Morgans clients can access the detailed Australian Strategy Morgans best ideas research report which also includes our small & mid cap best ideas. If you would like more information, please contact your adviser or nearest Morgans office.
Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.
Disclosure of interest: Morgans may from time to time hold an interest in any security referred to in this report and may, as principal or agent, sell such interests. Morgans may previously have acted as manager or co-manager of a public offering of any such securities. Morgans affiliates may provide or have provided banking services or corporate finance to the companies referred to in the report. The knowledge of affiliates concerning such services may not be reflected in this report. Morgans advises that it may earn brokerage, commissions, fees or other benefits and advantages, direct or indirect, in connection with the making of a recommendation or a dealing by a client in these securities. Some or all of Morgans Authorised Representatives may be remunerated wholly or partly by way of commission.