The Reserve Bank followed the script written by banking chief economists and the media and lowered the official cash rate for the first time in 33 months to an historic low of 1.25% after a 25 basis points or a quarter of a percent cut.
Two of the major banks passed on the interest rate cut in full to their borrowers, while the others passed on most of the cut. This should encourage consumers to spend and in due course businesses to invest and hire more, which will help economic growth and then improve the bottom line of many businesses, including those on the Australian stock market.
An additional oomph from this rate cut should be a lowering of the Oz dollar and that not only helps our exporters sell more, but it makes the exports of other countries dearer compared to local rivals. As a consequence, the Gold Coast as a holiday destination becomes more attractive compared to Hawaii, which can bring more tourists here and reduces the number of intrepid Aussies who head overseas for their annual holidays.
That’s the plan of the RBA in a nutshell, so let’s try and work out those companies that are likely to benefit.
One company that has had a great reputation but has had some bad news recently is Costa Group (CGC), which led to the market clobbering the stock. It’s a big exporter to China of fruit and so the expected lower dollar should prove to be a help to this company that encountered pesky developments like fruit fly infestations with its crops.
FNArena’s analysis of expert market watchers says the stock, which is now at $3.69, has a potential target price of $4.66, which suggests a whopping 26% upside.
You’d have to think even if the experts are only a quarter right that would be a 7% gain. And remember, this has been a very good company in the past.
A stock that could easily benefit from a lower dollar and a tourism spike is Qantas (QAN). The analysts here see an 8.8% upside based on a target share price of $5.912 against a current price of $5.43. That said, investing in airlines and insurance companies can be a risky business and even the ex-CEO of Virgin Australia, John Borghetti, made that revelation to me some years ago when his operations were stymied by a rogue volcano in Indonesia!
One stock that is out of favour with many, including investors worried about climate change, is Whitehaven Coal (WHC). Over time, a company like this will be outcompeted by renewables businesses but that time is still a way off. The analysts look at today’s price of $3.84 and see that it has the potential to surge 32.5% if what they expect comes to pass. One important milestone would be that Donald Trump avoids a global trade war with China, Mexico and possibly Europe, which again is an issue that really looks like a gamble on a very unpredictable guy!
On that subject of Donald Trump not creating a global recession via his trade war, a company that would benefit from the more positive no trade war scenario would be South 32 (S32), which is in the business of many mining products. FNArena’s survey of analysts says it has a 21.3% upside from its current price of $3.22.
And if you like a tipple and you think Aussie wines are pretty damn good, then taking a punt on the maker of Grange, Wolf Blass, Wynns Coonawarra, Lindemans and many more — Treasury Wine Estates (TWE) — might be worth thinking about. A lower dollar and possibly US wine products put on a Chinese blacklist could be good for Aussie wines. And all of this Trump-trade fallout comes as analysts think the share price has 21.6% upside!
My final speculative play that could benefit from a lower dollar and a no trade war scenario is Bluescope Steel (BSL). The analysts think the current share price of $10.68 is way below their target of $14.31, suggesting there is a 34% gain ahead if the future works out as their market crystal balls are telling them.
On my Switzer TV program now on www.switzer.com.au and YouTube, both Paul Rickard and Aitken Investment Management’s Charlie Aitken told me that they quite like the look of BSL at current share prices.
Remember these are all speculative plays but they are quality companies that will stand the test of time. Some will give you quick returns but others might take time to deliver, but as long as you have a diversified portfolio and you don’t put all of your eggs in one basket, you could easily see some nice returns out of the stocks I’ve surveyed.
Good luck.
Prices and consensus broker targets as at 5 June 2019. Source: FNArena
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regard to your circumstances.
