18 Share Tips – 10 June 2014

Michael Gable, Fairmont Equities

BUY RECOMMENDATIONS

Santos (STO)

Chart: Share price over the year versus ASX200 (XJO)

The market is once again focusing on LNG providers and Santos appears to have the most upside potential at this point in time. Since peaking at $15.80 in September last year, the stock entered a short term down trend, reaching a low of $13.11 in March. In early May, STO broke that short term down trend and has been rising. Levels as high as $16 could be reached in the next few months. Any dips towards $14 are a buying opportunity. The shares closed at $14.32 on June 4.

Crown Resorts (CWN)

Chart: Share price over the year versus ASX200 (XJO)

We noticed a double top with CWN earlier this year, so it was just a matter of waiting for it to retreat to strong support around $15 to $15.50. It did that and became a cheaper stock in the process. Trading below 18 times next year’s earnings is about as cheap as you will find CWN. Recent news out of Macau shows a business ticking along nicely. With good buying coming in at this support level, we anticipate CWN to be bid back up to the $18 region at the very least. The shares closed at $15.72 on June 4.

HOLD RECOMMENDATIONS

Fortescue Metals (FMG)

Chart: Share price over the year versus ASX200 (XJO)

This iron ore producer recently fell back to long term support. Since peaking in early 2011, FMG was trending down until October last year. The recent sell-off in iron ore has seen FMG return to the down trend line. It’s poised to rally again. Breaching this longer term down trend will be a negative sign. But if this doesn’t happen, we expect FMG to rally to $5 levels in the next few weeks, ultimately surpassing its recent highs at $6.  The shares finished at $4.46 on June 4.

JB Hi-Fi (JBH)

Chart: Share price over the year versus ASX200 (XJO)

JBH, like most other discretionary retailers, has felt the fallout from the federal Budget. It recently fell to a good support level in the $18 region. If JBH can hold these levels, we would expect a relief rally to develop as buyers step in looking for an opportunity. The shares closed at $17.84 on June 4. First area of resistance is up at $20.

SELL RECOMMENDATIONS

Beach Energy (BPT)

Chart: Share price over the year versus ASX200 (XJO)

We’ve noticed a couple of negative signs on BPT’s weekly chart. In early May, it formed a bearish engulfing pattern at the top of the trend. This is where it opens the week higher, but by the end of the week it’s trading lower than the previous week’s low. As it went to a new high, the Relative Strength Index had already started trending downwards. There’s a lack of buying at prices where BPT looks fair value. We like BPT as a company, but those looking to trade it may see it retreat $1.30 levels again, which is fairly significant. The shares closed at $1.685 on June 4.

Newcrest Mining (NCM)

Chart: Share price over the year versus ASX200 (XJO)

Price action during April and May saw NCM converge to a point. This indicated the market was looking for a decision on the future direction for NCM – a tug of war with no clear winner. Well, the winner has been announced, which is the bears for now. Recently, NCM broke to the downside as gold plunged 2 per cent in one night. Since then, NCM has struggled, so, in our view, the direction for the time being is to the downside. The $9.50 region may offer some support, but if it can’t hold, then sub $8 is a possibility. The shares closed at $9.84 on June 4.

Ken Bloomfield, Financial Clarity

BUY RECOMMENDATIONS

Amcor (AMC)

Chart: Share price over the year versus ASX200 (XJO)

A top ASX 50 stock and a global leader in flexible and plastic packaging. A diversified business with 300 plants in 43 countries, it offers a strong and defensive income stream. Also, there’s scope for continuing growth in the developing world, which represents only a quarter of current revenue. This is a quality stock at a current valuation less than the market average.

Matrix Composites & Engineering (MCE)

Chart: Share price over the year versus ASX200 (XJO)

Makes and exports products for the deep sea oil industry. The company expanded capacity significantly in 2012 on expectations of strong industry growth, but for various reasons it’s been slower than anticipated. However, Matrix has the most modern and lowest cost plant in the world, and signs are good for an industry growth recovery. A weaker Australian dollar will also aid the exporter.

HOLD RECOMMENDATIONS

Lend Lease (LLC)

Chart: Share price over the year versus ASX200 (XJO)

Benefits from a strong building sector and is also the leader in urban regeneration in Australia. Projects such as Barangaroo and Victoria Harbour are tapping into changing living preferences. Also, with Leighton’s facing possible credit rating challenges, LLC is currently winning more infrastructure business. After strong price gains in the past 12 months, the stock is likely to consolidate in the short term.

ANZ Bank (ANZ)

Chart: Share price over the year versus ASX200 (XJO)

Australian banks have enjoyed a great run and are now looking marginally expensive. However, we’re comfortable holding the banks for now while the housing market remains strong. ANZ’s quarterly report indicated an increase in domestic market share. Its Asian strategy is also bearing fruit and will keep ANZ growing long after the domestic housing market slows down.

SELL RECOMMENDATIONS

Myer Holdings (MYR)

Chart: Share price over the year versus ASX200 (XJO)

Often described as a high dividend, good value stock, but we believe it’s a value trap. Think Metcash and Fairfax Media a few years ago. Department store retailers are facing major structural challenges from the internet and shoppers preferring specialty retailers. Myer is a competitively challenged business, and, in our view, will trend down over the longer term.

Cochlear (COH)

Chart: Share price over the year versus ASX200 (XJO)

This hearing implant maker has been a high growth stock for many years. But the hearing device industry has been slowing and Cochlear has been struggling to hold market share, particularly in the growth market of China. Cochlear hasn’t been tempted to cut its market-leading research and development spending, which is good. But we believe it’s  over valued between 25 per cent and 30 per cent.

Michael Heffernan, Lonsec

BUY RECOMMENDATIONS

Flight Centre (FLT)

Chart: Share price over the year versus ASX200 (XJO)

Since listing on the ASX in 1995, FLT has proved to be an impressive performer in difficult circumstances. It’s coped well with movements in the Australian dollar. International expansion is growing and the recent marginal easing in the share price represents a buying opportunity.

Transurban (TCL)

Chart: Share price over the year versus ASX200 (XJO)

Australia’s premier toll road operator is looking forward to continuing growth following its joint proposed purchase of Queensland’s toll roads, and previous purchases of toll roads in NSW at what appear to be attractive prices.

HOLD RECOMMENDATIONS

Telstra (TLS)

Chart: Share price over the year versus ASX200 (XJO)

Is by far the dominant player in the mobile market and the NBN agreement is expected to be positive. Even if Telstra’s share price rises to $5.80, it would still be paying a 5 per cent fully franked dividend yield.

Wesfarmers (WES)

Chart: Share price over the year versus ASX200 (XJO)

Has weathered tough retail conditions particularly well. Diversification via its Bunnings and Coles outlets are defensive in difficult economic environments, and the recent sale of its insurance business has delivered it more than $1 billion in cash.

SELL RECOMMENDATIONS

Adelaide Brighton (ABC)

Chart: Share price over the year versus ASX200 (XJO)

While the building and construction sector has shown a strong performance recently, the potential loss of a major contract and its partial dependence on the resources sector is a negative for a short term profit rebound.

Boart Longyear (BLY)

Chart: Share price over the year versus ASX200 (XJO)

This international drilling company is finding it heavy going in the resources sector slowdown. The significant cut in capital expenditure by major resource companies is yet to play out fully in the mining services sector. Better options exist elsewhere.

Please note that TheBull.com.au simply publishes broker recommendations on this page. The publication of these recommendations does not in any way constitute a recommendation on the part of TheBull.com.au. You should seek professional advice before making any investment decisions.

Click on the links below to read other articles from this week’s newsletter

18 Share Tips –  10 June 2014: 18 Share Tips to BUY, SELL & HOLD from…

What is your investment wealth ratio?: As a rough ‘rule of thumb’, we look for the…