• $420 cost of living offset to benefit retail stocks
  • Cut to fuel excise to boost automotive stocks
  • Overweight ratings to financials, energy and consumer discretionary sectors

The big pre-election Federal budget 2022 has been delivered with Treasurer Josh Frydenberg and PM Scott Morrison hoping measures to cut cost of living pressures will be enough to pull in votes for another term in government.

But just what are the implications of this year’s budget on your stock portfolio?  Well, according to UBS analysts the big spending budget should alleviate some of cost of living pressures. Here are five ways the budget could impact your portfolio in the year ahead.

1. Boost for retail stocks

With around 10 million Aussies earning less than $126k to receive a special one time $420 cost of living offset this year,  UBS said retailers exposed to a “less downbeat low incomer earner” could stand to gain from the Federal budget 2022.

UBS highlighted Coles Group (ASX:COL) which operates the big supermarket chain, along with liquor and petrol outlets.

KFC and Taco Bell operator Collins Foods (ASX:CKF) is also forecast to benefit as people may eat out more.

UBS reported Super Retail Group (ASX: SUL) is also set to benefit with outer suburban and regional motorists driving more.

Homewares and linen company Adairs (ASX:ADH) was also on the list (who can resist a new quilt cover) along with e-commerce platform City Chic Collective (ASX:CCX) (they sell some good maxi dresses).

2. Automotive stocks winners

With motorists set to get some relief at the pump with the government halving the 44.2 cents per litre fuel excise for six months, UBS said auto-related stocks could benefit.

More kilometres travelled will equate to a further need for parts and services. Companies highlighted as standing to gain include oil refinery Ampol (ASX:ALD), parts group Bapcor (ASX:BAP),  and automotive accessories firm GUD Holdings (ASX:GUD).

Car dealer Eagers Automotive (ASX:APE),  along with prestige and sports car dealer Autosports Group (ASX:ASG)  (can I have a payrise please) could also see an upswing in sales as the price of fuel is tipped to fall back below $2 a litre.

Viva Energy (ASX: VEA) is also expected to be a major beneficiary from the cut in fuel excise. Viva supplies approximately a quarter of Australia’s fuel requirements, including petrol to a network of 1,290 stations and also for fuel dependant sectors such as aviation.

3. $120 billion infrastructure spend

UBS has highlighted Seven Group (ASX:SVW) and Downer Group (ASX:EDI) as most likely to benefit from an additional $17.9 billion spend over 10 years on road, rail and community infrastructure projects Australia-wide.

The funding is part of the government’s record $120 billion 10-year infrastructure pipeline. Regional spending is set to be directed at infrastructure projects covering mining, low emissions technology, energy production and water.

Seven Group is the flagship public group of the billionaire Stokes family which invests heavily in the mining, and construction sectors. With a history dating back 150 years, Downer Group designs, builds, maintains assets, infrastructure and facilities.

4. No relief for high input costs & worker shortages

UBS said the recent H1 FY22 and Q2 FY22 reporting season showed Aussie companies are continuing to face unprecedented challenges on input costs,  worker shortages and supply chain disruptions.

With the government now expecting unemployment to fall to 3.75% and the budget showing no increase in migrant numbers UBS said businesses will “continue to be tested on their ability to maintain profit margins”.

5. Overweight ratings for three sectors

While the Federal budget 2022 may not completely eliminate the costs of living pressures which consumers have been experiencing of late, it does reduce some of the headwinds.

UBS said it is earnings which matter most to equity markets and  Frydenberg’s budget  doesn’t detract from the positive momentum seen from Aussie companies this year.

UBS maintains its ASX200 end-2022 market target of 7700 with overweight recommendations to the financials, energy and consumer discretionary sectors.

Comments from the supercoach

He’s read the UBS report and certainly tells it like it is, so what does Stockhead’s markets wunderkind and criminally undervalued poet Christian Edwards think of it all?

“Now ignore the descriptions of your ‘less affluent consumer’ existence and what we have is a rather excellent set of investment instructions from the team at UBS, in the wake of Frydenberg’s number 4 budget.

“There’s about 10 million Aussies pulling in under $126K who are suddenly stinging to burn through a bonus $420 cost of living tax cash back.

“UBS says it’s the retailers ‘exposed to the less affluent consumer’ which stand to enjoy the windfall. I certainly know where my less affluent arse is going with four watermelons and a lobster in my back pocket, and credit to UBS, two out of five ain’t bad.”

If you’re feeling inclined read our guy’s feral budget version of federal budget 2022 to see what else might be in it for you… but only if you’re not all budgeted out.

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