Air New Zealand, A2 Corporation and Contact Energy top the list of stock picks for 2014, according to sharebroking firm Forsyth Barr.
The key question for investors making decisions on buying shares next year should be whether a company can deliver earnings growth, Forsyth Barr says in a note to clients.
The firm outlined seven prevailing market conditions and picked seven stocks it reckoned would perform well next year.
Seven issues for investors
* The overall economic background is positive, but Forsyth Barr argues that more emphasis needs to be placed on profits growth because valuation multiples are currently elevated.
* Forsyth Barr says the 2015 election result will be a "coin toss" with the the worst-case scenarios expected to be priced by the market. "Opportunities will exist once this has occurred."
* Australian economic conditions are expected to be a "headwind". Forsyth Barr says it has avoided recommending stocks with an Australian exposure unless gains in market share are likely.
* Interest rates have risen and they will go higher, but Forsyth Barr says they will not derail economic growth.
* Global dairy demand looks unassailable and could be understated.
* The housing and construction boom bodes well for building stocks, but the effects could flow on to other cyclical stocks.
* Merger and acquisition activity will increase as the economy strengthens.
Forsyth Barr's 2014 stock picks
1. Air New Zealand: Near-term earnings could improve as the airline gains a competitive advantage through the lower capital cost of new aircraft fleet.
2. A2 Corporation: A2 benefits from strong dairy demand, promising strong growth as well as being a potential merger and acquisition target.
3. Contact Energy: The single-buyer electricity model is already priced in.
4. Mainfreight: Cyclical and structural growth looks likely as Australia recovers and domestic operations improve.
5. Opus International: Will benefit from local construction activity as expectations for its overseas operations are improving.
6. Skellerup: Demand for industrial products is growing as the global economy recovers. Exposure to the dairy sector is also positive.
7. Sky TV: Competitive and regulatory risks could be overstated while positive cashflows have not been reflected in the share price.
- Fairfax Media