It takes a brave investor to be buying in this market but buying undervalued quality blue-chip ASX shares have always paid off for patient investors wiling to overlook the volatility.
You might feel like the lone optimist when the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) is set to open weaker again after the index shed 8% over 2018 but this isn't the time to be capitulating to the bears.
The economic data isn't as dire as what the equity market is suggesting and there's ASX stock that looks set for a brighter 2019.
Turning a corner
This is Origin Energy Ltd (ASX: ORG) and Morgans has upgraded the stock to "add" from "hold" to account for the stock's improved prospects over the next 12-months.
The integrated power company announced the resumption of its dividend payouts this month of 20 cents per share for FY19 and management's decision signals that Origin Energy is nearing its debt reduction target to drive gearing down to 2.5-3 times adjusted net debt-over-earnings before interest, tax, depreciation and amortisation.
The regulatory risks are also abating as the minority federal Liberal government is unlikely to be able to implement draconian rules that can force the spilt of large energy providers and retailers.
This issue has been a key driver behind the underperformance of the Origin Energy share price and AGL Energy Limited (ASX: AGL) share price, which have fallen by more than 20% each over the year.
Risk worth the reward
But you can't totally write off this risk just yet, although Morgans thinks this shouldn't put investors off buying the ORG share price.
"Both sides of politics wish to pursue capped default retail pricing and Labor's National Energy Guarantee would likely bring down wholesale prices," said the broker.
"ORG holds a smaller sized generation fleet than AGL though and is a net buyer of electricity from the wholesale market, so will be less affected by falling wholesale prices."
"ORG's generation fleet is also weighted towards peaking capacity, which is likely to face less pricing pressure from increased penetration of renewable energy sources."
There is also the risk posed by the volatile oil price on Origin's shares through its 37.5% interest in the Asia Pacific LNG (APLNG) joint venture.
"Our forecasts assume the spot oil price will rise to the Morgans house view of long-term Brent prices averaging USD $70/bbl," said Morgans.
"Additionally, ORG has limited downside exposure for FY19 once the price falls below US$60/bbl for a sustained period as it has purchased put contracts. Oil price volatility will likely be a persistent feature for the stock, which could present opportunities for the more confident investor."
Morgans hits the nail on the head with that last statement. Confidence is something that is in short supply at the moment, although Warren Buffett's teaching about being "greedy when others are fearful" could prove instructive.
