Rudi’s View: Top Picks & Conviction Buys

Rudi's View | 3:37 PM

Top calls and sector favourites from strategists and analysts for when better times arrive for Australian equities.

By Rudi Filapek-Vandyck, Editor

With global equities dominated by the war in Iran and its impact on energy prices, a strong relief rally could well be triggered by any sign of cease-fire or negotiations taking place.

You can pick your preferred alternative too: the Iranian regime crumbles, an international alliance secures the safety of the Strait of Hormuz, Iran runs out of missiles, et cetera.

In case such a relief rally eventuates, Macquarie strategists' favourite strategy is to own stocks that have fallen by at least -10% since the dropping of the first bombs, but that should have been supported by upgrades to forecasts coming out of the February results season.

Among ASX100 companies, these characteristics belong to:

• Sandfire Resources ((SFR))
• ALS Ltd ((ALQ))
• James Hardie ((JHX))
• Hub24 ((HUB))
• Downer Edi ((DOW))
• Brambles ((BXB))
• Qantas Airways ((QAN))
• Charter Hall ((CHC))

Macquarie strategists do also warn the sudden change in energy pricing dynamics is already changing the context for central bank policies with rate hikes rather than rate cuts becoming more likely.

See also the RBA's two recent meetings locally.

The strategy team at Macquarie has been among the more hawkish when it comes to central bank policies, on my observation.

Further out, such a change in general context will redirect money flows into defensives, Macquarie reminds.

Defensives that came out of February supported by positive momentum and EPS forecasts, include:

• Woolworths Group ((WOW))
• a2 Milk ((A2M))
• Ramsay Health Care ((RHC))
• Telstra ((TLS))
• Aurizon Holdings ((AZJ))

Another reminder from the same team: Value and Resources tend to outperform after rate hikes, but by less than they do before hikes. Gold, Utilities, Infrastructure & Energy often outperform after hikes start.

Technology is the number one underperformer.

Elsewhere, analysts at UBS have reminded investors if/when oil prices are now to remain above US$100/bbl there's only one sector on the exchange that should see an increase in forecasts and sentiment, and that is the energy sector.

Sectors that should see no direct impact are Commercial Services & Supplies, Insurance, Media, Pharma, Real Estate, Software & Services, and Utilities.

Conviction Calls and Best Buys

Morgan Stanley's global strategy preference is to remain overweighted US equities, with emphasis on Quality, large caps over small caps, and cyclicals over defensives.

Fed policy (no hikes), corporate and consumer tax breaks (OBBBA), fading headwinds from tariffs, and more deregulation are all still seen supporting an acceleration in economic momentum for the US economy this year.

Morgan Stanley is equally expecting the first clear signs of AI productivity improvement to emanate from the corporate results season in May.

While 'AI Bubble' talk is keeping a lid on valuations, Big Tech could still have another good year in store, Morgan Stanley predicts.

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Strategists at T Rowe Price has move modestly Overweight Australian equities on the belief that earnings momentum is improving.

They do acknowledge the price of oil is a risk.

Their allocation to US equities is Underweight as valuations continue to be assessed as 'stretched' in combination with risks around AI and inflation.