FY17 reporting season kicks off in earnest mid-August and according to the latest IBES consensus earnings estimates, EPS growth for the S&P/ASX200 is forecast at 13% in FY17, slightly down from 13.6% at the end of 1H17. Pleasingly this would still mark the end of the earnings recession after two straight years of contraction. We are confident that the improvement in the economic outlook will translate to earnings over the next 12-18 months so long as the positive conditions are reflected elsewhere (outside of Resources). With this in mind, we think outlook commentary and how management chooses to deploy capital may be as important as reported numbers. You can read more on this (including our key candidates that may surprise or disappoint in August) in our FY17 reporting season preview. 

Our high conviction stocks are those that we think offer the highest risk-adjusted returns over a 12-month timeframe, supported by a higher-than-average level of confidence. They are typically our preferred sector exposures. 

This month we add Motorcycle Holdings (MTO). Here are our six high conviction stock picks this month:

Oil Search (OSH)

Oil Search is a major oil and gas developer/producer. OSH's key asset is its 29% interest in world-class PNG LNG Project/Development, operated by ExxonMobil.

Key reasons to buy Oil Search

• The recent Muruk discovery could be a game changer, and could even overtake as preferred development option for train 3 at PNG LNG. Drill testing its extent continues.
• Recent growth in 1P reserves underpins PNG LNG's ability to sustain production above nameplate over the long term, while also helping to underpin the next leg of growth.
• OSH looks ideally positioned for near-term upside as it progressively de-risks its growth profile and expands its upside case through appraisal and exploration.

We retain our Add recommendation.

ResMed (RMD)

ResMed develops, manufactures and markets medical products for the treatment and management of respiratory disorders globally.

Key reasons to buy ResMed

• A new mask product cycle is underway with positive patient/physician/provider feedback and management are confident category growth will accelerate.
• ResMed continues to cement its leadership position in healthcare informatics, with the high-margin Brightree SaaS model performing to expectations, supporting device/masks growth and gross margin gains.
• ResMed is a key beneficiary of a weaker AUD, with 95% of revenue derived from offshore and c80% of R&D expenses AUD dominated.

We retain our Add recommendation.

Westpac Bank (WBC)

Westpac is Australia's oldest banking and financial services group, with operations throughout Australia and New Zealand.

Key reasons to buy Westpac

• WBC has a relatively low risk profile in terms of loan book positioning and low reliance on treasury and markets income.
• The bank stands to benefit most from re-pricing of investor home loans.
• We see a relatively low risk of dividend cut as a result of its strong regulatory capital position and good organic capital generation capacity

We retain our Add recommendation.

Australian Finance Group (AFG)

Since establishment in 1994, AFG has grown to become one Australia's largest mortgage broking groups.

Key reasons to buy Australian Finance Group

• An environment of increasing compliance and regulatory scrutiny for mortgage aggregators/brokers provides AFG with scope to attract more brokers to its network and expand market share. This is particularly the case given AFG is owned independently of any lender, has scale and a relatively good aggregator platform.
• We believe concerns regarding cuts to broker commissions stemming from the announcement of the major bank levy and concerns about the extent of softening in housing activity as a result of macroprudential rules are overblown. Such concerns have resulted in AFG offering good value at current prices and an attractive dividend yield.
• AFG had unrestricted cash of 40 cents per share on its balance sheet at 31 December 2016. We believe this cash could be used to uncover hidden value through EPS-accretive acquisitions of smaller aggregators or acquisitions in the fintech space.

We retain our Add recommendation.

Bapcor (BAP)

Bapcor supplies replacement parts and consumables used in the vehicle service and repair. BAP operates over 120 Auto Parts stores across Australia.

Key reasons to buy Bapcor

• Incorporation of the recently articulated Hellaby's synergies has lifted our forecasts and provided reassurance in BAP's ongoing growth via acquisition strategy.
• We forecast 42% EPS growth in FY17, followed by a further 23% in FY18. This growth business with defensive characteristics offers (in our view) an attractive investment opportunity.
• We see three upcoming catalysts: 1) a strong FY17 result; 2) articulation of potential future efficiencies from the warehouse optimisation process which has been running quietly in the background; and 3) the sale of non-core assets.

We retain our Add recommendation.

Motorcycle Holdings (MTO)

MTO is Australia's largest motorcycle dealership operator, engaging in all aspects of the retail chain (new, used, parts, service, accessories, finance and insurance)

Key reasons to buy Motorcycle Holdings

• MTO is the first and only player looking to consolidate the highly fragmented motorcycle sales and support categories, driven by aligned management with more than 30 years experience.
• The FY17 result should highlight how much MTO has outperformed the new motorcycle sales market, while FY17 acquisitions should also drive +17% earnings growth into FY18.
• MTO looks to be trading on a fair multiple at 13.6x, but we think the market is always going to be chasing growth here as MTO executes a multi-year acquisition and consolidation strategy.

We retain our Add recommendation.

Contributed by Andrew Tang, Analyst - Equity Strategy, Sectors Covered: Equity Strategy and Quant. Access blog here: (VIEW LINK)