Buying opportunities rare, firm says
There are buying opportunities for investors after the downturn on the New Zealand sharemarket, but they are rare and could be short-lived, research firm Morningstar Equities says.
A New Zealand sharemarket report the firm released today said the local bourse had been "stretched" after a spate of stock gains in April and May.
Investment opportunities had emerged after the pull-back in share prices in the past month, following a similar global market response to the United States Federal Reserve winding back of its stimulus programme.
Morningstar senior equities analyst Nachi Moghe said the New Zealand market was gaining "as we speak".
"Bargains will evaporate if the sharemarket goes up," Moghe said.
The NZX 50 was up 0.7 per cent early this afternoon to 4449.613 after two days of gains.
"Value remains difficult to find in New Zealand, but there are now a few more opportunities to invest following the pull-back in share prices, along with the global market, since late May," the report said.
Morningstar said there were investment opportunities in the electricity and telecommunication sectors, while building materials stocks remained expensive.
"Stock selection remains the key," it said.
The equities researcher recommended buying infrastructure owner Chorus and electricity generator and retailer TrustPower.
TrustPower stocks had fallen sharply, putting it in the "buy zone", Moghe said.
The power company's expansion into the Australian market made it an attractive investment, he said.
Morningstar recommended selling stocks in retailers Warehouse Group and Michael Hill in its March outlook.
Since then, the shares of both companies were trading lower. Warehouse shares were trading at $3.55 this afternoon and Michael Hill at $1.31.
"The fully valued market means a cautious approach is warranted. Stock selection is more crucial than ever," the report said.
The report said Ryman Healthcare stocks were "significantly overvalued", and Fisher & Paykel and Ebos shares appeared to be "modestly overpriced".
However, the longer-term prospects for the healthcare sector were bright as expenditure on healthcare was expected to "far outpace" gross domestic product growth during the longer term because of an ageing population, the report said.
Consumer stocks had pulled back sharply, but the fundamentals were good, given the economic backdrop in the form of a buoyant housing market and the Canterbury rebuild, Morningstar said.
The report advocated investment in "economic moat companies" - ones that had a strong competitive advantage, such as a monopoly or good brand.
Such New Zealand companies included Auckland International Airport, Port of Tauranga and Trade Me, Moghe said.
At the right price, economic moat companies were more likely to generate healthy investor returns, the report said.
- © Fairfax NZ News