Why Morgans thinks 2 of the ugliest ASX 200 blue-chip dogs of 2018 will make a comeback next year

Morgans picked these two controversial ASX blue-chip stocks to back for 2019 following the 10% crash in the ASX 200 since the end of the August reporting season.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Some of the worst performing blue-chip stocks are poised to make a comeback in 2019, according to Morgans.

Today's surprising bounce in the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index, which is up 0.3% during lunch time trade despite a more than 1% crash on Wall Street, is adding to confidence that beaten down stocks could find renewed favour with investors.

Morgans picked two controversial ASX blue-chip stocks to back for 2019 following the 10% crash in the ASX 200 since the end of the August reporting season.

Getting a Signal

The first is Telstra Corporation Ltd (ASX: TLS) even as our largest telco continues to struggle to find earnings growth.

Morgans thinks investors should buy this unwanted dog because two major headwinds that have been buffeting the stock will ease in 2019.

The first is the NBN with the federal Labor opposition party considering writing down the value of the national broadband network if they win the next election (which is looking increasingly likely).

"A lowering of the NBN asset value and last mile access costs seems inevitable and could open the door to resolving the NBN's challenges," said the broker.

"In our view the most practical way to reduce NBN Co's operating costs by one-third is to remove the A$1bn per annum they pay to Telstra."

Telstra could get an equity stake in the NBN in lieu of the annual fee, which is paid by NBN Co so it can use the telco's ducts for its fibre cables.

The other easing headwind is competition. The merger of TPG Telecom Ltd (ASX: TPM) and Vodafone Australia will take pricing pressure off the sector and I am already noticing that the discounts on pre-paid mobile plans aren't as good now as they were before the takeover news was announced.

The Telstra share price is up 0.7% to $3.06 in after lunch trade and Morgans has a price target of $3.50 on the stock.

Banking on a Revival

The second blue-chip in the red is Westpac Banking Corp (ASX: WBC). Our big banks have lost favour with the public and investors but Westpac's depressed share price is proving too hard to resist, in Morgan's opinion.

The broker doesn't believe the government (whoever that may be in 2019) will impose onerous new regulations on the sector.

It also doesn't think customer compensation and penalties will prevent the banks from meeting APRA's capital requirements for 2020 or lead to a cut in their dividends.

"While the major banks sector does not make for an exciting growth story, it does offer attractive dividend yields which we view as sustainable given comfortable capital positions and an environment of subdued credit growth," said the broker.

"We also expect the regulatory risk premium for the sector to unwind over the next year, providing support to share prices."

Morgans thinks Westpac is the most attractive bank stock from a valuation perspective and has a price target of $34.50 on the stock.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the 'five best ASX stocks' for investors to buy right now. We believe these stocks are trading at attractive prices and Scott thinks they could be great buys right now...

See The 5 Stocks *Returns as of 3 April 2025

Motley Fool contributor Brendon Lau owns shares of Telstra Limited, TPG Telecom Limited, and Westpac Banking. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool Australia has recommended TPG Telecom Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Share Market News

Focused man entrepreneur with glasses working, looking at laptop screen thinking about something intently while sitting in the office.
Share Gainers

Here are the top 10 ASX 200 shares today

Investors had a rough end to a tough week this Friday.

Read more »

A man working in the stock exchange.
Broker Notes

Brokers name 3 ASX shares to buy today

Here's why brokers are feeling bullish about these three shares this week.

Read more »

Ecstatic woman looking at her phone outside with her fist pumped.
Share Market News

Why Antipa, Imricor, Lynas, and Newmont shares are pushing higher today

These shares are ending the week on a high. But why?

Read more »

A woman with a sad face looks to be receiving bad news on her phone as she holds it in her hands and looks down at it.
Share Fallers

Why Flight Centre, Monash IVF, NextDC, and Woodside shares are sinking today

These shares are having a tough finish to the week. Let's see what is going on.

Read more »

A woman in a business suit holds a large gold bar in both hands with a gold arrow tracking upwards.
Gold

Gold price hits new all-time-high above US$3,200. Can it keep going?

Demand for precious metals could go higher from here.

Read more »

A businessman looking at his digital tablet or strategy planning in hotel conference lobby. He is happy at achieving financial goals.
Share Market News

Are you buying the dip? Here are the top 10 ASX shares Aussie investors are targeting

Data from trading platform Stake reveals the most popular ASX shares among investors buying the dip.

Read more »

seismograph with dollar sign
Share Market News

After hitting a five-year low, does the Australian dollar have further to fall as the trade war plays out?

The Australian dollar has been hit on multiple fronts. Where is it heading from here?

Read more »

Three miners stand together at a mine site studying documents with equipment in the background
Resources Shares

What does Macquarie think Fortescue shares are worth?

Is the iron ore giant about to turn a corner?

Read more »