The overnight surge in Apple Inc.'s share price made the tech giant the first to hit the US$1 trillion market cap mark and has fired up our tech sector but the real action this reporting season could be outside IT.
Nonetheless, the excitement on the NASDAQ helped lift the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index by 0.1% this morning with our local tech stars Appen Ltd (ASX: APX), Xero Limited (ASX: XRO) and WiseTech Global Ltd (ASX: WTC) leading the charge forward – just don't expect them to help take the top 200 stock benchmark to fresh 10-year highs.
Our market is likely to stay rangebound as investors sit on their hands to await the opening of the reporting season floodgates. The vast majority of companies will only unveil their profit results in the second half of this month.
This will give investors time to chew on Morgan's latest conviction buy calls for the reporting season with the broker adding three new stocks to its "must-buy" list – and none of them in the IT sector.
The first is copper miner OZ Minerals Limited (ASX: OZL), which could seem to be a contrarian call given the sharp fall in the price of the red metal over the past few days on fears of the escalating trade tension between China and the US.
It's base metals (like copper) that will be hit harder than the bulks (like iron ore) in any trade war but that shouldn't take the shine off OZ Minerals.
"OZL enjoys robust cashflows from an established production base in copper, which has among the best outlooks in the commodities suite, driven by electrification of the developing world," said Morgans.
"OZL's counter-cyclical growth strategy will be rewarded as the Carrapateena development project is gradually de-risked in the coming 1-2 years, and could justify valuations closer to $12.50ps [per share] upon successful commissioning."
The second stock the broker is recommending is overseas toll-road operator Atlas Arteria Group (ASX: ALX). This is despite the fact that infrastructure stocks, including Transurban Group (ASX: TCL) and Sydney Airport Holdings Pty Ltd (ASX: SYD), have been struggling due to rising global bond yields, which makes the sector look less appealing.
But Morgans believes the stock is cheap and the expected growth in Atlas Arteria's dividend distributions over the next few years will more than offset the higher bond yields. Its distributions will be further bolstered by good cost control, a big drop in debt servicing and legislated tax cuts.
The third stock on the list is Volpara Health Technologies Ltd (ASX: VHT), which is working on a better way to detect breast cancer early.
"Volpara's market share of breast screening in the US is currently 3.7% with a pathway to grow to 9% in FY19," said the broker.
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