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5 of the most promising ASX stocks for November

The Reserve Bank of Australia has tightened monetary policy in 2022 to combat rampant inflation. While this has weighed heavily on Australian stocks, there may still be strong investment opportunities on the ASX.

Source: Bloomberg

2022 has been a rough year for asset classes across the board and around the globe – Australian equities have been no exception.

Since the start of the year, major economies have grappled with breakneck levels of inflation that have tapped multi-decade highs. This inflation is likely the product of a conjunction of factors that have emerged since the start of the Covid pandemic, including stimulus policies launched by finance ministers and central banks to keep their economies afloat during lockdowns.

Other factors contributing to rampant inflation include supply chain gridlocks, particularly following China's resumption of lockdown measures and rising energy prices in the EU due to the war in Ukraine.

This unchecked inflation has forced the central banks of major economies to turn hawkish, reversing over a decade of loose monetary policy that had been in place ever since the Great Financial Crisis.

The Federal Reserve under Jerome Powell has led this hawkish shift, launching a string of rate hikes in March that have gradually widened from 25 to 75 basis point increments.

The Reserve Bank of Australia (RBA) followed suit soon afterwards, commencing a succession of hikes in May that lifted the target cash rate by 2.5 percentage points to 2.6% by October.

Hawkish monetary policy by central banks invariably weighs heavily on stock markets, and 2022 has been no exception for either Australia or the world’s other major economies.

The ASX 200 is down over 10% year-to-date as of mid-October, commencing a steady decline from the end of April onwards as the RBA continued to implement rate hikes that weighed heavily on the economy.

Despite its poor showing in 2022, there could still be strong investment opportunities on the ASX. These opportunities have perhaps even benefited from the dismal market performance triggered by the RBA’s hawkish monetary policy, by creating a temporary lull in prices that makes many stocks more affordable.

Australia, in general, presents a strong prospect for investors, given its status as an advanced economy with a stable political system and highly developed finance and resource sectors, as well as multiple strong tech companies.

For those investors hoping to find opportunities in the Australian equities market in October 2022, here are some of the most promising stocks on offer.

  1. Objective Corporation Limited
  2. Paladin Energy
  3. Wesfarmers
  4. Dicker Data
  5. Woodside Energy

  • Objective Corporation Limited

Tech company Objective Corporation provides software and digital solutions and government clients – an area of strong promise both in Australia and abroad as an increasing number of public authorities turn to RegTech to improve efficiency and outcomes.

Objective says its goal is to help governments ‘shift to being completely digital’ and expedite the policy development and information process. It has a slew of key government clients both in its home market of Australia and in the UK and New Zealand.

In Australia, these clients include the Western Australian and New South Wales governments, IP Australia, the Queensland police and sovereign wealth investor Future Fund. In overseas jurisdictions, Objective counts the Scottish government, the Welsh government and the Glasgow City Council amongst its leading clients.

Objective's share price is down more than 30% year-to-date, however, leaving ample room for a rebound if the company continues to expand its roster of prestige clients.

  • Paladin Energy

Mining company Paladin sets itself apart from its peers in the Australian resources sector by focusing primarily on the development of uranium resources.

While Australia’s mining giants have traditionally focused on iron and coal extraction, Paladin could have a more promising future by supplying raw material to the nuclear energy sector, which advocates point to as a cleaner alternative to traditional fossil fuels. Paladin itself says that its ambition is to deliver ‘a reliable supply for the world’s clean energy future’.

The company’s main asset project is the Langer Heinrich uranium mine in Namibia, in which Paladin holds a 75% ownership stake.

Langer Heinrich is a strategic tier-one uranium asset with a successful 10-year track record of production and a confirmed 17-year project life.

Paladin shares are down over 14% year-to-date and could see a long-term recovery if nuclear power advocates can successfully convince the public of its viability as a clean energy source.

  • Wesfarmers

Perth-headquartered conglomerate Wesfarmers operates a diverse range of businesses, including home improvement and outdoor stores; apparel and general merchandise; office supplies, chemicals, energy and fertilisers and industrial and safety products.

Its brands are leading household names in Australia, including Bunnings, Kmart, Target, Priceline and Officeworks.

Despite this impressive roster of brands that are ubiquitous in Australian commercial life, Wesfarmers shares have performed poorly in 2022 and are currently down over 25% year-to-date. While consumption is down due to ongoing interest rate hikes, a pivot by the Reserve Bank of Australia next year will revive household spending and help to boost Wesfarmers shares.

  • Dicker Data

First listed on the ASX in 2011, Dicker Data bills itself as Australia’s ‘leading technology distributor’ and claims to be a key driver of digital transformation for businesses in the Australasian region.

The company represents all of the major technology vendors and provides a range of technology services to businesses that include cybersecurity, data management, networking, video conferencing and cloud computing.

Dicker Data shares are currently down over 35% year-to-date. The market may have overlooked its long track record of growth and a 36% increase in first-half revenue and a 19.5% rise in earnings before interest, tax, depreciation and amortisation.

  • Woodside Energy

Oil and gas giant Woodside has emerged as one of the world’s top 10 energy companies in the wake of its merger with BHP Group’s petroleum subsidiary in June of this year.

Unlike the other companies in this list, Woodside shares have seen a very strong performance in 2022, rising more than 43% year-to-date.

The company’s share price could continue to see strong growth on the back of factors that will limit fossil fuel supplies going ahead, including the conflict in Ukraine and OPEC’s recent decision to curb output.

Source: Bloomberg

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This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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