Those with an ongoing love affair with high-yielding stocks may be nursing a broken heart in the near future, according to Deutsche Bank, which is recommending investors have no exposure to sectors that have traditionally been a hunting ground for income investors.
These sectors are telecommunications, infrastructure and regulated utilities.
Instead, the best way to add some Christmas cheer to your portfolio is to target out-of-favour stocks such as the beaten down retail-related companies, said the broker.
This may sound counterintuitive given the threat posed by Amazon and weak consumer sentiment that is largely driven by weak wage growth.
But that doesn't bother Deutsche as it sees a tactical opportunity in buying consumer stocks now.
There are two reasons for this.
The first is that these stocks are already out of favour and that means a lot of bad news is already priced in. On the broker's scorecard, these stocks are the most unpopular parts of the market.
Secondly, households are asset rich even though they are income poor. This is thanks to buoyant property prices (even though that seems to be coming off the boil) and the strong share market.
Home values are generally correlated to discretionary spending and that may encourage consumers to step up their spending during the all-important Christmas period.
The stocks in the sector that Deutsche is urging investors to buy include electronics chain JB Hi-Fi Limited (ASX: JBH) and mall operator Scentre Group (ASX: SCG).
The broker also likes supermarket chain Woolworths Limited (ASX: WOW) and furniture and electronics retailer Harvey Norman Holdings Limited (ASX: HVN).
Outside of retail, Deutsche favours miners thanks to continued strong growth in Asia. There is nothing to indicate an economic downturn in China or the region and miners are in a cum-upgrade cycle as spot commodity prices are significantly above analysts' longer-term forecasts.
"China's nominal growth indicators are still firm, and neutral monetary conditions should prevent much of a fall in commodity prices," said Deutsche.
The broker likes BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO), but has removed South32 Ltd (ASX: S32) from its recommended portfolio.
On the flipside, the broker has moved banks to "neutral" from "overweight" as it believes revenue will come under pressure due to slowing credit growth and as the earnings uplift from the re-pricing of loans and mortgages has largely passed.
Quite ironically, another reason Deutsche is turning cautious on the banks is because fellow brokers are largely recommending these stocks as a "buy". History has shown that investors should be wary whenever there is growing bullish consensus on the sector.
The broker has dropped Commonwealth Bank of Australia (ASX: CBA) from its portfolio in favour of National Australia Bank Ltd. (ASX: NAB).
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