Prosperous new year: banks and miners among stock calls for 2021

Among the most favoured in stock recommendations for next year are banks, retailers and a string of mining stocks.

Stockbroker Morgans has refreshed its list of best stock ideas, contains no fewer than 48 ASX-listed names. Picture: AAP

To those who still haven’t got their heads around this whole concept of portfolio rotation that has gripped global equity markets, the easiest way to view it is this: everything that worked well up until mid-November is out of favour, for the time being, and everything that could not attract much interest and still had a lot of ground to make up from the losses suffered earlier in the year has now been ­elevated to most favoured investment status.

The previous dynamic is upside down, a turn of 180 degrees, everything nobody wanted to buy, they do now, you get the idea. Maybe I should’ve simply said: winners become laggards and laggards turn into winners.

It is against this background that brokers are making their calls for the year ahead.

Here’s a look at some of the major calls coming out of top research and broking houses for 2021.

Looking through you’ll find banks and beaten-up retailers are popular while key players in the resources sector make a reappearance on several lists.

Stockbroker Morgans has refreshed its list of best stock ideas, which led to the addition of Orica, Lovisa Holdings, Bega Cheese, GrainCorp, Inghams Group, Mainstream Group Holdings and Coronado Global Resources.

Morgans’ list contains no fewer than 48 ASX-listed names, so there definitely is no shortage of great ideas for investors, so goes the implication.

Inclusions vary from Coles, BHP and Westpac, to TPG Telecom, Magellan Financial, ResMed and NextDC.

In between we find Sydney Airport, Nufarm, Beach Energy, Jumbo Interactive, Zip Co and People Infrastructure, as well as APA Group, Aventus and Waypoint REIT. It’s pretty much a broad banquet to please all tastes and preferences.

Over at Wilsons, their “Focus List” has seen the removal of A2 Milk due to perceived elevated earnings risk, while Aventus has been added and exposure to Goodman has been scaled back.

Wilsons believes investors can play the recovery trade through REITs that own shopping malls and retail assets, but maybe not so much through owners specialised in offices.

Managers of the Model Portfolio at Macquarie have made a ­series of changes because they remain convinced 2021 will bring us higher bond yields on the back of recovering economies worldwide.

Among those that have been included in the Macquarie portfolio are Suncorp, Computershare and NIB. Exposures that have been added to include ANZ and Westpac.

Positions that have been reduced include James Hardie, Charter Hall, Spark Infrastructure, BHP, Fortescue Metals and Aristocrat Leisure. While among the stocks that have been sold out completely are GPT, GrainCorp and Evolution Mining.

Separately, market strategists at Morgans have updated their thoughts and prognostications for the year ahead and their view is that energy, agriculture, financials and gold stocks should provide investors with the best returns throughout 2021, alongside selected cyclicals and small-cap stocks.

I think we can summarise that view as: risk on (though the latest strategy update does predict a bumpy road ahead, so maybe best to keep this in mind).

Some of the hot favourites at Morgans include Aurizon, Orica, Nufarm, Santos and Ramelius ­Resources.

Analysts at Citi have applied a more rigorous filter to the theme, including, for example, historical relationships with rising bond yields and combining the information with input from the analysts who cover stocks from a fundamental point of view.

The exercise has generated 18 most preferred value stocks on the ASX, here they are in no particular order: Australian Pharmaceutical Industries, Myer, Metcash, Austal, Super Retail Group, NRW Holdings, Harvey Norman, Fortescue Metals, Downer EDI, Origin Energy, Accent Group, Nick Scali, Mount Gibson Iron, Beach Energy, Worley, Inghams, Asaleo Care and Sonic Healthcare.

Strategists at Morgan Stanley have their own summary for the change in market dynamics: investors should embrace cyclicality. In other words: buy companies that profit from an uptrend in economic growth.

Morgan Stanley’s Macro+ Focus List for Australian investors comprises 10 names: ANZ, Downer EDI, Qantas, QBE Insurance, REA Group, Scentre, Stockland, Santos, Super Retail Group and TPG Telecom.

Meanwhile the team of quant analysts at Morgan Stanley also updated their thoughts and ideas on value stocks, portfolio rotation and 2021:

● Ideas to play the steepening yield curve (rising bond yields at the further-away end): ANZ, NextDC, Scentre, Stockland, Santos and Viva Energy.

● Ideas to benefit from the unwinding from prior valuation discounts and negative market momentum (with a shorter-term focus): APA Group, Downer EDI, Insurance Australia Group, QBE Insurance and Westpac.

Rudi Filapek-Vandyck is the editor at stock research service fnarena.com