John Rawicki, Ord Minnett
BUY RECOMMENDATIONS
Ramsay Health Care (RHC)
Chart: Share price over the year to versus ASX200 (XJO)
The recent share price retreat in the past two months has been overdone, so we believe it represents a buying opportunity for a stock with strong defensive characteristics. In our view, growth will continue to be supported by a strong pipeline of new projects, national health service reform and potential acquisition opportunities.
Boral (BLD)
Chart: Share price over the year to versus ASX200 (XJO)
Despite the company’s full year guidance failing to meet our expectations, we still believe there’s room for optimism. In particular, we note considerable leverage to aggregate price increases, and an improving outlook for US housing and construction. Our December 2012 price target rises from $4.40 to $4.55 a share. On March 22, the shares were trading at $4.10.
HOLD RECOMMENDATIONS
Tox Free Solutions (TOX)
Chart: Share price over the year to versus ASX200 (XJO)
While we see this integrated waste management and industrial services company as a strong growth story, we believe today’s share price is factoring in the near-term growth profile of the business. The company is strongly leveraged to the resources sector and continues to generate substantial organic growth driven by an increase in resource projects in Queensland and Western Australia.
Amcor (AMC)
Chart: Share price over the year to versus ASX200 (XJO)
Amcor is proposing to acquire another packaging company, Aperio Group, as part of its growth strategy. The ACCC is currently reviewing the proposal and we believe there’s a reasonable chance it will be approved if a combined entity isn’t seen as anti-competitive.
SELL RECOMMENDATIONS
Myer Holdings (MYR)
Chart: Share price over the year to versus ASX200 (XJO)
We believe there’s downside risk to meeting full year 2012 earnings guidance. Sales remain weak and the outlook is challenging. This has weighed on MYR’s share price for some time and we expect this to continue.
Aurora Oil & Gas (AUT)
Chart: Share price over the year to versus ASX200 (XJO)
An exploration and production company, with operations in the US state of Texas. In our view, the company needs to undertake a much more active drilling program than what is currently planned for 2012. We believe AUT offers less upside than our other small/mid cap sector preferences, namely AWE Limited and Roc Oil.
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Darren Jackson, Calibre Investments
BUY RECOMMENDATIONS
Santos (STO)
Chart: Share price over the year to versus ASX200 (XJO)
Santos is our preferred stock for exposure to gas in the Asia Pacific. Natural gas is one of the most reliable and clean energy sources. While gas prices in the US have fallen due to the shale boom, they remain buoyant in Asia. Santos is well positioned to benefit from increasing Asian energy demand via its quality asset mix.
Oil Basins (OBL)
Chart: Share price over the year to versus ASX200 (XJO)
A junior oil and gas explorer that’s starting to attract investor attention. The company has acreage at the Carnarvon and Canning basins in Western Australia, which we believe could be of potential value. Any positive news flow in 2012 will be key to sustaining OBL’s recent re-rating by the market. A speculative buy.
HOLD RECOMMENDATIONS
OZ Minerals (OZL)
Chart: Share price over the year to versus ASX200 (XJO)
On a peer comparison, OZ Minerals has been underperforming relative to other copper miners. This is partially due to its large cash position relative to market capitalisation. Efficient allocation of capital and return on equity are crucial. Until there’s certainty regarding the allocation of these funds, such as a share buyback or project acquisition, we believe a discount will apply.
Treasury Wine Estates (TWE)
Chart: Share price over the year to versus ASX200 (XJO)
China’s appetite for Australian wines has grown quite considerably while TWE’s performance has remained relatively subdued. A material improvement in the company’s earnings performance, or interest from an acquirer would elevate this stock to a buy.
SELL RECOMMENDATIONS
Atlas Iron (AGO)
Chart: Share price over the year to versus ASX200 (XJO)
Spot iron ore prices have proven to be resilient so far. But longer term, iron ore margins are likely to be pressured. Consequently, we would consider selling or taking a profit in AGO due to the heightened risk of single commodity exposure. But we do note there will be continuing corporate activity within the iron ore space.
OM Holdings (OMH)
Chart: Share price over the year to versus ASX200 (XJO)
OMH is a vertically integrated metals group with a strong focus on manganese. Its operations are highly leveraged to Chinese steel consumption. Expansion plans are to be partially funded via a highly dilutive issue of convertible notes and a placement. Additionally, the company has moderate levels of debt.
James Samson, Lincoln Indicators
BUY RECOMMENDATIONS
Horizon Oil (HZN)
Chart: Share price over the year to versus ASX200 (XJO)
Horizon is a developing oil and gas producer, targeting projects in Papua New Guinea. We expect the company will be able to fund its much anticipated Stanley project in PNG, and accordingly believe Horizon represents good value to risk hungry investors.
Seymour Whyte (SWL)
Chart: Share price over the year to versus ASX200 (XJO)
Despite us inherently avoiding infrastructure businesses, we believe SWL has created a niche for itself in delivering complex $50 million-to-$80 million civil infrastructure projects. After posting a record half year result, we expect a strong full year. The catalyst for further gains will be additional contract wins to shore up the company’s 2013 order book.
HOLD RECOMMENDATIONS
Fleetwood Corporation (FWD)
Chart: Share price over the year to versus ASX200 (XJO)
After reporting reasonable results to the market, FWD remains a well-placed business for its exposure to the mining boom. Additionally, this mobile accommodation company pays a healthy fully franked dividend yield of about 6.25 per cent. Although the share price appears fully valued, the dividend and resources exposure means the company remains a healthy investment case.
Ramsay Health Care (RHC)
Chart: Share price over the year to versus ASX200 (XJO)
This hospital operator is leveraged to an ageing population. The company pays a fully franked dividend, and its balance sheet is strong enough to take advantage of potentially attractive acquisitions should it choose.
SELL RECOMMENDATIONS
QBE Insurance Group (QBE)
Chart: Share price over the year to versus ASX200 (XJO)
The cost of reinsurance is adversely affecting most Australian insurers. Big catastrophe claims last financial year contributed to QBE’s falling profits. With long-time chief executive Frank O’Halloran departing in August, we believe QBE faces tough times. In our view, it’s over valued at $13. The shares were trading at $13.95 on March 22.
Flight Centre (FLT)
Chart: Share price over the year to versus ASX200 (XJO)
Although this travel agency chain is financially healthy and has performed well in the past six months, the ACCC recently revealed it was launching price fixing allegations against the company. It appears the market is yet to factor in the potential impact of such a case and the possible drop in bookings.
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