Les Szancer, Blueribbonoptionsonline.com
BUY RECOMMENDATIONS
Victory Mines (VIC)
Chart: Share price over the year to versus ASX200 (XJO)
A West Australian company that recently listed on the ASX. It listed at 20 cents on October 9 and was priced at 18.5 cents on November 8. It offers good copper and rare earth prospects at Jungle Well, Laverton, Clara Hills, Yerrida Basin and Lake Barlee. Look for some interesting announcements. A speculative buy.
Newcrest Mining (NCM)
Chart: Share price over the year to versus ASX200 (XJO)
I don’t know why its share price is languishing when gold is still trading around $US1700 an ounce. But I’m expecting gold to reach new heights in these uncertain times. Most average punters won’t buy physical gold, but will invest in gold shares. Yes, there are plenty of small mining companies to invest in, but most will go for a blue chip like Newcrest, then, in my view, watch the share price rise.
HOLD RECOMMENDATIONS
Woodside Petroleum (WPL)
Chart: Share price over the year to versus ASX200 (XJO)
This oil and gas company hasn’t been a market darling for a long time. One day LNG will become a valuable commodity and Woodside is in a prime position to take advantage.
ANZ Bank (ANZ)
Chart: Share price over the year to versus ASX200 (XJO)
Ask 50 brokers and analysts in the same room which is the best major bank to invest in and all four would be put forward for varying reasons. They all pay decent dividends and make big profits. ANZ seems to be travelling well after recently posting a $5.66 billion full year profit after tax. If you already hold ANZ, I see no reason to sell, but the other 49 guys might have different views.
SELL RECOMMENDATIONS
Telstra (TLS)
Chart: Share price over the year to versus ASX200 (XJO)
Yes, I have often suggested TLS as a buy or hold. If you just want the dividend then you may want to hold. However, the shares have enjoyed a pretty sharp rise in the past few months, so the yield is considerably lower now. If you bought when I was recommending it at $2.80 or $3, I would be taking a profit on at least half your holding then buy on any dips. It can’t go up forever. The shares were trading at $4.11 on November 8.
Qantas (QAN)
Chart: Share price over the year to versus ASX200 (XJO)
The share price is dreadful and so is the return on invested capital. Jetstar is the only shining light in the past few years, but competition is getting tougher. All airlines seem to struggle and, even when they do post a profit, it’s tiny compared to total investment. Qantas shares were trading at $1.28 on November 8.
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BUY RECOMMENDATIONS
Seek (SEK)
Chart: Share price over the year to versus ASX200 (XJO)
Seek operates three main divisions – employment, education and international investments. Strong domestic cash flow is used to develop its number one online status in Brazil, Mexico and across Asia. In the Australian market, first mover advantage has enabled it to become the dominant portal by a big margin. Its high returns on invested capital have averaged 25 per cent over four years and it’s forecast to average 36 per cent in the next five years.
Super Retail Group (SUL)
Chart: Share price over the year to versus ASX200 (XJO)
SUL is our top pick in the retail sector. SUL has delivered double digit earnings growth in a tough retail environment, underpinned by rolling out 24-to-30 stores a year. We expect gross margins to improve as SUL gradually increases its own branded products. We have a forecast net profit after tax of $117 million for financial year 2013 and a $138 million for 2014.
HOLD RECOMMENDATIONS
Blackmores (BKL)
Chart: Share price over the year to versus ASX200 (XJO)
Blackmores reported a 28 per cent increase in sales to $85 million for the first quarter of financial year 2013. But it didn’t translate to the bottom line, which is a concerning trend of the last two quarters. The increase in expenses from its launch into China, and one-off costs associated with the acquisition of FIT-BioCeuticals have increased debt to $72 million. Hold, but one to keep an eye on.
Ruralco Holdings (RHL)
Chart: Share price over the year to versus ASX200 (XJO)
It’s a hold for now after recently downgrading net profit after tax guidance to $15.4 million for financial year 2012. It pointed to lower industry-wide revenues from its Agency business, which includes wool, livestock and Tasmanian real estate. Lower volumes and pricing in these sectors shouldn’t come as a major surprise. Ruralco may make an official bid for Elders.
SELL RECOMMENDATIONS
Arrium (ARI)
Chart: Share price over the year to versus ASX200 (XJO)
The recent bid for Arrium at 88 cents a share has been rejected by the board. The consortium, which included Posco and Noble Group, has stated it “will cease engagement” for this steel and iron ore company. Arrium’s balance sheet holds more than $2 billion in debt. We’re not expecting earnings per share growth for at least two years, so the board may live to regret its decision. Sell on rallies.
Fortescue Metals Group (FMG)
Chart: Share price over the year to versus ASX200 (XJO)
We question earnings sustainability for this big iron ore exporter. It sells a lower grade of ore. Production costs going forward are more than double BHP’s and Rio Tinto’s. What’s more concerning is its net debt-to-equity ratio of more than 150 per cent, which leaves it vulnerable to shocks. Sell on rallies.
James Cooper, Morningstar
BUY RECOMMENDATIONS
QBE Insurance (QBE)
Chart: Share price over the year to versus ASX200 (XJO)
Significant catastrophes cut profits of insurance companies around the world in fiscal 2011. Although QBE’s first half 2012 result was below expectations, earnings are recovering. A full recovery is still on the cards for the full year. As performance is slowly restored, QBE continues to trade at a discount. Strong management reduces the overall risk profile, spreading exposures by product and geography. A strong balance sheet also provides comfort.
Seven West Media (SWM)
Chart: Share price over the year to versus ASX200 (XJO)
Like all traditional media companies, Seven West continues to grapple with growing online advertising. In financial year 2012, pro-forma profit fell by 27 per cent. While audiences will continue to become more fragmented across a range of online content providers, we expect Seven to leverage its strong brand recognition and pipeline of domestic content. Whether online or in television and newspapers, content remains key. An undemanding price/earnings ratio of about 5 times and a 9.5 per cent dividend yield also attract.
HOLD RECOMMENDATIONS
ALS (ALQ)
Chart: Share price over the year to versus ASX200 (XJO)
Guidance for first half 2013 NPAT growth is 27 per cent-to-37 per cent. This positive outlook for ALS, formerly Campbell Brothers, reflects several acquisitions, new lab openings and diversification into more resilient sectors like food and pharmaceuticals. Despite a bleaker outlook emerging in global resource markets, a GFC-type decline in demand isn’t expected.
Mermaid Marine (MRM)
Chart: Share price over the year to versus ASX200 (XJO)
Full year 2012 revenue increased 33 per cent to $380.4 million and NPAT by a healthy 18.6 per cent to $51 million. It’s a beneficiary of mammoth LNG projects on Australia’s north-west coast. Demand for all services will support double-digit EBIT growth for the next few years.
SELL RECOMMENDATIONS
Fortescue Metals Group (FMG)
Chart: Share price over the year to versus ASX200 (XJO)
Consensus expectations are for full year 2012 margin levels to persist to 2016/17. Our view is less optimistic. The 2012 margins were driven by an extremely favourable average 62 per cent fines price of US$151 a tonne delivered to China. The magical combination of unprecedented iron ore demand, historically high prices and cheap and plentiful debt won’t last forever.
Carsales.com (CRZ)
Chart: Share price over the year to versus ASX200 (XJO)
Online classified sites continue to post impressive growth, while other formats, such as newspapers, continue to bleed. Full year 2012 NPAT increased 23 per cent, with double-digit growth expected to continue in the short-term. But CRZ appears marginally overvalued on a full year 2013 price/earnings ratio of 21.4 times.
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