An incredible turnaround
Hugh Dive, chief investment officer of Atlas Funds Management, says Australian bank stocks are the best way to play the housing boom. “Rising house prices will enable banks to write back more of their bad-debt provisions this financial year and next. That will drive bank earnings and dividends higher.”
Dive was bullish on bank stocks after they crashed in March 2020, believing expected loan losses would be more moderate than the market thought.
His preference remains Westpac, followed by ANZ, which also reported this week, and the Commonwealth Bank. “Share-price gains might be slower from here, but the outlook for the Australian banking sector is the best in years. We believe bank stocks will outperform.”
The turnaround in bank stocks is incredible. A year ago, the banks forecast savage falls in house prices and investors braced for surging bad debts and bank dividend cuts. Today the banks predict double-digit house-price growth, bank dividends are up and there is speculation of share buybacks in the sector later this year.
Dive also favours JB Hi-Fi, a retailer at the epicentre of the property and work-from-home booms.
After soaring last year, JB Hi-Fi shares have eased in recent months. CEO Richard Murray’s surprise resignation and buyer fatigue in retail stocks have weighed on JB Hi-Fi, even though it noted strong sales growth over the past nine months in its latest trading update.
“JB Hi-Fi’s Good Guys division is performing strongly due to higher demand for white goods,” Dive says. “The market previously had concerns about the Good Guys acquisition and is still underestimating that operation. JB Hi-Fi will continue to benefit from housing strength over the next few years.”