Carey Smith, Alto Capital

BUY RECOMMENDATIONS

Downer EDI (DOW)

The share price of this leading engineering and construction company was punished recently on the back of problems related to an ongoing legacy rail contract. We believe the market has overreacted to a short-term issue, and suggest the group currently offers top value for the longer-term investor.

Hastie Group (HST)

This leading designer, installer and maintainer of technical services to the building and infrastructure sectors has come under margin pressure in the past 18 months, resulting in a fall in overall profitability. Its divisions include mechanical and hydraulics, refrigeration, electrical and maintenance. While margin pressure is forecast to continue in the short term, the group’s dominant position in the sector should see profitability rebound strongly once market conditions return to normal.

HOLD RECOMMENDATIONS

QBE Insurance Group (QBE)

Global QBE is among the finest managed and profitable insurance groups in the industry. Investors are regaining confidence in company management after several profit downgrades. The recent floods in Australia will only have a minimal impact on profitability.

Toll Holdings (TOL)

A big integrated logistics provider in the Asia region, operating an extensive network of global supply chain solutions. Toll is very dependent on the health of the global economy. Continuing signs of strength in Asian economies are providing investors with more confidence in the group’s operations going forward. We believe the risks have been priced in, and are happy to hold for the long-term.

SELL RECOMMENDATIONS

Aurora Oil & Gas (AUT)

The US oil and gas shale sector has proved to be a company maker for AUT. The share price has skyrocketed in the past 18 months as market capitalisation approaches $1.3 billion. Today’s share price implies that ongoing stgelopment of its oil and gas fields will progress perfectly – that is there’s no unforeseen issues. For this reason, we suggest investors take profits.  

Lynas Corporation (LYC)

Lynas has been one of the biggest beneficiaries from recent interest in rare earth elements and now boasts a market capitalisation above $3 billion. Considering the total value of rare earth elements production in 2008 was about US$1.3 billion, we believe LYC’s market capitalisation is in bubble territory. Bubbles can last longer than anyone expects, but we recommend investors take some profits.    

www.altocapital.com.au

   

Shawn Uldridge, William Shaw Securities

Woodside Petroleum (WPL)

There’s a growing number of high conviction, contrarian analysts joining the ranks of Woodside Petroleum supporters. I believe oil will breach $US100 a barrel and end the year comfortably higher than that. This alone would suggest possibly higher prices for WPL stock, but it’s cheap because of the recent Shell sell down and LNG cost overruns. The bad news is priced in, so expect a higher share price.

Westpac Bank (WBC)

The banks have been under pressure for a while. Continuing global uncertainty around credit market health amid anti-bank policy in Australia has been weighing on prices. But there’s little doubt the global economic recovery is gaining traction and market pricing powers will generally circumvent government attempts at price controls. The banks will grow with the economy and Westpac is paying a fully-franked dividend above 6 per cent.

HOLD RECOMMENDATIONS

AMP (AMP)

AMP’s bid for AXA Asia Pacific is likely to be successful. AXA Asia Pacific shareholders are expected to vote on the proposed merger on March 2, 2011. Over time, AMP will integrate this new business and should profit handsomely as equity markets recover. AMP offers great leverage and a bright future. A long term hold.

Quickstep Holdings (QHL)

Quickstep has signed a long-term agreement to make parts for the international F-35 Joint Strike Fighter program. It will underpin profitability in the years ahead. It will also encourage QHL to bid for additional contracts with companies, such as Boeing and Airbus. Consider a long-term position in a growing industry.

SELL RECOMMENDATIONS

Newcrest Mining (NCM)

The company’s share price and bullion have fallen from last year’s highs. But both prices may fall further if the US dollar rallies in response to rising US bond rates and a more stable economy. We rate NCM as a sell for a re-entry closer to $30 a share. On February 3, the shares were trading at $36.67.

Qantas Airways (QAN)

Qantas is up against rising oil prices and Virgin’s plans to enhance its business class beyond premium economy. A string of maintenance issues may point to a deeper problem, requiring extra spending. Airlines are difficult businesses at the best of times. Qantas has too many issues to tackle at one time, so avoid.

www.williamshaw.com.au

 

Steven Hing, Novus Capital

BUY RECOMMENDATIONS

Hudson Resources (HRS)

Hudson and its subsidiaries focus on exploring and mining operations involving attapulgite, coal, bauxite, copper, gold, manganese, uranium and nickel. At December 31, 2010, the company had an intrinsic value of about $70 million, or 58 cents a share. On February 3, 2011, the shares were priced at 40.5 cents. Although the stock is tightly held, it appears to be trading at a discount to its intrinsic value. The stock appears poised to move higher on any good news.

Downer EDI (DOW)

The stock suffered a 20 per cent fall in late January after again failing to deliver the new NSW rail carriages (Waratah trains). The company announced it was provisioning a $250 million loss on the project (up from $150 million). Delaying delivery until April has sparked rumours the company may need to consider a capital raising. However, DOW appears to have robust operations in its other divisions, and I feel the price can recover towards $5 levels. I believe the market has overreacted again to the Waratah train issues, and today’s price represents a good buying opportunity. On February 3, the shares were trading at $3.80.

HOLD RECOMMENDATIONS

Lynas Corporation (LYC)

The market keeps thinking the rare earth space is a “bubble”, but there’s a supply shortage in the commodity, and Lynas is best placed to capitalise once its Malaysian processing plant is online mid this year. After a recent spike to $2.30, the stock has drifted back on light turnover and lack of news. I would be a buyer between $1.50 and $1.60. On February 3, the shares were trading at $1.74.

JB Hi-Fi (JBH)

Although Australian retail sales numbers are expected to be benign, I still believe JBH will surprise on the upside. According to the charts, the stock appears to be consolidating ahead of its next move up to $20 and beyond.

SELL RECOMMENDATIONS

Perseus Mining (PRU)

The gold price is under pressure and may fall further. As a result, there’s been recent profit taking in gold companies, with some of the charts breaching significant support levels. PRU may slide towards $2.50/$2.40 levels, and I am keen to exit the sector for the time being.

Avoca Resources (AVO)

Avoca is a mid-tier gold producer and is part of the ASX200. Technically, the stock looks like it may breach $2.80 support levels, leaving it to target $2.40.

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