Morgans picks this S&P/ASX 200 stock as one of its first 2019 buys

Investors have lost their taste for this ASX large cap but this may be the perfect time to be buying this stock as a top broker initated coverage on the stock with a bullish rating.

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The Treasury Wine Estates Ltd (ASX: TWE) share price may be stuck near its 52-week low but Morgans doesn't think the weakness will persist as the broker made the stock one of its first buy recommendations of 2019.

The TWE share price slipped 3% yesterday to $14.40 when it traded as high as $19.85 in September last year, although its yearly performance is 3.5% above the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index which lost 5% of its value.

The big retreat in the wine producer's shares creates an opportunity, according to Morgans as it initiated coverage on the stock with an "add" recommendation and $17.20 price target due to the company's strong double-digit growth potential.

The good drink

"TWE is on track to deliver 25% EBIT [earnings before interest and tax] growth in FY19, in line with its four-year CAGR [compound annual growth rate]," said Morgans.

"We forecast strong double-digit earnings growth over the forecast period largely due to its Luxury and Masstige inventory profile."

The inventory on the company's balance sheet is a lead indicator of future sales, according to Morgans, who is also impressed by Treasury Wine's management track record.

It's also worth noting that the stock had recently come under pressure after a rival issued a profit warning although the pressure is coming from cheap wines and not the premium-end of the market where Treasury Wine focuses on.

If anything, the premium wine market in China appears to be holding up well despite slowing economic growth in the Asian economy.

Broad-based support

Treasury Wines is one of the world's largest wine producers and it owns a number of brands including the iconic Penfolds name.

"While TWE has over 70 brands in its portfolio, it focuses on a smaller group of priority (core) brands. It is also focused on expanding its country-of-origin offerings, one portfolio at a time. Its most profitable brand is Penfolds," said Morgans.

"TWE's strategy in recent years has been to move from an order-taking agricultural business to a brand-led organisation. It has put in place FMCG principles to wine. This has meant that TWE is less exposed to the wine cycle as it once was."

Seven out of 12 analysts covering the stock have a "buy" rating on Treasury Wines, according to consensus data from Reuters.

Treasury Wine isn't the only ASX-listed stock that is exposed Chinese consumers. The A2 Milk Company Ltd (ASX: A2M) share price and Bellamy's Australia Ltd (ASX: BAL) share price have also been heavily influenced by our most important trading partner.

Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Treasury Wine Estates Limited. The Motley Fool Australia owns shares of A2 Milk. 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.

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