Should You Invest in the Top 20 Stocks in FY 23/24?

Last week marked the start of a new financial year and the good news is the RBA decided to keep interest rates on hold. I also took the chance to review the top 20 stocks last week to see if there may be some good news about whether now is the right time to buy some of the best stocks in the Australian Stock market.

Will the market trend up in FY 23/24?

Before I discuss my findings, let’s review what happened last financial year. The best sector, which will come as no surprise, was Information Technology up 37 per cent, while Materials and Utilities were both up 15 per cent. Consumer Staples was the worst performing sector, as it was up just 3 per cent.

When you compare these sectors with the All Ordinaries Index, which achieved a 10 per cent gain, we can see that the market was not broadly bullish. As Information Technology only accounts for around 2 per cent of our market, we can surmise that the movement last financial year was mainly due to the Materials sector, which was up 15 per cent and Financials, which was up 8 per cent.

Of the top 20 stocks, 17 ended the financial year in positive territory. The best was Fortescue Metals up 27 per cent followed by Newcrest Mining up 26 per cent and Wesfarmers up 18 per cent. The worst performing stock was S32, which ended the financial year down 5 per cent followed by NAB down 4 per cent and Transurban down 1 per cent.

So, will the coming financial year be good for the Australian Stock Market? In my opinion, I believe it will be and, most likely, better than the last financial year. Many of the top 20 stocks are looking very good and will likely have significant rises this financial year with some likely to be in a sustained rise until 2025 and beyond.

Is now the best time to invest? Absolutely, but you will need to be selective rather than broadly buying the top stocks.

What were the best and worst performing sectors last week?

The best performing sectors included Utilities up 0.62 per cent followed by Energy down 0.87 per cent and Communication Services down 1.01 per cent. The worst performing sectors included Information Technology down 3.81 per cent followed by Healthcare down 3.40 per cent and Consumer Discretionary down 3.10 per cent.

The best performing stocks in the ASX top 100 included Lynas Rare Earths up 3.50 per cent followed by the A2 Milk company up 3.27 per cent and AGL Energy up 2.41 per cent. The worst performing stocks included AMP down 11.50 per cent followed by the Star Entertainment Group down 9.52 per cent and Mineral Resources down 5.57 per cent.

What's next for the Australian stock market?

Once again, the All Ordinaires Index was interesting to watch as it continued to display the extremes of both bullish and bearish sentiment. After rising 1 per cent earlier in the week, the market fell over 3 per cent for the remainder of the week to close down 2.13 per cent.

I previously mentioned that while it may feel like the market is bearish, it has not been overly bearish or bullish. Given what transpired last week, if the market continues to trend down into next week the situation will change to it being more bearish, at least in the short term.

As I have continued to stress, I am concerned that there may be further falls to 7,000 points or slightly below this level, particularly given how the market ended last week, as it raises the probability that we will see an increased bearish sentiment over the next few weeks.

While we continue to experience a time when anything can happen in the market, overall I am positive about the Australian stock market longer term. In the short term, I believe we can expect more downside over the next few weeks and possibly into August with the market looking very good for the remainder of the year and, of course, the financial year. Now is not the time to act on emotion, but rather stay the course and get ready to profit from the next move up.

For now good luck and good trading.

Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also author of the bestselling and award winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good book stores and online.