Don't be put off by the losses on the market. The weakness is unlikely to last as shares continue to represent one of the best places to invest in 2020.
This means that investors should be looking to buy the dips and S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index is certainly under pressure as it fell 0.8% in after lunch trade.
Buy the dip
Just about all sectors except for technology is in the red. Investors are fretting that the Reserve Bank of Australia might not cut rates as soon as expected following the better than expected jobs data.
The market is also nervously watching for a potential coronavirus outbreak and more profit downgrades ahead of the February reporting season.
Broker's top picks
If shares fall further (and they well could given that global indices are trading at or near record highs), that could be a signal to buy these ASX large caps, which are on Morgan's best buy list!
- Telstra Corporation Ltd (ASX: TLS): The outlook for our largest telco is bright regardless of the TPG Telecom Ltd (ASX: TPG) and Vodafone merger outcome, according to the broker. If Telstra's rivals merge, it will create a more rational market. If they don't TPG won't have the ability to build a competing mobile network – at least for a while.
- Treasury Wine Estates Ltd (ASX: TWE): Morgans like the stock for its strong earnings visibility and long runway of earnings growth. The stock may have outperformed but its still cheap in the broker's eyes.
- Woodside Petroleum Limited (ASX: WPL): The energy producer has the largest and most sustainable dividends among stocks that Morgans covers in the sector. The stock's fully frank yield stands at around 5%.
- Westpac Banking Corp (ASX: WBC): The stock is the broker's top pick among the big four banks. It has a relatively low risk profile regarding loan book positioning and low reliance on treasury and markets income.
- Sonic Healthcare Limited (ASX: SHL): Its hard to look past the medical facilities operator for defensive earnings. The broker also noted Sonic's growing underlying momentum and a fairly benign regulatory backdrop.
- Transurban Group (ASX: TCL): The toll road operator provides exposure to both the local and North American market. Morgans points out its high EBITDA margin that's close to 80%, low sustaining capex requirements and long average concession life as reasons to buy the stock.
- Aurizon Holdings Ltd (ASX: AZJ): The rail operator's earnings are predictable given the contracted and regulated nature of its income. While earnings growth is limited, the broker likes its asset value, cash generation, low earnings correlation to the domestic economy, ~5% cash dividend yield (70% franked), and ongoing buyback.
- APA Group (ASX: APA): Morgans calls the gas pipeline company "best-of-breed" among its peers. The broker thinks APA is capable of growing dividends by mid-single digit CAGR across FY20-FY24F, even with the ramp-up in tax paid. But the company may need to do a capital raising if it wants to enter the US market via an acquisition.
