The Australian stock market this year has experienced a lot more volatility than in 2017. However, with volatility, comes opportunity.
Stock markets are generally driven by three factors within the markets, understanding these forces helps us time the market and buy or sell stock at the most opportune moments.
The Three Main Market Drivers
In general, the markets and stocks are firstly driven on a short-term basis via supply and demand imbalances. This is the order flow on a day to day basis as investors buy or sell stock for different reasons. This order flow is generally hard to forecast and requires strong technical analysis and understanding of the underlying market to properly time. If you would like to learn more about market structure and how to properly time purchases, download our Free Investing Strategy Ebook & Email course – you can find the download link at the bottom of this page.
Secondly, markets and stocks are driven by macroeconomic forces in the medium-term. Factors include but are not limited to changes in interest rates, consumer sentiment, government policies and so forth. Understanding the nuances and how the different countries interact with each other in terms of trade and politics is key to understanding the forces that drive the markets as a whole.
Finally, stocks in the long-term are driven by fundamentals. Factors include but are not limited to quantitative factors such as earnings growth, profit margin and return on equity. Qualitative factors include factors such as competition, operating environment, political and policy environment.
To be able to pick the best shares to buy now, it is essential to combine market timing, macroeconomic and fundamental analytics.
Research Is Key To Finding The Best Shares To Buy Now
The hardest part about investing is the ability to process a large amount of information and factors to be able to navigate the macroeconomic and fundamental environment. Our Research team has been hard at work uncovering the best shares to buy on the ASX from small to large cap, on a macroeconomic and fundamental basis.
On a short-term, market timing basis, this is more tricky and is something we cover indepth in our Free Ebook and Course, which you can download at the end of this page.
I’ve outlined 5 stocks that we have found to either has growth potential or are undervalued and these represent some of the best value the ASX has to offer.
Commonwealth Bank Australia (ASX CBA) – CBA shares (ASX CBA) have recently gotten into hot water over the royal banking commission. Despite this, CBA is still the best bank shares to buy and the royal commission into the Financial Planning arm won’t affect them as much as people think. The recent price pressure is an opportunity to buy the stock.
We go into more detail about why the banks are still a great buy in our May monthly newsletter – How the royal commission will affect the banks. On top of this, CBA is easily the best bank out of the major four on a number of qualitative and quantitative factors.
Flight Centre (ASX FLT) – Flight Centre is the leading travel agency company in Australia and has grown its market share via expansion with a diversified portfolio of worldwide businesses.
Overall, Flight Centre shares have been performing well and growing its revenue via continuous expansion, supported by its strong cash position. Although entry requirements have been lower in the industry, Flight Centre has the capacity to tackle challenges from existing players and future entrants and maintain its dominant market position.
Fortescue Metals (ASX FMG) – Fortescue Metals Group is one of the largest mining companies in Australia. With a low price to earnings (PE) ratio compared to its peers and strong growth, Fortescue Metals Shares has a lot of upside to give. The industry has high barrier costs effectively preventing new entries into the market and the industry will see increasing demand both locally and globally.
Lynas Corporation (ASX LYC) – Lynas is a leading rare earth mining company in Australia, founded in 1983. Lynas owns one of the highest-grade rare earth mines in the world and the company has continuously grown its revenue since 2014. The war between China and America has created an opportunity for Lynas to grow by satisfying the high demand of rare earth resources in an expanding industry. Increasing sales and financial turnaround of the business are consistent with the growing rare earth resources market.
Sonic Healthcare (ASX SHL) – Sonic Healthcare is Australasia and Europe’s largest and the world’s third-largest medical laboratory provider. During the last financial year, Sonic Healthcare stock has been rewarded a government program and successfully acquired several professional laboratories, which has significantly driven revenue and increased the company’s share price.
Overall, in the past five years, ASX SHL stock has been performing very well, with 10% increase in stock price and acquisition of 50 valuable medical services companies since 1987.
Henry Fung is a Partner Managing Director and co-founder of MF & Co. Asset Management. He is a highly experienced equities, derivatives and financial markets professional with over 12 years of experience. Henry specialises in building trading algorithms & systems, quantitative & qualitative analytics across macroeconomic, fundamental and technical disciplines and currently runs the MFAM VPAC AU/US models portfolios. The management Partners and Adviser team have decades of experience between them, with experience from major Investment Banks and Brokers. Their Advisers are highly experienced, having dealt with some of the wealthiest clients in Australia.