James Cooper, Morningstar
BHP Billiton (BHP)
A well managed global resources leader with a balanced portfolio of world class, long life assets and a full suite of conventional energy products. Many prime assets are well located to service Asia. The key is low cost operations and a strong balance sheet. At current prices, the stock more than discounts the impact of the proposed super profits tax.
QBE Insurance Group (QBE)
QBE is one of the best managed insurance groups in the world. An enviable track record of strong earnings is testament to a first class business model and conservatism. Extensive risk management is in place to protect all stakeholders. A strategy based on a combination of organic growth and insightful acquisitions should deliver above average earnings growth and dividends.
This funeral arranger is steadily growing earnings and holds a strong industry position. Volume growth is largely via acquisition. Scale facilitates continual investment in already strong brands. Invocare’s investment profile is similar to a utility with high gearing and a relatively high yield.
This building materials company operates in a difficult industry characterised by cyclical demand. Free cash flow generation is constrained by high levels of capital expenditure, limiting the potential to lift dividends or make acquisitions. In our view, expect modest earnings growth over the longer term as earnings ebb and flow with cyclical forces.
The Cochlear implantable stgice is the gold standard for the hearing impaired. Growth stems from further penetration of existing markets and entry into unstgeloped markets, such as South America, Eastern Europe and China. Cochlear invests 12 per cent of sales in research and stgelopment to remain at the technology forefront. Despite the quality of the business, the share price is excessive at current levels.
An innovative medical products maker for treating respiratory disorders. If the company continues to up the innovation ante with new airflow generators, masks and nasal pillows, it should remain an influential market leader. Profitability levels remain admirable with operating margins typically exceeding 20 per cent. A high quality business, but the share price has run too far ahead of value.
Sean Conlan, Macquarie Private Wealth
Speculation is mounting fiscal concessions could be made for coal seam gas projects and that Santos is close to securing an off-take agreement with a reportedly growing list of potential buyers. We look forward to the next leg of the company’s investment case, namely STO’s ability to fund its share of the Gladstone LNG project. We retain our outperform rating with a $16.50 price target. On June 18, the shares were trading at $13.50 levels.
Wotif.com Holdings (WTF)
We believe online migration and Wotif.com’s strong market position provide a bright medium-term growth outlook. It will probably take higher growth rates for a stock re-rating, but we see this period providing an opportunity to accumulate a high quality company.
Atlas Iron (AGO)
Atlas released drill results for its Hercules prospect at Wodgina. According to management, the intercepts published show an initial evaluation of 70 holes out of a full drill program of 200 holes that AGO plan to pursue in the next three months. Encouragingly, the intercepts show relatively high iron ore grades.
There is mid-to-long term value in Boral and the stock provides good leverage to the domestic and US housing recoveries. But lead indicators for Australian housing have shifted down in recent months and uncertainty surrounds prices. US losses are likely to continue weighing on group earnings.
In light of our reduced valuation, we have downgraded Brambles from neutral to an underperform recommendation. In our view, upside on our reduced valuation isn’t sufficiently attractive to remain in the stock. Until Brambles can demonstrate its potential to return to above-market growth rates across its business lines, we struggle to see the stock continuing to trade at a significant premium to the Australian market.
We retain our underperform recommendation. On current multiples, a large proportion of the stock’s potential underperformance appears to have been priced in. However, the uncertainty surrounding the outcome of a pending ACCC (Australian Competition & Consumer Commission) court case and a decline in market share may weigh on the stock.
Steven Hing, Novus Capital
Downer EDI (DOW)
This engineering firm builds rail carriages as part of specialising in heavy industrial equipment for the mining industry. The company recently wrote down its $190 million exposure to the current NSW Government’s rail contract and the stock fell 27 per cent on the news. Historically, the stock has bounced after a write down and I expect it to happen again.
Hunnu Coal (HUN)
A coal explorer in Mongolia, Hunnu has acquired several projects that are producing or close to it. Although only recently listed, the share price bounce from 60 cents to $1 has given the stock momentum. Assuming it can achieve its production goals, the stock may run to $2.
BlueScope Steel (BSL)
Despite rising iron ore and coking coal prices, which will make it more difficult for Australian steelmakers to compete, the stock appears to be undervalued. Still caution remains as steel prices need to rise significantly to lift BlueScope in challenging times.
Centennial Coal (CEY)
A month ago, about 10 per cent of the company changed hands at $5, suggesting there’s still active corporate activity in the sector. If the super profits tax is watered down, expect increasing activity.
JB Hi-Fi (JBH)
Despite the company being one of the fastest growing retail chains, I think valuations look stretched near $20 levels. If economic conditions begin to plateau, JB Hi-Fi, as a discretionary retailer, will find it tougher in competing for disposable income.
ASX Limited (ASX)
I believe competition will make life difficult for the ASX. If Europe is any guide, newcomer Chi-X Australia will be a worthy competitor. While there’s potential for an increase in trading volumes, prices may fall and impact ASX earnings.
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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