3 ASX sectors with stocks that have growth at a reasonable price
Australia equity sectors with growth at a reasonable price: healthcare, industrials, utilities (Siwat Nakmai)
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Macrobond Financial
The RBA and other central banks are grappling with an inflation-growth dilemma. Uncertainty around if inflation has peaked, or if the proverbial sledgehammer of higher rates needs to be used further makes it a challenging time to find diversification with Duration.
Vigilant investors might consider a GARP (Growth at a Reasonable Price) strategy that seeks stocks with high growth but low valuations as a part of their asset allocation. Such stocks tend to offer desirable diversification as this method delivers the balance between growth stocks and value stocks.
Consider the chart above, where we compare forward-looking earnings growth expectations from brokers in the second 12 months vs the next 12 months (STM v NTM). On P/E valuations, a 10-year time window is chosen instead of a 5-year time window to smooth out some exceptional Covid effects. Healthcare, industrials and utilities appear to be comparatively more attractive than the ASX 300. On the contrary, non-energy materials looks to be expensive compared to expected growth expectations.
What’s more, for the US as seen in the chart above, unlike Australia, the telecommunications sector is more appealing than the broad US equity market (Russell 3000). On the other hand, consumer cyclicals and business services have lower potential growth and are overvalued.
Therefore, by applying the GARP strategy, we can identify some attractive equity sectors in Australia—while also comparing them to the US—that offer high growth prospects at reasonable prices, and avoiding those that have low growth expectations but are overpriced.
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Macrobond Financial
Macrobond delivers the world’s most extensive macroeconomic & financial data alongside the tools and technologies to quickly analyse, visualise and share insights – from a single integrated platform. Our application is a single source of truth for...
Expertise
Macrobond Financial
Macrobond delivers the world’s most extensive macroeconomic & financial data alongside the tools and technologies to quickly analyse, visualise and share insights – from a single integrated platform. Our application is a single source of truth for...
Expertise
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