18 Share Tips – 21st October 2024

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Dylan Evans, Catapult Wealth 

BUY RECOMMENDATIONS

BUY – Steadfast Group (SDF)

Steadfast operates international general insurance broking and agency networks across Australia, New Zealand, Singapore and the US. The company posted underlying net profit after tax of $252.2 million in fiscal year 2024, up 21.8 per cent on the prior corresponding period. We’re attracted to the broking model, as it enables Steadfast to grow and benefit from increasing insurance premiums via commissions without the underlying insurance claims risk. On September 10, 2024, the company announced it would undertake a further review to identify and address inappropriate strata title insurance behaviour.

BUY – Lynas Rare Earths (LYC)

Revenue from ordinary activities in fiscal year 2024 was down 37.3 per cent on the prior corresponding period. Net profit was down 72.8 per cent. However, behind the headline numbers is a positive story of expansion. During the year, Lynas increased its reserves, completed the first stage of its Mt Weld mine expansion and delivered on its planned processing plant upgrades. Consequently, these positive developments enable Lynas to support future production and to take advantage of future demand for rare earths, driven by growth in electronic devices, renewable energy technology and defence.

HOLD RECOMMENDATIONS

HOLD – Wesfarmers (WES)

Retail has been a challenging environment in the past few years, but Wesfarmers has navigated it well. Kmart and Bunnings have both benefited from consumers searching for value, and their market positions have improved. WES was recently trading on a price/earnings ratio above 30, so it’s expensive, in our view. But we suggest holding due to the quality of the Bunnings hardware business.

HOLD – Stockland Group (SGP)

Stockland is a diversified property group. We like its low level of exposure to the office sector due to more people working from home. Stockland’s residential development arm also appeals, offering potential for expansion to meet the need for increasing housing and the Federal Government’s national housing goal. Under its National Housing Accord, the Government is aiming to develop 240,000 new dwellings per year by 2029, but was recently below the target.

SELL RECOMMENDATIONS

SELL – Metcash (MTS)

Metcash is a wholesale distribution and marketing company involved in food, liquor and hardware. Total group earnings before interest and tax of $496.3 million in fiscal year 2024 were down 0.9 per cent on the prior corresponding period. The company’s independent stores are up against fierce competition from Coles, Woolworths and Bunnings. The shares have fallen from $3.97 on March 13 to trade at $3.505 on October 17. We prefer other stocks in this competitive environment.

SELL – Mineral Resources (MIN)

This mining services company also operates several iron ore and lithium mines in Western Australia. Lithium prices have plunged since 2023, and iron ore prices remain under pressure. MIN recently sold a 49 per cent interest in its Onslow iron haul road to Morgan Stanley Infrastructure Partners for $1.1 billion. MIN will receive an additional $200 million as a deferred cash settlement if tonnage conditions are met. However, we remain concerned about elevated debt levels. The company reported net debt of $4.4 billion at its full year 2024 results. The shares have fallen from $79.49 on May 20 to trade at $49.11 on October 17. There’s upside if commodity prices rebound, but potential cash flow issues if the opposite transpires.

Jed Richards, Shaw and Partners 

BUY RECOMMENDATIONS

BUY – REA Group (REA)

REA is a global digital advertising business specialising in property. REA recently abandoned an $8.3 billion takeover bid for UK peer Rightmove. This decision confirms its discipline and displays a commitment to sensible growth. While REA trades on a high price/earnings ratio, it deserves the valuation given it operates the dominant real estate website in Australia. REA delivered a strong result in fiscal year 2024, with revenue increasing 23 per cent on the prior corresponding period.

BUY – WiseTech Global (WTC)

I love investing in companies that are clear leaders in their industry. It’s even better when the industry is global. WTC provides software for the global logistics industry. The biggest shipping companies in the world are signing up and the company is quickly gaining a reputation as the best software solutions provider. On a valuation basis relative to current earnings, investors are paying a high share price for WTC. However, in my view, high multiples are likely to continue for years to come.

HOLD RECOMMENDATIONS

HOLD – Orica (ORI) 

Orica produces and supplies explosives to the mining industry. We expect profit to continue increasing due to strong demand for core blasting products across the world. Company management has been successful at renewing and extending contracts. Orica is a leader in the industry. The five year outlook forecasts consistent revenue growth.

HOLD – Macquarie Group (MQG)

Macquarie is a global diversified financial services provider. Management has proven it can manage risk better than most global banks in tough times, while taking large growth opportunities at the right time. The ratio between growth in earnings and the increasing share price has resulted in a more attractive price/earnings ratio.

SELL RECOMMENDATIONS

SELL – Computershare (CPU) 

This share registry company is up against improving competition. Technology is changing rapidly, and Computershare costs continue to rise. Against a backdrop of weakening broader corporate activity, CPU may struggle to meet market expectations moving forward. The shares have fallen from $28.63 on August 19 to trade at $26.42 on October 17. We prefer other stocks at this stage of the cycle.

SELL – Bendigo and Adelaide Bank (BEN)

Australian banks have been quite open about the lack of growth opportunities in a softer economy. The bigger banks have deeper pockets to handle a challenging slowdown. BEN’s share price has performed well in calendar year 2024, increasing from $9.70 on January 2 to trade at $12.20 on October 17. Investors may want to consider cashing in some gains until Australia’s economic growth outlook improves. Please note: WiseTech Global is recommended as a buy and a sell this week as experts hold different views about the company’s outlook.

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BUY RECOMMENDATIONS

BUY – GrainCorp (GNC)

GrainCorp is an agribusiness and processing company. Favourable weather conditions for winter and summer crops could generate near record volumes, particularly given minimal risk of a El Nino weather event until 2027. Advances in farming technology have boosted crop yields, which benefits GNC’s volume-based business model. The agriculture sector’s favourable outlook, coupled with its defensive nature, offer resilience against broader market weakness.

BUY – DroneShield (DRO)

The ongoing conflicts in Ukraine and the Middle East have underscored the critical need for counter drone technology, which is driving a surge in demand. DroneShield, a leading provider of artificial intelligence powered counter drone solutions, is well positioned to capitalise in this growing market. The global anti drone solutions market is expected to grow exponentially moving forward. DRO doubled its sales pipeline since March 31, 2024, to $1.1 billion at August 23, 2024. DRO recently announced a repeat US Government order of a $13.5 million contract.

HOLD RECOMMENDATIONS

HOLD – Liontown Resources (LTR)

Liontown has risen from 59.5 cents on September 6 to trade at 84.7 cents on October 17. LTR recently shipped its maiden spodumene concentrate from Kathleen Valley and also completed initial spot sales at a considerable premium. This is the first shipment of many more as the Kathleen Valley Lithium project is a tier 1 operation with a mine life of more than 20 years.

HOLD – Paladin Energy (PDN)

Paladin has benefited from uranium returning to favour on news Microsoft would buy power from the Three Mile Island nuclear energy plant in the US when it’s planned to resume operating by 2028. Also, PDN’s proposed acquisition of Fission Uranium Corp was recently boosted as it has received approval from the Supreme Court of British Columbia. However, the proposed acquisition still needs to clear a national security review under the Investment Canada Act. The proposed acquisition shows PDN’s ambition to become one of the world’s premier uranium producers.

SELL RECOMMENDATIONS

SELL – WiseTech Global (WTC)

WiseTech develops software for the global logistics industry. The shares have risen from $84.26 on August 5 to trade at $126.06 on October 17. The shares were recently trading on a lofty price/earnings ratio of about 170, so there’s a risk of a pullback at this valuation, as has happened in the past. Investors may want to consider taking a profit at these levels.

SELL – Guzman Y Gomez (GYG)

Shares in this Mexican themed restaurant chain were issued in the initial public offering at $22 and the company listed on the ASX on June 20, 2024. The shares were trading at $37.54 on October 17 after falling from a closing price of $42 on September 11. A lot of stock from escrow is going to be released moving forward in fiscal year 2025, so we find it difficult to see fresh buyers pushing the share price higher from what we consider already expensive levels.

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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.