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Michael Gable, Fairmont Equities

BUY RECOMMENDATIONS

Qantas Airways (QAN)

The share price retreat during December provides a buying opportunity. The shares have been recently finding good buying support below $4.80 levels. As fears of a COVID-19 second wave ease in New South Wales, we expect the share price to resume its uptrend and go on to test $6. The shares finished at $4.85 on January 21.

Woodside Petroleum (WPL)

The macro environment is supporting resources and we expect energy prices to continue moving higher in 2021. WPL shares staged a breakout almost three weeks ago by pushing above resistance near $24. Volumes are starting to increase. We expect shares in this oil and gas company to rally towards $30. The shares have risen from $23.07 on January 4 to close at $26.95 on January 21.

HOLD RECOMMENDATIONS

Cochlear (COH)

Shares in this hearing implants maker have found strong buying support below $200. The shares have risen from $180.69 on January 13 to close at $196.67 on January 21. The charts indicate there’s a good chance the low is behind COH and we should see the price move higher from here.

Zip Co (Z1P)

The buy now, pay later space has been fertile hunting ground for traders, but Z1P hasn’t attracted as much investor attention as market darling Afterpay. Now, the company is gathering positive momentum after solid price gains in the past few weeks. The shares have risen from $5.59 on January 4 to close at $7.36 on January 21. We expect more solid buying support.

SELL RECOMMENDATIONS

Mesoblast (MSB)

The company is developing allogeneic cellular medicines for treating inflammatory conditions. Investors sold off the shares after recent news, including from a COVID-19 treatment trial, failed to meet their expectations. The shares have fallen from $4.71 on December 9 to close at $2.46 on January 21. Better growth opportunities exist elsewhere, in our view.

QBE Insurance Group (QBE)

QBE has been a disappointing performer since the GFC, in our view. The company has already flagged a substantial loss for fiscal year 2020. The shares have fallen from $9.95 on December 17 to close at $8.44 on January 21. Recent price action suggests to us that the share price will fall from here. Creating shareholder value remains a challenge for QBE.

Jabin Hallihan, Morgans

BUY RECOMMENDATIONS

Orocobre (ORE)

We have a favourable outlook for this low cost lithium producer. With a reported corporate cash balance of $US255.6 million, the company is well funded to complete the Naraha lithium hydroxide plant in Japan. ORE has a 75 per cent stake in the plant, with the remainder shared between Toyota and Panasonic. ORE is also expanding its Olaroz lithium facility in Argentina to 42,000 tonnes of lithium carbonate a year. This lift in production is expected to underpin the company’s strong profit growth forecasts in coming years, so we retain a buy rating.

Perpetual (PPT)

This diversified financial services company is trading on a gross dividend yield of 6 per cent, which is forecast to increase to 7.3 per cent next year. PPT also offers a strong earnings outlook, as we’re expecting improving company performance to increase earnings per share from 79 cents to $2.03 during the next 12 months. As a fund manager, profits are largely generated as a percentage of funds under management. So, as markets recover, so too does the company’s earnings.

HOLD RECOMMENDATIONS

Afterpay (APT)

Shares in this buy now, pay later company finished at $8.90 on March 23 last year. The stock closed at $149 on January 21. At these levels, we prefer to hold the stock than buy. Sales have been strong as it continues to attract new customers around the globe. Strong revenue growth is likely to continue, but we have refined our expectations to include a more conservative sales margin forecast going forward.

Super Retail Group (SUL)

The company sells auto parts and accessories, sporting goods and camping equipment via its Supercheap Auto, Rebel and BCF (boating, camping, fishing) stores. During the pandemic, businesses have performed well on the back of strong domestic tourism, an increase in leisure and home-based fitness activities and a general acceleration in online consumption. However, while we retain a hold recommendation, sustaining earnings at today’s elevated levels will be difficult as we expect the company to face more competition as COVID-19 wanes.

SELL RECOMMENDATIONS

ASX Limited (ASX)

We have downgraded our earnings expectations post the company’s recent monthly trading update. In calendar year 2020, average daily futures and options on futures volume were down 14 per cent on calendar year 2019. We expect modest earnings growth in 2021. Stronger growth prospects at this stage of the cycle can be found elsewhere, in our opinion.

QBE Insurance Group (QBE)

The insurance giant continues to disclose the magnitude of expected losses. In December, QBE provided a market update guiding to a $US1.5 billion statutory loss for 2020. It has subsequently updated guidance for an additional $US185 million. A recovery is a long time off, in our view.

Peter Day, Sequoia Wealth Management

BUY RECOMMENDATIONS

JB Hi-Fi (JBH)

This consumer electronics giant released a strong trading update for the first half of fiscal year 2021. Unaudited group sales rose 23.7 per cent on the prior corresponding period to $4.941 billion. Earnings before interest and tax surged 75.9 per cent to $462.7 million. Earnings before interest and tax for group subsidiary, The Good Guys, soared 142 per cent to $126.5 million in response to gross margin expansion and operating leverage. The company has performed well during the pandemic and the outlook is bright.

Super Retail Group (SUL)

Provisional group sales were up 23 per cent for a 26-week period ending on December 26. Earnings before interest and tax surged between 119 per cent and 122 per cent. A shift to domestic tourism contributed to the strong update. EBIT margins have expanded due to higher gross margins, astute cost management and operating leverage. Company brands, such as Supercheap Auto and BCF (boating, camping, fishing), should continue to enjoy strong demand as they cater for Australian lifestyles.

HOLD RECOMMENDATIONS

Boral (BLD)

We remain concerned about the outlook for Boral’s US fly ash business in light of a structural decline in US coal-fired power. But this building products company enjoys support in other markets, including Australian roads and detached housing in Australia and the US. We have upgraded BLD from a lighten recommendation to a hold.

Ampol (ALD)

The fuel company’s Lytton refinery posted an unaudited $4 million loss for the fourth quarter and an unaudited loss of $145 million for 2020. The Lytton refiner margin of $US5.13 a barrel for the fourth quarter was better than expected. Net debt of $434 million at the end of 2020 exceeded our estimate, but was below consensus. Leverage to a recovery is reflected in a recent strong share price performance, assisted by an earlier than expected off-market buyback. We retain a hold recommendation.

SELL RECOMMENDATIONS

Reece (REH)

This plumbing and bathroom products supplier has been among the best performing stocks in our coverage during the past 12 months as a result of a significant re-rating. However, we believe the company’s valuation appears stretched based on a one-year forward price-to-earnings multiple of about 39 times, or 35 times excluding cash. These multiples appear to be pricing in almost perfect execution of its US growth strategy. The share price rose significantly during 2020, so investors can consider taking a profit.

ARB Corporation (ARB)

This 4-wheel drive accessories developer, maker and supplier recently announced another positive trading update. Unaudited sales revenue for the half year to December 31, 2020 rose 21.6 per cent on the prior corresponding period to $284 million. Management noted that first half performance shouldn’t be used as a guide for the second half given an uncertain economic climate. We retain our lighten recommendation.

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.