ASX

‘‘Traditionally, the market moves ahead of earnings expectations and despite recent volatility, we have already seen this to some extent.’’ Photo: Brendon Thorne

Australia’s sharemarket is tipped to rocket to more than 5800 points by the end of the year as consumer confidence rebounds and low interest rates spur housing growth.

Stockbroker Morgans said despite recent volatility, it expected cyclical stocks to lead the recovery, which has already begun in company earnings.

In a note to investors, Morgans said it was looking at companies leveraged to the improving domestic economy, which is being fuelled by rallying consumer confidence and discretionary spending, and a falling Australian dollar.

‘‘We expect to see a progressive recovery in Australian company earnings in the year ahead,’’ Morgans said.

‘‘Traditionally, the market moves ahead of earnings expectations and despite recent volatility, we have already seen this to some extent.’’

Amcor leads its top stock picks for 2014 after the multinational packaging company spun off its $2 billion Australasian packaging and distribution division, Orora, last month.

‘‘We expect it to unlock value for Amcor shareholders, providing an obvious catalyst for the stock going forward,’’ Morgans said.

‘‘We expect the new Amcor will trade on a higher multiple than it currently does as its overall return profile will improve following the demerger of a lower margin and lower returning business.’’

Harvey Norman made it to the list, considering an improving retail and housing market. Sonic Healthcare was also a top pick, with Morgans saying it was well positioned as the world faces rising healthcare costs driven by an ageing population and diseases such as diabetes and obesity reach epidemic proportions.

Morgans said Sonic would benefit from US health reforms, known as Obamacare, which will expand health services to 50 million Americans or 15 per cent of the population.

‘‘Sonic will benefit from high pathology volumes. [It] currently derives 75 per cent of its revenue from pathology – 20 per cent US, 30 per cent Australia, 25 per cent Europe – and the balance from diagnostic imaging and GP services.’’

BHP Billiton was also a top pick, being a ‘‘major beneficiary’’ of any improvement in the outlook for global growth, commodities demand, including China, and risk appetite Morgans said.

‘‘As owner of numerous tier 1 assets, BHP enjoys the security of a low cost production position for its key assets, ensuring profitable operations through the commodity cycle.’’

Casino operator Crown was another top pick, despite potential risks to earnings at its Perth operations brought on by the end of the iron ore capital expenditure cycle.

‘‘With its growing Australian footprint and exposure to Chinese gambling in Macau, we are positive on Crown’s ability to generate strong returns both domestically and internationally,’’ Morgans said.

‘‘We are comforted that our forecasts are conservative, the refurbished Crown Perth has yet to see material softness and the property has a monopoly position.’’

National Australia Bank’s convertible preference share (CPS II) offering, rated a mention.

‘‘Investor appetite remains high for listed hybrid securities and this was clearly illustrated by the strong demand for the NAB CPS II offering,’’ Morgans said.

‘‘We view the pricing of the security as attractive relative to other major bank issued convertible preference shares.’’

Australia’s biggest building material supplier Fletcher Building rounded off the large cap picks. Morgans said the Christchurch rebuilding and cost outs after multiple earthquakes on New Zealand’s South Island would provide several years of earnings growth for Fletcher.

‘‘While we view valuations across the sector as relatively full, Fletcher’s FY14 price earnings multiple of 14.7x provides the most attractive value across the sector, in our view.’’