Despite pervading sentiment domestic shares have had their run and are now too expensive, specialist investment house Dalton Nicol Reid believes good investment opportunities in that market can be found in some specific areas.
In particular, the investment firm remained optimistic about growth stocks. “Over the past year a number of higher-quality companies with strong structural growth stories have been reasonably flat despite a strongly growing market,” Dalton Nicol Reid said.
“We have seen price-to-equity ratios compress as the market has chased higher dividend-paying stocks. This leaves structural growth stories looking cheap.”
Investing in the retail consumer sector was also worth considering, according to the investment management company.
It said those organisations had experienced a resurgence in the first part of the year, but would enter a softer sales period during June.
However, the investment house forecast a boost in sales revenue in the sector resulting from a weaker Australian dollar. It did acknowledge though the gross margin percentage would be lower than before.
Equities of those companies heavily involved in China’s economy were an additional sector Dalton Nicol Reid had identified as one to watch, even though the market remained negative toward the Asian country’s economy.
“While there is little evidence yet of a bounce in the Chinese economy, Chinese equities have been rallying in anticipation of an improvement,” Dalton Nicol Reid said.
“We could see improved conditions later in the year in China, which is likely to support those companies exposed to China.
“This includes some of the resources companies as well as tourism and education-exposed companies.”
In comparison, the investment house did recognise some sectors of the domestic market were overpriced and as such should be avoided.
“We tend to think most at risk are those segments where valuations look stretched – high-yielding stocks and those which have experienced very strong share price momentum,” Dalton Nicol Reid director Jamie Nicol said.