An economic recovery in 2011 will alter the trading landscape. So which sectors and stocks stand to benefit the most?
Some analysts are placing their bets on certain transport and media stocks that they reckon are currently undervalued. Others are favouring healthcare and biotech stocks with new product releases and approval, which are expected to outperform their peers.
Take a look at TheBull’s top 9 stocks from 3 hot sectors, based on the research from leading broking houses.
STOCK PICKS: HEALTHCARE/BIOTECH
Broker: Wilson HTMAnalyst: Shane Storey
CSL (CSL): Trading at a 12 percent discount (16.7x P/E) to his target price of $36.61, Storey has upgraded his recommendation on the blood plasma company from a hold to a buy due to strong earnings expectations for full year 2010, and estimates that its DCF valuation better captures the tailing off in US IVIG demand. He also expects CSL to benefit from investors shifting towards defensive investments over the next three to six months. CSL is expected to deliver a 21.5 percent ROE for full year 2010 and Storey is looking for EPS growth of between 7-10 percent in 2011 and 14 percent in 2012.
Acrux (ACR): Having delivered a maiden net profit result in full year 2010 – of between $44-48 million – Storey expects the junior biotech stock to potentially stgelop into an EPS growth story on the back of worldwide royalties for AXIRON – an underarm testosterone replacement product. His best estimates suggest Acrux will earn approximately US$140 million in milestone payments receivable over the next 12 months, and US$335 million in total under the Lilly-AXIRON transaction plus royalties. While some regulatory risk remains, two drug approvals expected by Storey over next 12 months include Ellavie in EU (2010) and Axiron in US (first half of 2011). The stock currently trades on a 90 percent discount to Storey’s $3.70 target.
Universal Biosensors (UBI): The biotech company has reported interim revenues ahead of expectation and Storey expects strong value-added news flow to help re-value the share price – currently trading at around a 70 percent discount to his $2.72 target. Major announcements expected over the next five months include: JNJ subsidiary, Lifescan announcing plans to commence the sale of its glucose point-of-care strip (PoC) into other European territories, plus FDA approval, and a sales launch into the US. “UBI management is still confident that they will be in a position to announce a commercialisation deal for one of their other products (prothrombin time test or c-reactive protein) by the end of this year,” says Storey. He’s forecasting EPS growth of 72.3 percent for full year 2010 followed by 187.9 percent EPS growth in 2011.
STOCK PICKS: TRANSPORT
Broker: RBS MorgansAnalyst: Roger leaning
Qantas (QAN): Leaning is forecasting a doubling in EPS growth over the next 12 months due to margin improvement and decent top line activity. Based on its operational leverage to a recovering economy, he expects Qantas’s 2011 earnings to be at the upper end of the market’s 8-11 percent consensus forecasts. Currently trading at a 20 percent discount to his target price of $3.05, Leaning expects cost savings and yield improvements at the premium end of the travel market – expected to be five percent-plus internationally – to be key drivers in full year 2011.
Flight Centre (FLT): Encouraged by the company’s third guidance upgrade – which could deliver 100 percent growth on the full year 2009/10 pre-tax result, Leaning’s target price is around 30 percent above where Flight Centre’s shares are currently trading. Adding to the company’s strongly performing Australian business, Leaning expects continued improvement in global trading conditions, plus competitive fares to boost overseas businesses – especially during the second half of 2011 – which is typically peak booking season. The stock is on target to deliver 18 percent EPS growth in full year 2011 and a dividend yield of 4.6 percent.
Toll Holdings (TOL): Even if the rate of economic recovery isn’t as fast as many have predicted in 2011, Leaning expects Toll to be the standout transport stock over a two to three year investment horizon. “Due to its robust business model, safer balance sheet, greater operational leverage to any economic upside – plus the fuller impact of acquisitions, as well as modest margin improvements – I regard Toll as the low-risk player within this sector,” says Leaning. Trading at a 15 percent discount to his target price of $6.64, Leaning expects Toll to deliver EPS growth of around 15 percent in full year 2011, and a dividend yield of around 5 percent.
STOCK PICKS: MEDIA
Analyst: Justin DiddamsBroker: Citigroup
Seek (SEK): Based on the continuation of its ‘growth-by-acquisition’ strategy, the online job classifieds provider is expected to deliver EPS growth of 36 percent and 42 percent in full year/s 2010 and 2011 respectively. Early August the company added a 40 percent stake in the Mexican employment website, Online Career Centre to the online training and stgelopment businesses and employment websites it operates globally. Trading at around a 10 percent discount to Diddams’s $8.00 target, Seek has a modest net-debt-equity ratio of 17.4 percent. The company’s interim net profit was up 12.6 percent, and is on target to deliver full year 2010 ROE above 30 percent.
Southern Cross Media Group (SXL): With stronger regional advertising markets and government licensee rebates providing an up tick in earnings, Diddams is forecasting 8.3c in the regional TV and radio owner’s underlying earnings – excluding exceptional items – in full year 2010, followed by 96 percent EPS growth the following year. Trading at a 15 percent discount to his $2.10 target, Southern Cross pays a dividend yield of 2.8 percent, and its net debt-to-equity has halved from the 80 percent carried under its former guise as Macquarie Media Group (MMG).
Ten Network Holdings (TEN): Based on encouraging TV ad revenue – up 17.8 percent overall and 28.8 percent for Ten in a KPMG industry survey – plus government licensee rebates, Diddams is forecasting EPS growth of 92 percent and 41 percent in full year 2010 and 2011 respectively. Ten is currently trading at around a 30 percent discount to Diddams’s target of $2.10. A significant improvement in top-line activity since last year’s earnings slump should see Ten resume dividends later this year, with a 5.5 percent yield expected in full year 2011.
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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