Andrew Inglis, Shadforth Financial Group
Forecasts suggest a substantial earnings recovery due to increasing steel/iron ore prices and volumes. OST offers good leverage to the booming resources sector through its steel products, and its balance sheet is solid. This is a volatile cyclical stock far suited to a good trading opportunity at today’s levels rather than a long term portfolio.
GrainCorp has announced a nil premium $2 billion merger with rival AWB, subject to AWB shareholder and ACCC approval. Expect substantial synergies of $40 million a year and additional exposure to international grains trading and rural merchandise. The grains business is volatile, but the merger provides a buying opportunity for investors interested in agricultural exposure.
QBE Insurance (QBE)
QBE’s share price has been under pressure after a profit downgrade mostly due to reduced investment earnings. With $14 billion invested in US and European money markets, QBE’s profits will recover strongly on rising interest rates, but this could be two years away. A challenging outlook is already reflected in the share price.
Fairfax Media (FXJ)
Fairfax suffered from the global financial crisis and a switch from print to internet advertising. However, Fairfax has diversified its business with the Rural Press merger and the stgelopment of a significant internet media business. The balance sheet is solid and Fairfax offers significant upside as the economic recovery gathers pace.
Cochlear is an international market leader in hearing implants and it’s been an excellent business. Cochlear has also benefited recently from competitor product recalls. The share price is showing signs of topping out, so it’s worth considering taking some profits, but retaining a core holding in this quality stock.
Toll Holdings (TOL)
This transport logistics company has an excellent Australian business, but its overseas expansion strategy is yet to be proven. Toll is paying significant goodwill for its overseas acquisitions in a highly competitive freight forwarding business. Historically, a strategy such as this hasn’t proven to be profitable in this industry.
Carey Smith, Alto Capital
ASX Limited (ASX)
Australia’s primary operator of the nation’s securities exchange relies on strong trading volumes and corporate activity to generate revenues. With volumes for the 2010 financial year up more than 20 per cent on the previous year, we expect revenue and profits to continue increasing. The ASX offers good value at current levels, considering a fully franked dividend yield above 5.5 per cent.
Sonic Healthcare (SHL)
The share price of this leading global medical diagnostics group has fallen about 25 per cent since May when it issued an earnings downgrade due to a government cut in Medicare fees. SHL reported that this would only temporarily impact revenues and profit growth. With populations in the stgeloped world aging, demand for services provided by SHL is increasing. The long-term future for SHL looks very bright indeed.
This global provider of business support services operates two key businesses – CHEP Pallets and Recall information management. After experiencing a slowdown in the past 18 months due to the global financial crisis, we believe improving global economic conditions should see the company return to profit growth going forward.
APA Group (APA)
An industry leader in energy transport infrastructure, it carries more than 50 per cent of Australia’s natural gas through its pipelines. Revenue risk is minimal as more than 90 per cent of the group’s revenue comes from the regulatory system, or long term contacts. The forecast 2011 distribution of 33 cents a share should support the price at current levels.
Iluka Resources (ILU)
As one of the world’s largest mineral sands companies, Iluka has enjoyed a recovery in zircon demand and pricing. However, a 65 per cent share price increase since February has pushed it significantly above our fair value estimates. We believe the stock will struggle going forward. Take profits.
Equinox Minerals (EQN)
This copper producer based in Zambia has enjoyed a dream run in the past 20 months with its share price mirroring a strong increase in the copper price. However, with a market capitalisation above $3.6 billion, we don’t see much upside and believe the risks are now strongly weighted to the downside.
Shawn Uldridge, William Shaw Securities
Woodside Petroleum (WPL)
Woodside Petroleum is Australia’s largest pure-play oil and gas business, with a market capitalisation around $30 billion. The crude oil price has been rising since March, but WPL has been lagging due to a stronger Australian dollar. Buy for long term value amid a stronger oil price.
QBE Insurance (QBE)
QBE Insurance had yet another downgrade recently due to continuing weakness and overall volatility in overseas government debt markets. However, QBE directors who were selling stock above $21 several months ago were buyers after the downgrade. It seems if you follow their lead, you’ll come out on top.
Westpac Bank (WBC)
Westpac Bank was a buy flagged around the $21 mark. With strong property turnover in Australia, banks are set to profit through bigger loan books. WBC appears to be heading higher so those with the stock should hold for a $26 target price.
Fortescue Metals (FMG)
This iron ore producer was a buy in the low $4 range and it should go higher from here. With sentiment changing amid a bottoming out of spot metals prices, expect FMG to trade between $5 and $5.50 a share in the medium term. Hold for higher levels.
David Jones (DJS)
The retail sector is already weak. But a multi-million dollar lawsuit amid bad publicity surrounding the previous CEO, it’s hard to see any short term upside in this department store stock. If this is in your portfolio, sell for a switch to something of value.
BHP Billiton (BHP)
In our view, the global miner has reached the top of its current trading range. Value is more apparent in other parts of the resources sector. I recommend lightening up on the giants and rotating into smaller plays, such as Fortescue Metals.
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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