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PREVIOUS ARTICLE 18 Share Tips – 29 July 2019 NEXT ARTICLE 18 Share Tips – 12 August 2019

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Stuart Bromley, Medallion Financial Group

BUY RECOMMENDATIONS

Nanosonics (NAN) 

Chart: Share price over the year

Nanosonics specialises in ultra high temperature sterilisation of ultrasound probes through its product Trophon. Its lofty price/earnings ratio can be justified if big spending on research and development delivers additional products to market. Infection levels are a major concern in hospitals. With a strong existing customer base, potential new products should enable a rapid ramp up of its business.

Elmo Software (ELO)

Chart: Share price over the year

This cloud based software company has a rapidly growing customer base of more than 1100 businesses, including IBM, Kmart, Healthscope, Toshiba, Hyundai and the Australian Government. First half 2019 revenue of $18.1 million represented an increase of about 63 per cent on the prior corresponding period. Its customer retention rate of 93.6 per cent is impressive. ELO has about a 9 per cent share of the total addressable market, so we see potential for it to capture more.

HOLD RECOMMENDATIONS

ResMed (RMD)

Chart: Share price over the year

The medical device maker’s full year update and fourth quarter results impressed the market in late July. The company delivered a full year revenue increase of 11 per cent to $US2.6 billion. Net operating profit grew by 7 per cent. Management indicated a positive outlook and new mask sales are growing. Software as a service should increase earnings.

Audinate Group (AD8)

Chart: Share price over the year

Audinate’s hardware and software essentially enables audio equipment to carry signals over a digital network as an alternative to using traditional analogue cables. Audinate customers, such as Bose, Yamaha and Sony, are incorporating AD8’s Dante technology into their products. With digital market penetration estimated at only 7 per cent to 8 per cent, AD8 is in a good position to capitalise on the shift towards digital networking.

SELL RECOMMENDATIONS

AMP (AMP)

Chart: Share price over the year

The share price of this wealth manager was smashed again in mid July after the company announced that the $3.3 billion sale of AMP Life to Resolution Life was highly unlikely to proceed on current terms. The company also anticipated scrapping its interim dividend. We struggle to see any substantial growth in the near future as AMP attempts to re-build. Better opportunities exist elsewhere in the diversified financial services space. The share price has fallen from $3.40 on July 31, 2018 to trade at $1.805 precisely a year later.

Fortescue Metals Group (FMG)

Chart: Share price over the year

The iron ore price has surged this year in response to supply disruptions, particularly in Brazil. Fortescue has enjoyed a great run and now may be the time to consider taking profits. The iron ore price may correct if more supply comes on to the global market. FMG is a single commodity stock operating in a cyclical sector.

Chris Conway, Marcus Today

BUY RECOMMENDATIONS

Service Stream (SSM) 

Chart: Share price over the year

Provides network services to the telecommunications and utility sectors. Better than expected first half results and a positive outlook have contributed to solidly rising share price momentum. SSM expects second half EBITDA from core business operations to at least match the first half. Provided second half numbers hit the mark, we see no reason for this stock to slow down.

Whitehaven Coal (WHC)

Chart: Share price over the year

We expect increasing demand for coal and the price to rise. We believe WHC is cheap and provides an attractive entry point. It was recently trading on a one year forward price/earnings multiple of about 9.7 times, with the price around a 20 per cent discount to consensus analyst estimates. Additionally, the one year forward dividend yield was recently about 7 per cent. We expect the WHC share price to move higher if the coal price recovers in any way, shape or form. The shares closed at $3.69 on August 1.

HOLD RECOMMENDATIONS

ResMed (RMD)

Chart: Share price over the year

The recent fiscal year 2019 results for this medical devices company were marginally ahead of expectations on the back of a strong fourth quarter. Mask growth was strong, while US device growth was 7 per cent, with the continuing uptake of AirSense 10 – a pressure therapy device machine. Ultimately, RMD remains a quality business, but, in our view, it appears to be fairly valued at the current price.

Fortescue Metals Group (FMG)

Chart: Share price over the year

There’s been lots of selling after the iron ore price had a wobble at the top, but we’re not in such a hurry. Most commodity analysts have lagged in upgrading their iron ore price forecasts, so even if the price comes off, there’s still a big gap between the spot price and the forecasts plugged into most models. In our view, FMG will still generate plenty of cash that may lead to further capital returns going forward. This, in turn, should support the share price.

SELL RECOMMENDATIONS

Amcor (AMC)

Chart: Share price over the year

We held this global packaging company through the merger with US firm Bemis and were expecting significant upside post the official tie-up in June. That event has come and gone and a closing AMC share price of $15.61 on August 1 is marginally lower than on June 11. Recent data suggests weaker revenue momentum in US and European food and US tobacco and beverages. This may weigh on the share price in the medium term.

AMP (AMP)

Chart: Share price over the year

This company isn’t a buy despite it trading at a discount to its sum-of-the-parts valuation. This wealth manager could lose more value if there’s a fire sale of assets, or there’s a capital raising, or mismanagement, or executive changes, or for any number of unknown reasons. There’s no need to be here.

Peter Moran, Wilsons

BUY RECOMMENDATIONS

Boral (BLD)

Chart: Share price over the year

This international building products group is increasing its exposure to infrastructure spending in Australia to counter a softer housing construction market. At the same time, Boral is improving margins by reducing costs. Growth in its US business and the potential to own 100 per cent of its Asian joint venture are also positives.

South32 (S32)

Chart: Share price over the year

The profile of this metals and minerals company is improving, as the company drives more efficiency at its core mines, while selling other non core mines. The company has net cash and trades on an attractive dividend yield. The company is also buying back its own shares in the market.

HOLD RECOMMENDATIONS

GUD Holdings (GUD)

Chart: Share price over the year

This consumer goods and industrial products company reported a disappointing full year result, in our view. It was driven by weaker conditions in its automotive business. We concluded from the outlook that conditions aren’t likely to improve anytime soon. However, this was expected. The outlook is now largely reflected in the current share price. The dividend yield is looking attractive.

Metcash (MTS)

Chart: Share price over the year

The food division is finding it tough in a competitive supermarket environment. The hardware division is also struggling due to a slowdown in construction spending. However, Metcash looks cheap at current prices and the dividend yield appeals. The shares are fairly valued around current levels.

SELL RECOMMENDATIONS

Ainsworth Game Technology (AGI)

Chart: Share price over the year

AGI has downgraded earnings several times in recent years after losing market share to gaming machine competitors. In May, the company informed there had been delays in new product approvals. This may put pressure on retaining market share. Better options exist elsewhere.

Hub24 (HUB)

Chart: Share price over the year

This provider of investment platforms is a well managed business, but, in our view, costs are relatively high. It operates in a fiercely competitive price environment, as evidenced by a recent Macquarie Wrap decision to drop fees on the cash component of its platform. Against this backdrop, we believe HUB is expensive at current prices. The shares have fallen from a 52 week high of $15.55 on May 6 to trade at $12.35 on August 1.

 

The above recommendations are general advice and don’t take into account any individual’s objectives, financial situation or needs. Investors are advised to seek their own professional advice before investing.

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.