The stockbroking and financial advisory firm said that based on the current economic climate, profit growth will not be as high as investors had hoped.
Prescott Securities equity specialist Travis Adams said despite this, he still expects earnings per share growth across the market of around seven to eight per cent.
“Much of this growth will come from the larger quality stocks, including the banks, healthcare and non-discretionary retailers,” Mr Adams said.
“Healthcare is expected to outperform the market, while discretionary retail stocks will struggle in a difficult economic climate and increasing online competition.”
Mr Adams said the healthcare sector is expecting double digit growth in earnings for the upcoming reporting season.
“Companies such as Ramsay Health Care and CSL will reward investors with positive growth,” he said. “As one of our investment thematics we’ll be watching this sector with interest.”
In the financial sector, Mr Adams favours Macquarie Bank and Computershare.
“Both stocks are aligned with merger and acquisition activity and changes in the share market,” said Mr Adams. “Corporate cash levels are rising and idle cash breeds merger and acquisition activity.”
Prescott Securities also favours CBA despite the media coverage on its planning division.
“Term deposits are at very low rates, which look likely to fall further reducing the bank's financing costs,” he said.
Meanwhile, mortgage rates have generally remained steady, which has helped CBA maintain interest margins.
“The recent cut in fixed rate home loans indicates that there is some fat in net interest margins and the CBA may be using this to increase market share,” Mr Adams said.
While the market is predicting three per cent cash earnings growth, Prescott Securities believes it will be higher than this, said Mr Adams, adding that although some of the defensive retailers may not be bringing huge growth prospects, they will continue to be relatively consistent.
Industries such as manufacturing and tourism are likely to feel the pinch of the high Australian dollar.
Mr Adams said Prescott Securities also favours Telstra, due to its new chief executive and strategy, and QBE if the company is able to bring earnings back to the billion dollar mark this year.
