In times like these, selective stock picking is key to unlocking value and minimising risk.
Today, two analysts present six stocks they believe have the fundamentals to withstand further sharp downturns, while offering good long-term growth prospects. Indeed, Shawn Uldridge, of William Shaw Securities, is confident his four stocks will provide good value even if there’s a double-dip recession in the US and Europe.
Uldridge says a recent Lend Lease capital raising of almost $1 billion gives it the balance sheet fire power to stgelop a much larger number of construction projects, particularly in the residential sector. “With residential property tight in Australia, this push will ensure earnings growth over the next few years for this integrated property stgelopment, management and investment company,” he says. “Considering the current fully-franked dividend yield is already above 5 per cent, Lend Lease is good value at current prices and is positioned for profits.”
Uldridge says Woodside Petroleum is one of the very few global energy companies offering a growth pipeline that will significantly increase production and delivery capacity. He says it’s by far Australia’s largest pure play LNG and oil producing company, with a market capitalisation around $32 billion. “The company’s recent share price fall hasn’t been mirrored by similar falls in oil and gas prices, and this creates an opportunity to buy Woodside shares at top value,” Uldridge says. “Just ask yourself – do you think oil is going up or down in the long term?”
Before buying any stock, investors should examine management quality to gain insights about performance. Good management often find a way to navigate challenging times to deliver acceptable results. When economies improve, good managed companies often beat forecasts.
Uldridge says Westfield Group has performed admirably in the past three years, with timely capital raisings “orchestrated by a very business-savvy and experienced management team”. Westfield pays an unfranked dividend yield above 7 per cent. “Westfield is also involved in property stgelopment so, like Lend Lease, it offers attractive growth prospects and we view this as an excellent long term investment at current prices,” he says.
Uldridge says Asciano Group owns and operates container terminals in Australia’s four largest ports and provides rail-based transport logistics between primary producers, mines and the ports themselves. “Asciano is trading near its asset backing, has low debt levels and its assets are monopolistic in style, meaning downside risk is now very low,” he says. “As a long-term buy, AIO is almost surely a winner in my view.”
Carey Smith, of Alto Capital, says sharemarket volatility will continue in response to the European debt crisis and uncertainty surrounding US retail spending, jobs numbers and economic growth. He says sharemarket price falls do provide opportunities, particularly among traders, but investors need to dig deeper by putting stocks and sectors under the microscope before buying. Investors need to map out a strategy then stick to their objectives.
Smith says history can be a guide when considering whether to buy a stock in jittery markets and QBE Insurance is a case in point. QBE Insurance offers proven management in assessing risk. Smith says market fears about QBE’s future growth led to a cut in earnings forecasts and a retreating share price – off about 30 per cent since January. “We believe the market has over reacted and history has proven that purchasing QBE on any pull back has been very profitable,” Smith says. “QBE is now trading on a low price/earnings ratio and a dividend yield above 6.5 per cent.”
But Smith warns against buying any stock on a “pull back” because it could keep falling. Babcock & Brown was a stock some investors considered a bargain only because the share price was in free fall before it finally collapsed under heavy debt. “There’s good reasons why share prices fall other than a bit of profit taking, or the company and sector are out of favour,” Smith says. “That’s why it’s important, particularly in uncertain times, to examine company earnings, revenue, costs, forecasts, sector performance and the global economic outlook. In my view, bank share prices have been hit over concerns about the rising cost of wholesale funding, slower credit growth and softer building approval numbers.”
Smith says value emerges when the share prices of companies with solid businesses have been beaten too low. He emphasises that under valued companies offering “real businesses, real cash flows and tangible assets” present buying opportunities.
Smith says the share price of Downer EDI, an engineering and infrastructure management services business, has been punished in response to a recent and significant earnings downgrade. “The downgrade is mainly to do with the mispricing of a railcar contract in 2006 and it’s likely to cost the group about $200 million,” Smith says.
But he believes the stock has been way over sold, saying the price at one stage had fallen by about 60 per cent since January. “I believe Downer offers great value over the mid-to-long-term,” he says.
|Company||ASX Code||Share Price Close July 16, 2010|
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