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Top stocks to hold

Christine St Anne  |  10 Jun 2011Text size  Decrease  Increase  |  

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Christine St Anne is Morningstar's online funds and ETFs editor.


Investors should have a mix of defensive and cyclical stocks when building the core component of an equity portfolio, according to UBS Wealth Management head of investment strategy George Boubouras.

It's not surprising that Boubouras also favours blue-chip companies with a history of consistent returns.

AMP Limited (AMP), BHP Billiton (BHP), Commonwealth Bank of Australia (CBA), National Australia Bank (NAB) and Rio Tinto (RIO) are among his top stock picks.

"Investors have to be wary of not falling into a valuations trap. You want to invest in companies that have best-of-breed management with quality assets," Boubouras says.

Boubouras notes the Australian equity markets have a natural bias towards the resources and banking sectors. Therefore, investors should look to diversify into companies in other sectors in order to generate extra portfolio returns.

Stocks favoured by Boubouras include the Transurban Group (TCL), Westfield Group (WDC), Woodside Petroleum (WPL), Origin Energy (ORG) and Woolworths (WOW).

Industrial stock Transurban operates toll roads around Australia as well as in North America. The firm is involved in the operation of the Melbourne City Link and the Hills Motorway M2 toll roads in New South Wales. The group is also involved in developing and operating electronic toll systems.

Boubouras says the businesses operated by Transurban means it also has the characteristics of an infrastructure stock.

"What is an important thing to consider with a toll road is that its exposure is linked to the economic cycle. While consumers are sad at the moment and credit numbers are not that good, Australia is in full employment. You need to use the road to get to work," Boubouras says.

He also says that Transurban pays its dividend through operating cash.

"There is no financial engineering behind the company's dividend payments. Therefore, there is a high degree of certainty with its dividend payments," he says.

"Overall, it is a quality business with quality assets and quality cash flow. It's not surprising that the Canadian pension funds want to buy the stock."

Westfield continues to underperform its peers in the market. Boubouras, however, believes the company is well placed to benefit from the expected recovery in North America and the United Kingdom.

"Westfield has quality assets in both North America and the United Kingdom. It is well placed to benefit from the cyclical recovery in North America. Although it has underperformed its peers in this market, we believe there will be a re-rating in the sector," he says.