CommSec research outlining potential sharemarket winners from the Federal Budget 2022 is certainly food for thought.
The sharemarket analysts I talk to say they take notice of what’s in the Federal Budget, but it’s only one of a number of considerations behind a decision to invest. Often a budget announcement can be just a short-term sugar hit, as we saw on Wednesday when retail stocks made good gains.
Having said that, CommSec has produced some really interesting research matching various budget measures with the listed companies that will benefit the most.
It’s not the sole reason to invest, but it’s certainly an interesting element.
Here’s a breakdown of the Budget allocations and who the potential sharemarket winners are.
Household spending
The government has cut its fuel excise by 50 per cent or 22.1 cents for six months. Low-to-middle income earners will receive a one-off cash bonus or ‘Cost of Living Tax Offset’ of $420 in 2021/22 to help with cost of living pressures.
The budget has extended the tax offset for low-to-middle income households. There will also be a one-off payment of $250 to eligible pensioners and welfare recipients.
Consumer discretionary and consumer staples stocks, which includes supermarkets and electronics retailers, such as JB Hi-Fi, Harvey Norman, Premier Investments, Metcash, Coles, Wesfarmers and Woolworths, could be beneficiaries of increased consumer spending.
As consumer demand for petrol increases, fuel refiner and retailer Ampol could benefit from a lower fuel excise without taking a hit to its margins.
Infrastructure spending
The Federal Government has committed $17.9 billion for new and existing road, rail and community infrastructure projects. In regional Australia, the $2 billion Regional Accelerator Program will diversify growing regional economies and create jobs in new and existing industries; and $21 billion has been committed for regional transport, water and communications infrastructure.
Building materials, residential and commercial property developers, such as Adbri, Bluescope Steel, Boral, Brickworks, CMIC Group, James Hardie, Mirvac and Stockland could be a focus for investors.
National security and defence
The government has increased defence funding to above two per cent of GDP. It has allocated $38 billion by 2040 to lift the defence workforce by 18,500 personnel and $9.9 billion over 10 years to deliver a Resilience, Effects, Defence, Space, Intelligence, Cyber and Enablers (REDSPICE) package, enhancing the offensive and defensive cyber and intelligence capabilities of the Australian Signals Directorate and doubling its size. There’s also $270 billion in defence capability investment to 2029/30.
ASX-listed companies Austal and Codan are key defence-orientated companies and could be sharemarket winners here.
Manufacturing
A manufacturing budget package worth more than $1 billion has been unveiled to accelerate investment in new industries, including onshore manufacturing capacity, semi-conductors, vaccines, and personal protective equipment and pharmaceuticals (PPE).
Aussie manufacturers CSL, Incitec Pivot and Orora could be key beneficiaries.
Telecommunications
The Federal Government will invest $1.3 billion in funding to enhance regional telecommunications.
Heavyweight telcos Telstra and TPG Telecom will be amongst the biggest beneficiaries of this government spending. Smaller broadband providers Uniti Group and Aussie Broadband should also benefit.
Housing
The government has pledged $8.6 million to expand the Home Guarantee Schemee to 50,000 places per year. Up to 35,000 places per year will be available for first home buyers under the First Home Guarantee.
The Family Home Guarantee will be increased to 5,000 places per year. Plus a new Regional Home Guarantee will offer up to 10,000 places per year.
This policy should see a continued investor focus on the Big 4 banks – ANZ Bank, Commonwealth Bank, National Australia Bank and Westpac Bank – alongside regional banks, such as Bendigo Bank, Adelaide Bank and the Bank of Queensland.
Health care and disability
The Federal Budget includes $39.4 billion for National Disability Insurance Scheme; $6 billion extra for COVID, including a winter response plan.
Medicare will receive a further $368 million in additional funding over five years; $547 million for targeted mental health and suicide prevention initiatives; $331 million to promote the health of women and girls, including to support the National Women’s Health Strategy; and $28 million to commence work to establish Genomics Australia.
Shares of health care providers Healius, Monash IVF, Sonic Healthcare and Virtus Health will be in focus for investors.
Aged care
$468.3 million extra to implement the Royal Commission’s recommendations; and $345.7 million for residential aged care pharmacy services.
Estia, Regis and Japara health care shares could lift with increased spending on aged care.
Small business
Small businesses (with aggregated annual turnover less than A$50 million) will be able to deduct a bonus 20 per cent of the cost of business expenses and depreciating assets that support digital uptake, up to $100,000 of expenditure per year. There’s an allocated $2.8 billion for apprentices; and $2.2 billion to support Australian industries and universities to develop innovative companies and products.
These initiatives could boost job-hiring company Seek. Also, car sellers and auto parts companies like carsales.com, Eagers Automotive and ARB could also be sharemarket winners as they benefit from a pick-up in demand for motor vehicles.
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