There aren't many companies that are under some pressure from a challenged operating environment, but there are a handful with a pretty rosy outlook for the upcoming financial year.
The first is Sydney Airport Holdings Ltd (ASX: SYD) and it feels like nothing can stop it with the company reporting another month of solid passenger numbers flowing through its terminals thanks to a number of tailwinds.
The stock is up 2.9% at $5.25 in late morning trade after management said that total passenger numbers increased 1.6% to just over 3 million in the month of May compared with the same time last year.
The airport operator is firing on all engines with domestic and international passenger numbers showing good growth of 1.4% and 1.9%, respectively, for the period.
The growth momentum is expected to continue with a number of airlines increasing capacity or frequency of their flights into Australia's largest city.
Qantas Airways Limited (ASX: QAN) struck a deal with American Airlines which will see 33% more seats a year available on their Sydney to US mainland routes. Solomon Airlines will commence a new service between Honiara and Sydney, and China Southern and Etihad Airways will also be boosting their capacity.
Further, the free trade deal signed between Australia and China this week will see even more Chinese visitors from the relaxation of restrictions on visas.
Shares in Sydney Airport look expensive as they are trading on a lofty 2015-16 consensus price-earnings (P/E) multiple of 54x and a lackluster yield of 5% (it doesn't pay a franking credit), but I think that won't stop it from retesting last month's record high of $5.69 as investors are betting that the building of Sydney's second airport will mean a big earnings boost for the company as it has the first right of refusal.
But I don't think investors should be looking to buy the stock at these levels as Sydney Airport appears priced for perfection.
Rising bond yields from rising US interest rates will be a negative for Sydney Airport and the earnings upside from the proposed second airport is still many years away.
As I mentioned before, if you are looking for better value stocks that are leveraged to the tourism and the China-Australia FTA, you should look at leisure facilities operator Ardent Leisure Group (ASX: AAD) and hotel operator Mantra Group Ltd (ASX: MTR).
But there are also other stocks that will benefit from the Chinese trade agreement that the market is generally ignoring.
The removal of tariffs on a number of Australian agricultural products will benefit cattle producer Australian Agricultural Company Ltd (ASX: AAC) even as its stock is wallowing around nine-month lows of $1.33. I think the stock is starting to look attractive around these levels.
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