Seven ASX stocks that could win from the RBA rate cut
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 a 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 Australian 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.
I’ve used consensus predictions provided by FN Arena to determine how much upside could be in each of the seven stocks listed below.
1. Costa Group (CGC:ASX)
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.
FN Arena’s analysis of expert market watchers suggests the stock, which is now at $3.64, has a potential target price of $4.66, which suggests a 28% upside.
2. Link Administration Holdings (LNK:ASX)
Another local company that has fallen foul of the market is Link Administration, which has had trouble with its adventurous play overseas in the UK in particular. The company puts some of the blame on the effects of Brexit and once again the consensus is for a 28% upside, if good news resurfaces to cancel out the bad vibes that have hurt the company’s share price recently.
Those two companies that could benefit from a lower dollar are speculator plays and so you should be willing to back these over a longer timeframe but they are quality companies. And as Warren Buffett has told us, it pays to be “fearful when others are greedy and be greedy when others are fearful!”
3. Qantas Airways (QAN:ASX)
A stock that could easily benefit from a lower dollar and a tourism spike is Qantas. The consensus of analysts predict 9.9% upside based on a target share price of $5.92 against a current price of $5.39. 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!
4. Whitehaven Coal (WHC:ASX)
One stock that is out of favour with many including investors worried about climate change is Whitehaven Coal. Over time a company like this will be outcompeted by renewables businesses but that time is still a way off. Market watchers for FN Arena look at today’s price of $5.02 and see that it has the potential to surge 32.2% if what they expect comes to pass.
One important milestone would be that US President 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!
5. South32 (S32:ASX)
On the subject of 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 South32, which is in the business of many mining products. Analysts forecast a 20.9% return from its current price of $3.91.
6. Treasury Wine Estates (TWE:ASX)
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 — 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 this Trump-trade fallout comes as analysts forecast the share price has 22.4% upside.
7. BluesScope Steel (BSL:ASX)
My final speculative play that could benefit from a lower dollar and a no trade war scenario is Bluescope Steel. Market watchers for FN Arena reckon the current share price of $10.59 is way below their target of $14.30, suggesting there is a 35.1% gain ahead if the future works out as their market crystal balls are telling them.
On my Switzer TV program and YouTube, both Switzer Super Report Co-Founder Paul Rickard and Aitken Investment Management’s CEO 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.