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ASX stocks picks: Bell Potter, Wilsons reveal Lovisa, James Hardie, WiseTech among the buys after sharemarket crash (copyright link)

Brokers are telling clients to pounce on “oversold” ASX-listed companies like James Hardie, Lovisa, and WiseTech after the meltdown in global equity markets this week created a tantalising buying opportunity.

The S&P/ASX 200 plunged nearly 6 per cent across Friday and Monday in the worst two-day rout since the outbreak of COVID-19 in 2020, fuelled by US recession fears and a rapid unwinding of the Japanese yen carry trade.

Global markets continue to experience heightened volatility. Robert Duong

While the local bourse recouped some of its losses mid-week, it resumed its decline on Thursday following a weak auction of US Treasuries, highlighting the fragility of investor sentiment after the rout.

But Wilsons Advisory argued that fears of a US recession – following a soft US jobs report late last week – were overblown given the data still pointed to a moderate expansion in the world’s largest economy.

A “partial pivot” by the Bank of Japan to a more dovish stance on rates is also expected to calm markets after the central bank lifted rates for the second time in 17 years last week which triggered a mad scramble by traders to cover their yen-backed bets.

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“The current bout of market volatility has been indiscriminate in nature and driven by concerns that are excessive considering broadly benign economic conditions,” said Greg Burke, lead portfolio manager of Wilsons Advisory’s Australian Equity Focus Portfolio.

“The sell-off has the potential to offer up attractive buying opportunities in high quality ASX companies that have been fundamentally oversold.”

While the Australian sharemarket’s slump was broad-based, Wilsons said it had disproportionately hit high multiple growth stocks like Australian technology companies and cyclical businesses whose fortunes are tied to the economy.

All eyes on Fed

Global cyclical companies with US exposure, such as James Hardie, are expected to be the most immediate beneficiaries of easier monetary policy given the Federal Reserve is expected to kick off rate cuts next month.

Markets are currently pricing in an 80 per cent chance that the Fed will deliver a jumbo half percentage point rate cut in September after the market rout, up from just a 12 per cent chance a week ago.

More medium term bets include investing in sectors exposed to the Australian consumer that would eventually benefit from interest rate cuts and the subsequent recovery in discretionary spending.

Meanwhile, recent trading updates from ASX-listed retailers have revealed that domestic consumers remained surprisingly resilient heading into the August reporting season.

And while bond markets aren’t fully priced for the Reserve Bank to start cutting rates until December, Wilsons said the sharemarket would start to price in lower borrowing costs ahead of time.

“We are focused on businesses that, while cyclical, also have bottom-up structural growth levers that are independent of macro conditions,” Mr Burke said, underlining jewellery retailer Lovisa, online marketplace CAR Group and ARB Corporation.

Bell Potter has told clients that the growing likelihood of a jumbo half-point rate cut in the US next month should significantly alleviate market concerns in the near term which made the broker constructive on equities over the next 12 months.

Bell Potter strategist Rob Crookston said there was a number of high-quality, large-cap ASX stocks that look oversold following the pullback.

He said that was particularly the case for Australia’s tech sector which had been swept up in the heavy sell-off of the US tech giants amid recession risks.

Tech bargains

But Bell Potter believes the recent fall in bond yields, caused by investors piling into safe haven assets, would support the sector.

“This presents a potential buying opportunity for investors seeking exposure to high-quality stocks with strong balance sheets and structural growth,” Mr Crookston said in a note titled ‘Bargain hunt’.

Bell Potter’s top pick is Wisetech Global, which has plunged 12 per cent over the past week to $85, far below the broker’s target price of $100. Mr Crookston also highlighted Xero and Telix Pharmaceuticals which are both down around 8 per cent over the same period.

Like Wilsons, Bell Potter also underlined quality cyclical shares that were oversold given its expectation that the US will achieve a soft landing, and rate cuts will support economic growth.

“The current weakness in these stocks looks overdone, presenting a potentially attractive entry point for investors seeking exposure to quality companies with cyclical exposure,” Mr Crookston said.

Bell Potter also named James Hardie as its top pick following the stock’s near 10 per cent decline over the past week. The broker also likes Aristocrat Leisure, Flight Centre and Reliance Worldwide.

Bell Potter is also looking for resources stocks which will benefit from an improved economic outlook, highlighting “oversold” base metals miner South32 and uranium producer Paladin Energy.