It's now or never for rotating your share portfolio towards ASX value stocks and away from high-flying tech darlings, according to a leading broker.
The analysts at Macquarie Group Ltd (ASX: MQG) have upped their exposure to underperforming value stocks in their model portfolio.
The move comes at the expense of better performing growth stocks, particularly those that have performed well recently as their businesses benefitted from the COVID-19 pandemic.
Value stocks vs. growth stocks
The view echoes my recent call for the baton to be passed from growth stocks to value stocks. Value stocks are those trading on low multiples as their share prices have lagged the S&P/ASX 200 Index (Index:^AXJO) because their earnings have been hit by the COVID fallout.
But early indicators put equities at the "expansion" phase – the period following a US recession. Macquarie pointed out that ASX value shares always outperform in the first expansion year after a recession.
This isn't the only reason to buy value stocks.
Other reasons why value stocks can outperform
Those stocks sold off as they are at the wrong end of the pandemic will likely come roaring back when/if a vaccine is found.
Many of these value stocks are also exposed to economic cycles. As a treatment becomes available, economic activity will rebound strongly to the benefit of sthese laggards.
The broker also holds a bias towards domestic industrials (many of which are in the value camp) compared to offshore earners. This is because Macquarie is forecasting a stronger Australian dollar due to rising commodity prices.
"Our preferred cyclical indicator signals we have experienced the fastest Downturn and Recovery, with China now leading a shift to Expansion," said Macquarie.
"Stocks tend to rise in Expansions, with cyclicals and value outperforming."
Best ASX value stocks to buy
These are the reasons why the broker added seven ASX stocks to its model portfolio. These include the Westpac Banking Corp (ASX: WBC) share price and Australia and New Zealand Banking GrpLtd (ASX: ANZ) share price.
The remaining industrials are the BlueScope Steel Limited (ASX: BSL) share price, Seven Group Holdings Ltd (ASX: SVW) share price, Lendlease Group (ASX: LLC) share price, United Malt Group Ltd (ASX: UMG) share price and Ampol Ltd (ASX: ALD) share price.
The broker also increased its position in the Worley Ltd (ASX: WOR) share price, Crown Resorts Ltd (ASX: CWN) share price, GPT Group (ASX: GPT) share price and Sydney Airport Holdings Pty Ltd (ASX: SYD) share price.
On the flipside, some stocks that Macquarie dropped from the portfolio include the Wesfarmers Ltd (ASX: WES) share price and Amcor CDI (ASX: AMC) share price.
