The second half of 2022 started with a positive note for the ASX 200 as well as the world equity markets. Even though the first half of the year was full of uncertainties and worries regarding higher inflation, higher interest rates, and an impending recession, the market rebounded strongly in the second half. The fear of a recession was probably a stretch of the imagination for the market.
Dispelling all fears, the ASX 200 is currently trading at a 10-weeks high, showing strength in the underlying market. ASX 200 has recovered by about 10% from its June low. ASX 200 closed at 6,433 on 20 June and rose to 7,114 on 19th Aug 2022. The index is up 6.4% up in August so far.
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Source: Yahoo Finance
The primary factors behind the strong market rebound in July and August are:
- The market has already priced in the prospect of an economic slowdown
- Corporate results for the second quarter are better than expected
- Commodity and oil prices are stabilizing after a sharp rise
- In July, the unemployment rate fell to 3.4%, which is the lowest unemployment rate in Australia since 1974
Given the strength in the macroeconomic fundamentals, we expect ASX 200 to keep-positive momentum in the coming months of 2022 as well as 2023. Long-term investors should stay invested in the market and keep looking for opportunities across sectors.
Here are our five stock recommendations for 2023:
1. ARB Corporation Limited (ASX: ARB)
Sector: Auto component
About the company
ARB Corporation is the largest producer and distributor of accessories for four-wheelers in Australia. The company has offices in the USA, Europe, and the Middle East. It exports to more than 100 countries across the world. ARB Corporation is known for its focus on reliability, quality, and practicality. The company makes a substantial investment in R&D every year to stay innovative and ahead of the competition.
The company has Computer Numerically Controlled (CNC) sheet fabrication facilities, which makes the company capable of laser cutting, brake pressing, guillotining, CNC bending, machining, and turning.
Stock Analysis
The last closing price of the stock was $32.95. Currently, the stock is trading at a PE ratio of 20.63. Its earnings per share are $1.570. The current market capitalization of the company is $2.69 billion. ARB Corporation has a dividend yield of 2.35%.
After correcting for more than 40% in the first half of the year, the stock has recovered more than 6% in the current month. The corrected valuation makes it a strong value buy for long-term investors. The stock has 9 buy and 3 hold recommendations by major brokerage houses.
The 4-wheeler market is expected to experience higher demand with economic recovery and growth. Also, there is a scope for expansion to the foreign market. Overall, it is a fundamentally strong stock to buy for the long run.
2. Ampol Limited (ASX: ALD)
Sector: Energy
About the company
Ampol Limited is involved in the purchase, refinement, distribution, and marketing of petroleum products in Australia and New Zealand. The company also operates convenience stores. Ampol has the largest branded petrol and convenience network in Australia.
The recent macroeconomic environment has created multiple windfall opportunities for the company – a higher price for oil and gas and a strong energy demand in post-pandemic economic recovery. According to Morgan Stanley, the company is expected to generate $500 million–$600 million of extra cash flow from refining in the next 18 months.
Stock Analysis
The last closing price of the stock was $34.14. The current market capitalization of the company is $8,135,633,660 and the EPS is $2.335. The stock is showing a great price momentum. In 2022, the stock has appreciated by 24.60%. In the current month, the stock has gone up by 5.50%.
The stock currently has 11 buys, 3 holds, and 1 sell recommendation by major brokerage houses. Morgan Stanley has a strong buy recommendation for the stock with a price target of $39.
3. GrainCorp (ASX: GNC)
Sector: Consumer Defensive
About the company
GrainCorp is in the business of processing, transporting, selling, and marketing agricultural commodities such as wheat, barley, and canola. The company sells its outputs primarily to producers, consumers, and traders of grain and oil.
GrainCorp is expected to experience a higher market price as well as demand for its output. The immediate main trigger behind this is the worldwide shortage caused by the Russia-Ukraine conflict. The company has got multiple earnings upgrades in recent times. In the investor day updates, the company reaffirmed its operating profit target of $590 million–$670 million in FY22.
Stock Analysis
The last closing price of the stock was $8.55. The current market capitalization of the company is $ $1,912,213,058 and the EPS is $1.458. In 2022, the stock has gone up by +41.09%.
Currently, the stock has 7 buy, 7 hold, and 1 sell recommendations by major brokerage houses. Brokerage firm Macquarie has given an outperform recommendation for the stock with a target price of $11.10. The broker is positive about the sustainability of GrainCorp’s momentum in FY23.
4. TELIX Pharmaceuticals Ltd (ASX: TLX)
Sector: Healthcare
About the company
Telix Pharmaceuticals is a leading biopharmaceutical company in Australia, focusing mainly on diagnostic and therapeutic products. The company develops its products using the using Molecularly Targeted Radiation (MTR) technology. Telix has operations in multiple countries including Belgium, Japan, Switzerland, and the United States. Currently, the company is in the development stage of a number of revolutionary products that can be used in oncology and rare diseases.
Telix reported of $24 million in the second quarter, an increase of 726%. The company also reported a total $122.6 million of cash in hand. A cash reserve can boost the R&D projects of the company.
Stock Analysis
The last closing price of the stock was $6.33. Current market capitalization of Telix is $1,980,760,439. After correcting by more than 50% in the first half of the year, the stock has rebounded sharply.
The stock price has almost doubled from its May low of $3.55. The commercial launch of Illuccix has given a major boost to the stock. The company has reported total global sales of Illuccix at $22.5 million In the second quarter. Currently the stick has 10 buy and 1 hold recommendations by major brokerage houses.
5. Technology One Ltd. (ASX: TNE)
Sector: Technology
About the company
Technology One is a major IT company in the ASX, which is involved in developing in integrated enterprise business software solutions worldwide. The SaaS ERP solutions of the company transforms business and makes their business processes more efficient. It is one of the Australia's top 150 ASX-listed companies.
The company has string fundamentals in terms of clients, business processes and management. The trust of the management on the company is reflected in the fact that insiders are the constant buyers of the stock.
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Stock Analysis
The last closing price of the stock was $12.12. The company has a market capitalization of $3.929 billion. The stock is currently trading at a PE ratio of 50.62 and its current EPS is $0.24. It has steadily recovered from its mid-May low of $9.61. TNE has appreciated by 24.62% in the last one year and 4.02% in the last one month.
TNE is one of the most fundamentally strong companies which have constantly delivered high returns for its stakeholders. The stock has gone up around 130% in the last 5 years. Considering the high dividend, the stock has delivered Total Shareholders Return (TSR) of 149%. The compound growth of its earnings per share in the last 5 years has been around 12%. The company has delivered an excellent earnings growth of an average 17% in the last 5 years.
Currently TNE has 8 buy, 5 hold and 1 sell recommendations by leading brokerage houses.
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