Morningstar analysts say the New Zealand sharemarket, which rose 24% last year, has reached “fall value” and offers few bargains for investors.
The one exception is Chorus, which was the second worst performer among NZX 50 stocks last year with a gain of just 1%.
Chorus shares plummeted 14% after the Commerce Commission issued a draft opinion that would slash copper wire broadband rates, substantially cut profits and reduce ultra-fast broadband takeup.
Morningstar warns Investors that “regulatory changes create a high uncertainty environment” but adds that as the methodology of the decision is suspect, not to mention Prime Minister John Key’s concerns, that a better outcome for Chorus is likely.
Morningstar concludes that New Zealand’s best performing yield stocks – Telecom, SkyCity, The Warehouse and F&P Healthcare – are worthy of retention in diversified portfolios.
Looking at sectors, Morningstar says telecommunications is the cheapest while healthcare and consumer stocks are the most expensive.
In healthcare, it says Ryman is expected to double its profit in the next five years, F&P Healthcare will have double-digit growth in the medium term, and Ebos has the ability to survive the “whims and fancies” of the district health boards and funding agencies.
In the consumer services sector, Morningstar’s pick is SkyCity, which is ‘bucking the trend [of static consumer spending] by winning market share from pubs and clubs.”
Another pick is Nuplex, which is expected to deliver growth over the longer term in Asia, Europe and the Americas, through capacity expansion and productive innovation.
However, the short-term outlook is less predicatble and could mean a stagnant share price in 2013 due to its dependence on the manufacturing and construction end markets.
Among Morningstar’s least preferred stocks are Briscoe, Fletcher Building, Ryman and Trade Me, all of which it considers excellent companies but that they are fully or over-valued.