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Top Aussie stocks in infrastructure, education and agriculture

Glenn Freeman  |  08 Sep 2016Text size  Decrease  Increase  |  

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The infrastructure, education, mining and construction, and agricultural sectors are among Australian equity investors' top picks at the moment, according to David Wilson, head of research, Australian equities, at Colonial First State.

Wilson believes domestic stocks are often taken for granted because Australian companies "are liquid and they are well governed".

"But perhaps most importantly, they offer an abundance of long-term growth opportunities, which is particularly important in the environment of low interest rates and as investors move into retirement phase," he says.

He believes mining and construction has proven remarkably resilient in the face of falling ore prices as a result of slackening demand.

"The profile of these companies are remaining in place ... and we're actually seeing an acceleration in the housing construction cycle. That has been able to take up the slack from what we've seen with the maturation of the mining and construction cycle," Wilson says.

Where will the next wave of investment come from?

Particularly in New South Wales, he believes infrastructure spending will continue to be a focal point for government spending and investment. On this front, Boral (ASX: BLD) is one company he highlights as a strong stock pick.

"The infrastructure sector is an area where you are seeing activity come through, and not just in New South Wales but in Victoria, Queensland, Western Australia and South Australia," Wilson says.

"We're seeing a broadening of that infrastructure spend, which is going to make the sector worth thinking about in stock selection going forward."

He regards education very highly too, largely as a result of the popularity of Australian academic institutions among Chinese students.

"Agriculture is also very much a sector that has been taken for granted, and like education, is a beneficiary of the lower Australian dollar," Wilson says.

He points to the agriculture categories of grain, meat and wool, where companies like Qube (ASX: QUB) and Graincorp (ASX: GNC) continue to outperform.

"But perhaps the most important sector is tourism ... we're seeing the casino stocks investing over $2 to $3 billion over the next few years."

Other companies he names as of interest to retail investors are Transurban (ASX: TCL), Adelaide Brighton (ASX: ABC), Qantas (ASX: QAN), Star Entertainment Group (ASX: SGR) and Fortescue Metals (ASX: FMG).

Wilson also refers to Insurance Australia Group (ASX: IAG), Macquarie Group (ASX: MQG), and Goodman Group (ASX: GMG).

Aussies abroad

Beyond domestic performance, many Australian-domiciled countries are successfully expanding into international markets.

"Here in Australia we've had companies doing incredibly well in terms of expanding internationally," Wilson says.

"There's a myth that Australian investors just want dividends returned, that we don't want companies to invest, to expand. But we actively encourage companies to undertake those expansions."

"Australia has also been able to create global leaders ... there's a vitality here, with a series of companies that have done incredibly well."

He refers to James Hardie (ASX: JHX), CSL (ASX: CSL), Aristocrat (ASX: ALL) and Brambles (ASX: BXB) as examples of local companies now competing as leaders on the global stage.

Although Australia's banks lowered their growth expectations in the latest round of financial results, Wilson remains upbeat about their prospects for investors, in continuing to offer returns substantially higher than their US and UK equivalents.

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Glenn Freeman is Morningstar's senior editor.

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