The COVID-19 crisis has resulted in plenty of portfolio repositioning, as investors try and hitch a ride to some unexpected tailwinds that have arisen.

In that environment, analyst Pieter Stoltz and the equity research team at UBS released a useful note on the subject this week.

Looking more broadly at all the sectors directly impacted (both positively and negatively) by the pandemic, they then dialled in on which stocks are best-placed to outperform.

The analysts highlighted stocks across seven new COVID-19 related categories:

– Stocks with exposure to COVID-19 hotspots (Victoria and NSW);
– Stocks with exposure to the China rebound; and
– Demand factors: winners and losers from 1. short-term demand shocks, and 2. structural demand shifts.

For each sector they applied a Buy, Sell or Neutral rating for each of the ASX stocks that meet the above criteria.

Breaking down the analysis further, we’ve highlighted a list of stocks from the relevant sectors below that have a UBS “Buy” rating.

Stocks highlighted in yellow also take up an “Overweight” position in the UBS Model Portfolio.

Scroll or swipe to reveal table. Click headings to sort:

COVID-19 Theme Code Company Sector
China rebound SGM Sims Metals & Mining
China rebound A2M a2 Milk Company Consumer staples
China rebound IEL IDP Education Discretionary Retail
China rebound SEK Seek Media
China rebound BHP BHP Metals & Mining
China rebound SM1 Synlait Milk Consumer staples
China rebound FMG Fortescue Metals Metals & Mining
NSW exposure CSR CSR Other materials
NSW exposure ANZ ANZ Bank Banks
NSW exposure WBC Westpac Banks
NSW exposure NAB NAB Banks
NSW exposure SGR Star Entertainment Gaming
NSW exposure VRT Virtus Health Health Care
NSW exposure BIN Bingo Industreis General Industrials
NSW exposure IAG Insurance Australia Insurance
NSW exposure BLD Boral Other materials
NSW exposure HVN Harvey Norman Discretionary Retail
NSW exposure CWN Crown Resorts Gaming
NSW exposure DHG Domain Australia Media
NSW exposure ADH Adairs Discretionary Retail
Victoria exposure ANZ ANZ Bank Banks
Victoria exposure IAG Insurance Australia Insurance
Victoria exposure HVN Harvey Norman Discretionary Retail
Victoria exposure CWN Crown Resorts Gaming
COVID-19 demand boost WOW Woolworths Consumer staples
COVID-19 demand boost MTS Metcash Consumer staples
COVID-19 demand boost HVN Harvey Norman Discretionary Retail
COVID-19 demand boost CKF Collins Foods Discretionary Retail
COVID-19 demand boost RMD ResMed Inc Health Care
COVID-19 demand shock ALL Aristocrat Leisure Gaming
COVID-19 demand shock SXL Southern Cross Media Media
COVID-19 demand shock CTM Corporate Travel Discretionary Retail
COVID-19 demand shock WEB Webjet Discretionary Retail
COVID-19 demand shock GEM G8 Education Discretionary Retail
COVID-19 demand shock TAB Tabcorp Gaming
COVID-19 demand shock MGR Mirvac REITs
COVID-19 demand shock NEC Nine Entertainment Media
COVID-19 demand shock SVW Seven General Industrials
COVID-19 demand shock CWN Crown Resorts Gaming
COVID-19 demand shock PMV Premier Investments Discretionary Retail
COVID-19 structual demand BAP Bapcor Discretionary Retail
COVID-19 structual demand AMA Ama Discretionary Retail
COVID-19 structual demand CNI Centuria Capital Other Financials
COVID-19 structual demand CHC Charter Hall REITs
COVID-19 structual demand NXT NextDC Tech
COVID-19 structual demand APX Appen Tech
COVID-19 structural decline QAN Qantas General Industrials
COVID-19 structural decline SYD Sydney Aiport Infrastructure

 

The analysis clearly shows that despite the hit to Australia’s banking sector, UBS is optimistic Australia’s major banks can still outperform as the domestic economy emerges from the pandemic.

And even though there are plenty of ASX stocks with exposure to the negative demand effects from COVID-19, UBS is still optimistic about their ability to rebound.

The analysts put a Buy rating on no less than 11 companies in the “COVID-19 demand shock” category.

They also highlight the potential resilience of gaming stocks, despite the lingering COVID-19 risks hanging over the NSW economy (Star Entertainment) and the effect of social distancing restrictions (Aristocrat Leisure).

The UBS team also put the spotlight on six companies that are set to benefit from structural demand changes in the wake of the pandemic, including the rise of online retail.

One eye on mining services

Outside of the COVID-19 impact, the analysts provided a breakdown of other ASX-relevant themes, such as the ongoing environment of low interest rates which is typically beneficial for defensive growth stocks and income (stable dividend) plays.

UBS also has a Buy rating on four mining services stocks, as part of a positive resources environment where commodity prices have so far held up during the pandemic.

In particular, they pointed to a “sharp increase” in forward-looking estimates of capital expenditure by ASX200 resources companies since the start of the year.

“If commodity prices hold up and these capex forecasts materialise, this could lead to an upswing in mining activity and benefit the stocks in the mining services theme,” UBS said.

The four companies with a Buy rating are NRW Holdings (ASX:NWH), Perenti Global (ASX:PRN), Worley (ASX:WOR) and Orica (ASX:ORI).