18 Share Tips – 30 June 2014

Ken Bloomfield, Financial Clarity

BUY RECOMMENDATIONS

ResMed (RMD)

Chart: Share price over the year versus ASX200 (XJO)

A world leader in treating sleep disordered breathing, which has a correlation to the rapidly growing diseases of diabetes and obesity. Apart from a naturally growing market, the sector also has high barriers to entry as it requires much spending on research and development. A leading products maker, we believe RMD has five years plus of profit growth ahead and its current valuation is cheap historically, indicating good buying value at present.

McMillan Shakespeare (MMS)

Chart: Share price over the year versus ASX200 (XJO)

MMS is the largest salary packaging and car leasing company in Australia. In 2013, the Labor Government “kneecapped” the industry by proposing changes to FBT rules, which would have closed the novation leasing market overnight. MMS shares halved in value, even though the legislation never made it through Parliament. Shares are oversold currently at 10 times annual profits. It offers a healthy franked dividend and good capital growth prospects. Not for the faint hearted, but good potential upside.

HOLD RECOMMENDATIONS

Telstra (TLS)

Chart: Share price over the year versus ASX200 (XJO)

Telstra’s share price has doubled in three years. Further large price rises are unlikely from here. However, TLS is still paying a fully franked dividend yield of about 5.6 per cent, forecast to move to 5.8 per cent next year – the equivalent to 8 per cent pre-tax income. With competitor Vodafone dropping the ball with its network problems and Telstra locking in substantial NBN income from the Government, TLS shares are worth holding for a steady, tax effective income and little downside.

WAM Capital (WAM)

Chart: Share price over the year versus ASX200 (XJO)

Wilson Asset Management started WAM Capital, a listed investment company in 1999.  WAM focuses on buying small-to- medium sized Australian industrial companies and now has a 15-year track record of outperforming the market (18 per cent per annum compared to market returns of 8 per cent). Provides investors the benefit of diversification to smaller companies and exposure to a value adding manager paying more than 6 per cent fully franked dividend yields.

SELL RECOMMENDATIONS

Coca-Cola Amatil (CCL)

Chart: Share price over the year versus ASX200 (XJO)

The beverage maker has posted two major profit downgrades since the start of 2013 and its share price has plummeted from $15 to $9 levels. However, with new CEO Alison Watkins announcing a full business review over the next 12 months, we smell another downgrade or asset write-down. The stock isn’t cheap based on next year’s earnings, so, in our view, CCL is one to avoid until the decks are cleared. The shares were trading at $9.47 on June 26.

Fortescue Metals (FMG)

Chart: Share price over the year versus ASX200 (XJO)

Iron ore prices have fallen about 35 per cent in three months. But unlike the similar price fall in 2012, this time iron ore inventories in China have stayed high. Combined with a slowing Chinese residential sector, a significant iron ore price recovery in the short term looks unlikely. Fortescue has considerable debt amid margin contraction. Stay on the sidelines until inventories start shrinking in Chinese ports.

Gavin Wendt, MineLife

BUY RECOMMENDATIONS

Talisman Mining (TLM)

Chart: Share price over the year versus ASX200 (XJO)

Talisman’s share price has doubled recently on the back of Sandfire Resources starting fieldwork on Talisman’s acreage within the vicinity of Sandfire’s DeGrussa copper mine in WA. Survey work has already identified an initial conductor for diamond drill testing, situated just 5 km east of DeGrussa. Sandfire had identified a massive combined 65 km strike length of prospective VMS (Volcanogenic Massive Sulphides) horizon across the combined tenements.

Matsa Resources (MAT)

Chart: Share price over the year versus ASX200 (XJO)

The company is enjoying strong exploration and sharemarket success on two fronts in WA. Firstly, its Symons Hill nickel project in the high profile Fraser Range province, where initial drilling and surveying have provided encouraging results just 6 km along strike from Sirius Resources’ spectacular Nova-Bollinger nickel discoveries. Secondly, at its Killaloe nickel joint venture, where initial drilling and surveying has generated encouraging nickel sulphide indications.

HOLD RECOMMENDATIONS

West African Resources (WAF)

Chart: Share price over the year versus ASX200 (XJO)

An emerging gold production opportunity, WAF has maintained strong levels of activity at a time when many West African plays have gone off the boil, or fallen completely off investors’ radar screens. WAF aims to be at least a 50,000 ounce a year gold producer within two years via a low cost heap leach starter project at its Mankarga 5 deposit in Burkina Faso, subject to study outcomes and funding.

Wolf Minerals (WLF)

Chart: Share price over the year versus ASX200 (XJO)

One of the most attractive emerging tungsten producers in the world.  Its Hemerdon project in the UK is on schedule for first production by the end of 2015. A major A$182.7 million capital raising was recently completed. Hemerdon ranks as the world’s third biggest undeveloped tungsten deposits and there’s tremendous scope to significantly expand the resource base through exploration.

SELL RECOMMENDATIONS

Atlas Iron (AGO)

Chart: Share price over the year versus ASX200 (XJO)

The falling price of iron ore and simultaneous expansion of discounts relating to ore quality are putting significant pressure on independent producers like Atlas Iron, whose margins aren’t as robust as the ultra low cost producers like RIO, BHP and Vale. In our view, price and quality discounts are likely to lead to a $15 a tonne discount for Atlas Blend ore, potentially reducing revenue by 15 per cent and EBITDA by 60 per cent in fiscal year 2014.

Paladin Energy (PDN)

Chart: Share price over the year versus ASX200 (XJO)

The share price has suffered in response to uranium price weakness. Consequently, the company could come under pressure to cover late 2015 maturing debt. A stock to examine when uranium prices recover, as it’s one of the few independent players to develop new uranium mines over the past decade. But for now, prefer others.

Roger Allan, PhillipCapital

BUY RECOMMENDATIONS

BHP Billiton (BHP)

Chart: Share price over the year versus ASX200 (XJO)

The global miner is fundamentally sound and its balance sheet will help ride out likely volatility. Exposure to a US cyclical bounce and local LNG adds to its appeal. The company will also benefit from capital management initiatives.

Whitehaven Coal (WHC)

Chart: Share price over the year versus ASX200 (XJO)

WHC’s new management team is building a strong track record. It’s boosting underground mine performance to world-class levels and also reducing costs associated with open cut mines.

HOLD RECOMMENDATIONS

Woolworths (WOW)

Chart: Share price over the year versus ASX200 (XJO)

Masters Hardware is likely to take more time to be profitable. Minimum wage increases also impacts at the margin. Overall efficiencies, floor space expansion and modest real growth see earnings growing despite challenges. Yield also supports the stock.

CSL (CSL)

Chart: Share price over the year versus ASX200 (XJO)

This blood products group is a sound performer. The market has responded with a significant share price rise in the past two years. It has a strong presence in the US, so it should benefit from an improving economy. The company should also benefit from capital management initiatives.

SELL RECOMMENDATIONS

Pacific Brands (PBG)

Chart: Share price over the year versus ASX200 (XJO)

While some investors may wish to hold the stock in anticipation of a strategic review unlocking value, we think the stock is a sell on fundamentals. In our view, the balance sheet of this consumer brands company appears stretched and the dividend is at risk.

Amcor (AMC)

Chart: Share price over the year versus ASX200 (XJO)

The global packaging giant has a good track record of lifting earnings per share and generates strong cash flow. However, at this point, we’re concerned that Eastern European tensions add to earnings risk.

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.

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