ASX stocks are likely to finish 2020 with a bang but this isn't the time to get complacent as ASX outperformers in 2021 may not be the ones you're expecting.
The broker's analysts have done a sector "reset" as they try to pick the best ASX stocks and strategies for the new year.
The supercharged November market rally has positioned the S&P/ASX 200 Index (Index:^AXJO) to finish the year at breakeven.
That's a good outcome given the nail-biting COVID‐19 market crash.
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Bumpy road to recovery
While we have good reason to feel optimistic about 2021, just remember that economists, including the Reserve Bank of Australia (RBA), aren't expecting the economy to return to pre-COVID levels till some time in 2022.
For this reason, Morgans is warning investors to expect a bumpy ride ahead, which makes indiscriminate buying a dangerous proposition.
Some of the sectors that the broker believes have the best upside in 2021 and its reasons are listed below.
ASX telco stocks
Sentiment has turned the corner now that the NBN is practically complete, helping to settle down customer migration. Telcos also see an improving outlook in mobile as competitive activity becomes more rational.
Stocks the broker favours are the TPG Telecom Ltd (ASX: TPG) share price and Nextdc Ltd (ASX: NXT) share price.
ASX banks
The banks recent financial performance has largely vindicated our view that the bad debt damage being factored into share prices was generally overdone.
Strong capital positions and generally improving asset quality outlook is now supportive of the dividend outlook, helping to fuel the strong rotation back into the segment now underway.
The key pick in this space is the Westpac Banking Corp (ASX: WBC) share price.
ASX Agriculture stocks
Following years of drought, improved seasonal conditions have provided much needed tailwinds for the sector and presented the opportunity for positive earnings operating leverage to return.
Some stocks that Morgans likes include the Graincorp Ltd (ASX: GNC) share price, Bega Cheese Ltd (ASX: BGA) share price and Nufarm Ltd (ASX: NUF) share price.
ASX Energy stocks
Our conviction in a sustainable oil market recovery is growing helped by vaccine progress (global growth, demand recovery), declining inventories, US shale issues and a weakening US dollar. This paints a bullish 1-2 year outlook.
Examples of key picks in this space are the Santos Ltd (ASX: STO) share price and Beach Energy Ltd (ASX: BPT) share price.
ASX mining stocks
Strong iron ore prices support compelling yields in BHP and RIO. Gold stocks now look more interesting on weakness given our view that risk appetite is likely to be highly variable through a bumpier than expected COVID recovery.
Besides the BHP Group Ltd (ASX: BHP) share price and Rio Tinto Limited (ASX: RIO) share price, Morgan's also likes the Ramelius Resources Limited (ASX: RMS) share price, the Coronado Global Resources Inc (ASX: CRN) share price and Regis Resources Limited (ASX: RRL) share price.
