Andrew Doherty, Morningstar
This company is one of only a few global blood plasma suppliers. Scale efficiencies and integration of services from blood collection to product manufacture mean CSL has a significant competitive advantage that’s difficult to replicate. CSL’s Human Papillomavirus (HPV) vaccine offers a new stream of earnings. Recent share price weakness offers an opportunity for long-term growth investors.
David Jones (DJS)
David Jones operates a chain of 38 retail stores, selling exclusive brands of clothing, accessories and homewares. The target demographic is mostly upper-end income earners, reducing the impact of economic cycles. A reduced cost base has put DJS in a sound position to capitalise on a rebound in consumer spending when it occurs. The healthy fully franked dividend yield around 7 per cent is attractive.
This building materials producer operates in a difficult industry characterised by cyclical demand. It’s able to handle these conditions reasonably well with strong positions in not overly competitive markets, as evidenced by recent price rises that helped offset volume declines. Trading opportunities are on offer from time-to-time, but characteristic share price volatility means this stock only suits above-average risk investors.
AGL Energy (AGK)
This is one of Australia’s major integrated energy companies. It services the largest retail energy and dual fuel customer base that exceeds 3.2 million. AGK has investments in upstream gas activities and electricity generation that complement long-term gas supply contracts, along with derivatives to support the retail customer base. Strong growth potential exists within the retail and power generation businesses and the upstream gas portfolio, which should deliver above average shareholder returns over the medium term.
Billabong International (BBG)
Billabong’s uniquely branded lifestyle apparel has enjoyed phenomenal growth over the past five years, expanding into northern hemisphere markets. BBG owns niche brands offering pedigree and credibility. Historically, the brands have endured consumer cycles well, relying on niche market status to isolate them from the general apparel market. But we believe the stock is over priced at current levels.
We believe this well managed resource services firm is excessively priced at current levels. The group is a strong cash generator, with limited capital expenditure requirements and modest gearing, enabling a growing dividend stream over time. Risks include the potential for project delays, complications exacerbated by instability in some areas worked, our difficulty in assessing the order book and exposure to any further strengthening in the Australian dollar.
Brendan Fogarty, Alto Capital
Lihir Gold (LGL)
This unhedged gold producer has long been a reasonable cash flow generator, primarily from its massive 50 million ounce gold deposit in Papua New Guinea. The recent takeover offer from Newcrest Mining is likely to succeed, giving the combined entity an enviable position as our strongest gold producer. There remains a small chance Lihir shareholders will get a higher offer from Newcrest or a competing bidder. Either scenario results in good reason to invest in Lihir, with the gold sector remaining a safe haven in these turbulent times.
Wesfarmers represents the most diversified exposure on the ASX via largely unrelated operations in hardware (Bunnings), supermarkets, liquor and petrol (Coles), coal mining, LPG, fertilisers, chemicals and general insurance. Diversity in this uncertain operating environment is a major advantage to investors in terms of downside earnings protection and exposure to growth in a better market.
CSL is one of three major players in the US blood plasma industry. One of its main rivals Baxter reported a softening in demand for one of its products. This led to a marginal downgrade, particularly for Baxter, but also for CSL and other market participants. CSL should be more resilient, given lower input costs and pricing power over competitors. Hold, pending evidence CSL isn’t affected by a more competitive operating environment in the blood plasma industry.
Macquarie Group (MQG)
Australia’s leading investment bank reported a solid result with headline full-year NPAT (net profit after tax) up 20 per cent to $1.05 billion, albeit boosted by lumpy gains from listed fund initiatives. The full-year 2011 outlook is also encouraging. However, Macquarie is a leveraged exposure to the ASX and global markets, where the outlook remains uncertain. Hold, pending greater clarity on global economic conditions.
Leighton Holdings (LEI)
Australia’s biggest engineering services contractor has bounced heavily off its GFC lows around $16.35 in January 2008. Risk-averse investors should now consider taking profits given immense uncertainty in the global infrastructure, mining and construction sectors. It’s not the time to be heavily invested in cyclical stocks – the risk at the moment is just too high.
While occupying a good position with a 35 per cent market share of online accommodation bookings in Australia, it’s worth taking a profit given the share price has factored in a large amount of medium term upside in the business. Potential risks include discretionary demand for travel spending, a strong Australian dollar and low barriers to entry. Look to buy at lower levels.
Steve Collette, Calibre Investments
This building materials company looks cheap on full-year 2011 multiples and is a standout in the sector. Among other considerations, Boral stands to benefit from renewed concerns about housing shortages that’s almost certain to attract publicity and political pledges in an election year.
This blood products group was marked down after a direct competitor made some particularly downbeat comments about the state of the blood plasma market. However, the CSL share price responded given its diversified product suite. At this level and in this environment, we would be willing to risk $2 on a buy trade. Longer-term, the outlook appears brighter.
BHP Billiton (BHP)
The world’s biggest miner has retreated from recent highs after finalising recent contract negotiations, concerns over European sovereign debt issues, the introduction of additional Chinese lending curbs and some healthy profit taking. But we consider the company a hold within the current environment.
News Corporation (NWS)
Despite a moderately negative response to the report issued in early May, we retain a hold on News for its leverage to an ongoing recovery that’s evident in North American economic data and its technical outlook.
Telstra Corporation (TLS)
We view any climb towards $3.20 a share as a selling opportunity, irrespective of dividend yield, defensive attributes, or media speculation on positive outcomes for the National Broadband Network.
Energy Resources of Australia (ERA)
The uranium producer’s share price has been punished in response to a sharply lower production report at its Ranger mine in the Northern Territory, and weakness in the resources sector. Signs of any strength in ERA could be viewed as an opportunity to sell holdings.
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.
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