Enind 20 Nov 2023 - Three things to watch this week - Travel, Retail Brands, and Turkey stocks to gobble up

With retail trade in December traditional one of the strongest months for sales growth, it is worthwhile considering the listed Australian and NZ travel companies, retail brands and shopping trolley fillers, all of which, will likely see a sales and earnings boost and potential share price growth. From Black Friday sales, to Chrissy shopping, to arrivals in Australia lifting, we cover the food, grocery and ‘grog’ shop beneficiaries, some of which could be targeted by investment managers as ‘buys’. Plus, we spill the beans on what milk, turkey and pizza stocks you need to watch.

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1- Travel spending to lift off

It is worthwhile considering travel companies, as they are likekly to benefit from oil prices being down, while passenger numbers are up.

Travel to lift off: Investment ideas and companies to watch

Consider Air NZ ($Air New Zealand Ltd(AIZ.AU)$) as it just reported a rise long-haul passengers (+77% YoY to Oct).

Also consider Australian arrivals rose significantly (+ 49.6% YoY to Sep) according to the ABS last week. And we know this will only rise amid seasonality as it traditionally does around this time of year. So consider other travel stocks that could benefit such as Auckland International Airport （$Auckland International Airport Ltd(AIA.AU)$), Qantas ($Qantas Airways Ltd(QAN.AU)$), Regional Express ($Regional Express Holdings Ltd(REX.AU)$), Alliance Aviation ($Alliance Aviation Services Ltd(AQZ.AU)$), Webjet ($Webjet Ltd(WEB.AU)$) and Corporate Travel ($Corporate Travel Management Ltd(CTD.AU)$).

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2- Retail brands to cash in
Given inbound travel is taking off (as mentioned above) at a time when gift shopping and Black Friday discount hunters are about; with Black Friday sales officially kicking off on November 24, it is critical to consider retail names and brands that could benefit.

Retailers to cash in: Investment ideas and companies to watch

Macpac, Rebel, BCF and Supercheap Auto parent - Super Retail Group ($Super Retail Group Ltd(SUL.AU)$) is a company to watch, as its seen the most analyst earnings upgrades in the retail segment on the ASX over the last three months.

Also consider diversified retail brands as such the 'PJ' business Peter Alexander, Smiggle, Portman's, and Dotti parent - Premier Investments ($Premier Investments Ltd(PMV.AU)$). The Glue, Hoka, Hype and Platypus parent company - Accent Group ($Accent Group Ltd(AX1.AU)$). And the Rip Curl and Kathmandu parent - KMD Brands ($KMD Brands Ltd(KMD.AU)$).

Also consider companies such as Lovisa Holdings ($Lovisa Holdings Ltd(LOV.AU)$) which is expected to see the most share price growth in the ASX retail sector, according to consensus, which estimates Lovisa should see a 27% lift in its share price in 12 months.

And lastly keep an eye on JB Hi-Fi ($JB Hi Fi Ltd(JBH.AU)$) that has seen a 21% share price rally this year. Also consider Australian's traditionally opt to snap up smaller household items and tech gadgets around this time of year, as opposed to likely buying larger household items at Harvey Norman Holdings ($Harvey Norman Holdings Ltd(HVN.AU)$).

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3- Shopping trolley, milk run, Xmas Turkey and 'grog' stocks

With more family members at home, food and groceries, wine and beer and milk shopping is expected to rise considerably. This comes at a time when stocks in the staples sector are heavily discounted. So it’s important to watch milk, chicken and turkey companies, supermarkets and even pizza businesses, as they will likely see earnings rise, which bodes well for share price growth. Also consider that staple companies are likely to see upgrades and upgrades also support share price growth. We saw that with a2milk ($The a2 Milk Co Ltd(A2M.AU)$), being upgraded by two investment banks in three days.

Christmas lunch and festive season: Investment ideas and companies to watch

For the ASX staples sector consider, that investment managers will be observing that the consumer staples sector on the ASX is down 16% from March and it trades at its lowest levels since 2020. It’s also trading below is five-year average price to price to earnings (PE) of 25 times earnings, vs the forward one year average of 22 times earnings. This simply means it is cheaper to buy into Staples stocks, than it has been over the past five years.

For milk lovers, think of companies that benefit from 'milk runs' to the shops. a2 Milk ($The a2 Milk Co Ltd(A2M.AU)$) aseeing the largest monthly surge in transaction volume in the month, when compared to last year's sales. Specifically, these trends were seen in Beingmate ($Beingmate Co.,Ltd(002570.SZ)$ ), Nestle ($NESTLE S.A SPONS(NSRGY.US)$ ) and China Feihe ($CHINA FEIHE(06186.HK)$ ) with transactions in their products rising 133%, 65%, and 60% respectively.

With a2 Milk ($The a2 Milk Co Ltd(A2M.AU)$) in mind, it recently unexpected reiterated its FY24 earnings guidance and provided positive commentary. Citi upgraded its price target to NZ$5.20, implying 24% upside from its last price. Citi also noted a2 milk is trading at a 33% discount to its historical valuation of 28 times earnings.

Another company that has seen a large upgrade to earnings, is the chicken and turkey business Inghams ($Inghams Group Ltd(ING.AU)$). In the staples sector, Inghams has overwhelmingly seen the most earnings upgrades by investment analysts. Why? Well simple. Cost are down and sales are likely to grow. Remember I spoke about wheat prices accounting for 70% of poultry businesses costs. The wheat price is down 28% this year. And Inghams shares are up 43%. With turkey and chicken sales only heading up this Christmas, Inghams earnings should see another nice lift. And remember, earnings growth drives share price growth.

For those wanting to know what stocks in the Staples sector are expected to see the strongest earnings per share growth, based on market consensus estimates, here they are in order;

a) Bega ($Bega Cheese Ltd(BGA.AU)$ ) is expected to see 125% EPS growth in 12 months,

b) Costa Group ($Costa Group Holdings Ltd(CGC.AU)$ ) is expected to see 91% earnings per share growth

c) Inghams ($Inghams Group Ltd(ING.AU)$) 41% EPS growth

d) a2Milk ($The a2 Milk Co Ltd(A2M.AU)$) 11% EPS growth

e) Treasury Wine Estates ($Treasury Wine Estates Ltd(TWE.AU)$ ) 8.7% EPS growth

f) Woolworths ($Woolworths Group Ltd(WOW.AU)$) with 6.3% EPS growth expected.

Meanwhile also keep an eye on companies that will benefit from Aussies heading to the 'grog' shop to buy liquor for the festive season, as their sales will likely lift. Watch Endeavour Group ($Endeavour Group Ltd(EDV.AU)$) which is Australia's large pub owner and the business behind BWS, Dan Murphy's and Jimmy Brings. Also watch Metcash ($Metcash Ltd(MTS.AU)$) which is the business behind Cellarbrations, The Bottle-O, IGA Liquor.

And lastly, also consider other alternatives to the 'Chrissie' lunch, such as Domino's Pizza ($Domino's Pizza Enterprises Ltd(DMP.AU)$) as it could benefit from people biting into a slice this season. Macquarie upgraded the stock today (Monday Nov 20) to outperform, with a $58 price target, which implies 9% share price growth from its last price.