Financial planners should advise their clients to step away from big-name stocks and instead focus on small and mid-cap stocks to find value for money, research house and fund manager Lincoln Indicators says.
Lincoln has released a list of top stocks to watch, and says key sectors include healthcare, niche consumer discretionary areas such as retail, and certain pockets of the mining industry such as iron ore and copper producers.
Last year was a strong year which boosted confidence in domestic shares, meaning price has increased across the board and it is harder for investors to pick up stocks that offer strong returns.
“Investors entered last year a little bit wary of the market, but as confidence grew they automatically reached for safe investments and household names like BHP and CSL,” Lincoln CEO Elio D’Amato said.
D’Amato said the “low-hanging fruit” has been picked and it will be more of a challenege to identify opportunities in the smaller end of the market. There is still growth in the healthcare and banking sectors.
“We are expecting strong results in healthcare this reporting season, with many of the larger companies having operations overseas. The weaker Australian dollar coupled with improvements in the US and European economies, means we should see attractive dividends,” D’Amato said.
Other sectors where investors can look for value include niche consumer discretionary areas such as retail and pockets of the mining industry, in particular iron ore and copper producers, Lincoln predicted.
Lincoln Indicators’ top small and mid-cap stocks this reporting season are:
- Personal legal services firm Slater & Gordon, which has expanded into the UK. Although, as with any legal services business, the company is subject to litigation success.
- Dreamworld owner Ardent Leisure Group, which is expected to benefit from the $15 million Theme Park Capital campaign launched by the Queensland Government, particularly in the second half of the year. However, any downturn in the economy will reduce discretionary spending.
- Biotechnology company Sirtex Medical manufactures a radioactive treatment for liver cancer, which has potentially for growth as it currently represents less than 1% of the total addressable market. Recent depreciation in the Australian dollar will boost its earnings as the company generates majority of earnings from overseas, however weak European economic conditions may stagnate growth in the region.
- Specialty footwear retailer RCG Corporation, whose new brand acquisitions and store roll-outs will contribute immediately to sales. But should it lose its ability to innovate and grow the business, sales will drop.
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- Copper miner Sandfire Resources will benefit from strengthening copper prices, however, it is a young project with a limited track record.