For many years, the New Zealand Herald has asked the local sharebroking and wealth management firms to nominate five NZX companies they think will do well over the year ahead.
Smart investors will appreciate that any well-constructed portfolio will comprise more than five stocks and certainly wouldn’t be limited to a single asset class.
Regardless, the tradition is an interesting way to gain insights into what various organisations are expecting this year.
Below are the the five stocks our analysts and investment team have selected for 2024, and the rationale for these picks.
After finishing fourth in 2022, we came in second place last year with a return of 1.8 percent.
The local sharemarket was again a laggard as factors such as high inflation and rising interest rates put pressure on the economy and businesses. The NZX 50 finished up 2.6 percent after gaining 4.2 percent in the three months ended December, its best quarterly return in more than two years. This was a good outcome considering it was on track to decline for a third consecutive year.
We opted for a safety-first approach by targeting quality companies with solid earnings and predictable dividends. Our five picks and their calendar-year returns in 2023 were:
Four of our five companies performed well, with EBOS Group the only disappointment. It lost the Chemist Warehouse contract to a competitor that was willing to accept a lower price, and this saw the share price take a hit.
EBOS Group is still a great company and has delivered an average annual return of 18.5 percent over the past decade. This is more than double the average NZX 50 return of 9 percent per year.
To come out on top during a period as brief as 12 months, a short-term trading mindset is often needed. As long-term investors, this isn’t something we specialise in.
Investing in quality companies is a key tenet of our investment philosophy, across all regions.
For us, this means looking for businesses that are reliable with sustainable (and growing) earnings.
Our strategy of minimising volatility and limiting downside risk in difficult environments has historically delivered consistent and steady returns over time, rather than impressive short-term gains.
We have full confidence in our approach as a long-term generator of wealth, as evidenced by our track record over more than two decades.
Inflation is trending lower in most countries and many central banks have stopped tightening monetary policy. This has been favourable for financial markets in recent months, although caution is warranted when investing money in 2024.
A prolonged period of elevated costs and higher interest rates could continue to impact on economic activity and pressure corporate earnings this year.
Companies that are resilient in difficult environments and that benefit when interest rates move lower are well positioned, in our view. Quality businesses with competitive advantages, low debt levels and growth options should also fare well.
The format has changed this year with firms asked to choose three NZX companies, one ASX company and one global company.
Contact Energy provides an essential service, so customer demand will remain strong in the face of a weak economy. The company’s earnings and dividends are expected to grow, and its share price will be supported if there are cuts to the Official Cash Rate this year.
Summerset is a leading player in our retirement sector and its operational performance has been excellent. It too will benefit from an eventual move lower in interest rates, as well as a more stable housing market. New Zealand house prices have started to recover after declining 18% between November 2021 and May 2023.
Sky Network Television has been chosen for different reasons. The company is in a turnaround phase and is performing well under current management. We consider the stock is undervalued with dividend growth a key catalyst for the share price to move higher.
CSL Limited is the largest healthcare company in Australia and treats rare diseases with drugs derived from blood plasma. Last year, its share price was impacted by announcements related to weight-loss drugs such as Ozempic and Mounjaro. We think the sell-off was overdone and view CSL as a quality company with compelling growth prospects.
Amazon is a best-in-class company and one of the largest in the world. Its retail business continues to win market share and Amazon Web Services (AWS) will benefit from ongoing advancements in artificial intelligence.
Disclaimer – It’s a game
Readers should recognise that the results are skewed by some features of the game. The information in this article is of a general nature and not intended to be personalised financial advice. Pro Stock Picks is a revamp of the Herald’s Broker’s Picks game. The stock picking panel included Forsyth Barr, Craigs Investment Partners, Hamilton Hindin Greene, Nikko Asset Management and Salt Funds Management. The participants revealed their stock picks in January, ahead of the United States and domestic earnings seasons. We will revisit each firm’s picks mid-year and at the end of the year, to see how they performed.
The views expressed do not constitute personalised financial advice and are not directed at any person. Some shares picked may include shares held by the company’s directors and staff. Finally, past performance is no guarantee of future performance.
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