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Michael Gable, Fairmont Equities

BUY RECOMMENDATIONS

Altium (ALU)

Chart: Share price over the year

Share price weakness between late February and early June this year resulted in a bull flag perched on top of the 2018 high. This is a bullish charting sign, and ALU has now broken free of this flag. This means it’s likely to continue trending higher and any weakness presents another buying opportunity. Shares in this electronics design software company were trading at $36.13 on July 18.

Bellamy’s Australia (BAL)

Chart: Share price over the year

We believe a floor has been established underneath the share price. Price action in the past few weeks has been positive and volumes are returning to the stock. We like BAL as a short term trade and expect it to head back towards $11. The infant formula stock was trading at $8.87 on July 18.

HOLD RECOMMENDATIONS

Cleanaway Waste Management (CWY)

Chart: Share price over the year

The stock has started moving again and should rally higher from here. Also, the company has shown it’s quite defensive when markets are weak. The shares have risen from $1.61 on January 4 to trade at $2.46 on July 18.

Regis Resources (RRL)

Chart: Share price over the year

RRL offers exposure to what we expect will be a rising gold price. Since June 11, RRL shares have risen from $4.40 to trade at $6 on July 18. Momentum remains strong and this gold producer should still have further upside from here.

SELL RECOMMENDATIONS

Mount Gibson Iron (MGX)

Chart: Share price over the year

Ever since it dropped almost 12 per cent in a single day in early June, MGX has been on a slippery slope. Price action on the chart remains poor. A falling share price while iron ore prices continue to rise isn’t a good sign for MGX. The shares have fallen from $1.22 on May 31 to trade at 90.5 cents on July 18. In our view, the risk for the MGX share price remains to the downside.

Downer EDI (DOW)

Chart: Share price over the year

DOW’s partner in a Victorian wind farm project filed for self-administration proceedings in Germany on April 9. DOW shares have fallen from $7.88 on May 28 to trade at $6.89 on July 18. A lot of volume continues to go through stock and it’s struggling to perform even when the market has a positive day. In our view, it appears the share price in this infrastructure group will continue to drift lower.

 

Julia Lee, Bell Direct

BUY RECOMMENDATIONS

Eclipx Group (ECX)

Chart: Share price over the year

ECX is returning to its core businesses of fleet and novated leasing, which generate stable cash flows. Two divestments have been confirmed with three to go. Divestments in GraysOnline and AreYouSelling will result in an accounting non-cash loss of about $100 million. The good news is lenders to the company won’t include the loss when testing covenants in September. Consequently, with the risk of a capital raising subsiding, ECX should see its valuation increasingly based on its core stable businesses.

Helloworld Travel (HLO)

Chart: Share price over the year

HLO is an Australian based travel business. It’s poised to grow on the back of merger synergies, cost savings and further acquisitions. Sentiment in HLO should continue to improve. Shares had been under pressure prior to the federal election, as investors were concerned that several big contracts could be at risk. However, the risk has subsided following a coalition victory and confirmation that government travel management services have been extended. We expect the share price to improve. Government contacts account for about 12 per cent of earnings.

HOLD RECOMMENDATIONS

Brambles (BXB)

Chart: Share price over the year

BXB operates a pallet service used for fast moving retail goods. It’s a capital intensive business. Demand depends on the retail trade environment, competitive pressures and economic growth in key markets. On the supply side, the cost of lumber is a key component of business. With BXB trading around fair value, it’s difficult to see it outperforming in a major way.

Telstra (TLS)

Chart: Share price over the year

Telecommunications was the best performing sector last financial year. It was driven by Telstra, which gained more than 30 per cent. With a rebasing of dividends, the now stable dividend should support the price in an environment of falling interest rates and income investors struggling to find enough yield.

SELL RECOMMENDATIONS

Webjet (WEB)

Chart: Share price over the year

WEB is an online travel agency. Industry data is indicating that it’s been a tough second half for travel companies in Australia. There’s been no post election bounce and consumers remain cautious. In the UK and Europe, Brexit uncertainty and a hot summer could have an impact on demand.

Premier Investments (PMV)

Chart: Share price over the year

PMV has clothing outlets and stationery retailer Smiggle. PMV also has major stakes in electrical appliances company Breville Group and department store Myer. PMV’s high growth brands are Smiggle and Peter Alexander. Value is added to retail stocks when additional store rollouts are planned, coupled with organic growth from existing stores. Given uncertainty in the UK due to Brexit, the Smiggle rollout in the UK may be slower than initially anticipated. Given a slowing global economy, the risks are building and it might be time to consider taking some money off the table.

Patrick Trindade, PhillipCapital

BUY RECOMMENDATIONS

BidEnergy (BID)

Chart: Share price over the year

A software as a service technology company. Its cloud based platform simplifies the complex energy spend management process via automation. BID’s share price has pulled back significantly from its 12 month high of $1.76 in February. But during the next two quarters, we expect geographical expansion and additional multi-site customers to assist in driving growth. A speculative buy. Our 24 month price target is $2.20. The shares closed at 75.5 cents on July 18.

Otto Energy (OEL)

Chart: Share price over the year

An oil and gas explorer and producer, Otto has petroleum assets in the Gulf of Mexico and Alaska. Our sum of the parts valuation is currently $221 million or 8.8 cents a share. But given its active exploration program, there’s potential for a re-rating of production and cash flow numbers. A speculative buy. Our price target is 10.5 cents. The shares finished at 4.9 cents on July 18.

HOLD RECOMMENDATIONS

Clover Corporation (CLV)

Chart: Share price over the year

Focuses on improving human health through nutrition. Delivers stable Omega-3 and Omega-6 products to the infant nutrition and medicinal foods market. It provides product to leading infant formula manufacturers in Australia and New Zealand. CLV is well positioned for growth.

Santos (STO)

Chart: Share price over the year

The energy giant is trading at a significant discount to our valuation of $8.15, and remains one of our key sector picks. We’re forecasting total production going forward to increase by as much as 30 per cent to more than 100 million barrels of oil equivalent. Record first half production of 37 million barrels of oil equivalent was 32 per cent above the corresponding period. The shares finished at $6.92 on July 18.

SELL RECOMMENDATIONS

Fortescue Metals Group (FMG)

Chart: Share price over the year

Our fair value for this iron ore producer is $7.10. The stock closed at $8.65 on July 18. Iron ore prices have surged this year on the back of supply disruptions, particularly in Brazil. An increase in global iron ore supply could result in falling prices. This, in turn, could pressure FMG’s share price and see it trading closer to our fair value.

The a2 Milk Company (A2M)

Chart: Share price over the year

We expect solid future gains, with more market share opportunities for infant formula in China. Fresh milk and dairy opportunities in the US support our outlook for solid earnings growth over the next decade. But the share price is now significantly above our fair valuation of $13.60. With the stock trading on a forecast price/earnings multiple of 36 times for 2020, any earnings disappointments going forward could result in a material pull back in the share price. The shares closed at $15.99 on July 18.

 

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