Jonathon Feil, Morgans
BUY RECOMMENDATIONS
Ashley Services Group (ASH)
Chart: Share price over the year
Provides training, recruitment and labour hire services. The stock has been under substantial pressure and the price has been slashed. It’s trading on a price/earnings multiple of 1 time and offers a sound balance sheet. It should benefit from other players exiting the market by acquiring contracts and staff. Director Ross Shrimpton currently holds about 60 per cent of issued stock after recently buying more.
Superloop (SLC)
Chart: Share price over the year
A telecommunications and infrastructure company aiming to become an independent provider of connectivity services in the Asia Pacific region. Morgans did the IPO at $1 a share. We recently raised $41.9 million at $1.90 a share. This will establish a 110 kilometre fibre optic network and operations in Hong Kong, a major telecommunications gateway to Asia and mainland China.
HOLD RECOMMENDATIONS
PWR Holdings (PWH)
Chart: Share price over the year
Designs and makes customised cooling solutions for the automotive industry and motorsports teams, such as Formula 1, NASCAR and V8 Supercars. A Morgans IPO at $1.50, the stock raced to $2.90 on the first day of listing. It was recently trading on a fiscal year 2016 price/earnings multiple of 25.5 times, which looks demanding and could be a reason to consider taking a profit. But possible future contract wins have the potential to substantially ramp up earnings.
Liquefied Natural Gas (LNG)
Chart: Share price over the year
Previously, we have recommended selling LNG as we believed a $2 billion market cap was too high for a pre-production story. The share price has fallen from $4.04 on July 6 to close at 98 cents on December 9. I’m happy to hold as there’s potential for the stock to rebound from these levels.
SELL RECOMMENDATIONS
Aurizon Holdings (AZJ)
Chart: Share price over the year
We think the market is too bullish about the outlook for AZJ’s revenue growth and EBIT margins. Our concerns relate to potential non-renewal or early termination of haulage contracts given end product market weakness. This is likely to put downward pressure on AZJ’s share price.
Sirtex Medical (SRX)
Chart: Share price over the year
The market is too optimistic about the company’s ability to drive sales off the back of a clinical study that we believe missed its target in relation to outcome. Fiscal year 2016 guidance for dose sales is inline with historic trends, clearly indicating the growth trajectory remains unchanged.
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Matthew Felsman, APP Securities
BUY RECOMMENDATIONS
Mirvac Group (MGR)
Chart: Share price over the year
In the past year, this property group has been trading in a downtrend, but it now appears to be over. The trend has decisively reversed breaking through resistance levels. In the sector, we have seen recent consolidation with Dexus Property offering to buy Investa Office. For the past six months, rumours have been circulating that Mirvac may soon be up for sale. It’s advancing in a volatile market and coming into a late December dividend.
iShares Europe ETF (IEU)
Chart: Share price over the year
Provides exposure to the European equity markets while hedging exposure to fluctuations in currency. Australia has underperformed amid likely further headwinds, while European markets recently had their biggest correction in six months. Germany was recently up 9 per cent for the year. A third of a trillion Euros will be pumped into the European economy in the next 18 months, so get long in front of the European Central Bank.
HOLD RECOMMENDATIONS
Magellan Financial Group (MFG)
Chart: Share price over the year
The stock has doubled in the past year, benefiting largely from its global investment strategy denominated in US dollars that’s seen institutions invest as much as $40 billion with the group. The Magellan chart largely mirrors US markets, and it’s likely we’ll see fresh highs into 2016. Consider taking a profit after fresh highs.
Bank of Queensland (BOQ)
Chart: Share price over the year
It is not difficult to see why this stock will beat the index. Earnings are growing faster than the market (earnings per share relative to market). Also, the price/earnings ratio was recently trading at a discount to the market. A long term hold offering attractive fully franked dividends well above 5 per cent.
SELL RECOMMENDATIONS
Amcor (AMC)
Chart: Share price over the year
The market is very long US dollar and on those other proxy US dollar assets like Amcor. With the US dollar breaking 12 year highs recently, the traditional logic of the dollar strengthening when the US Federal Reserve raises interest rates is well and truly priced in. When rates rise, an exit from the much loved long US dollar earners trade is likely.
James Hardie Industries PLC (JHX)
Chart: Share price over the year
This building products company is up more than 30 per cent for the year on a higher US dollar. Last month, the company warned full year profit would miss analysts’ expectations.
James Samson, Eureka Report
BUY RECOMMENDATIONS
Steadfast Group (SDF)
Chart: Share price over the year
A large writer of general insurance premiums. After making significant acquisitions in fiscal year 2015, the company is guiding between 41 per cent and 46 per cent growth in net profit after tax and before amortisation. Guidance for cash earnings per share growth is between 10 per cent and 14 per cent. SDF issued new shares to pay for acquisitions. With growth expected in fiscal years 2016 and 2017, SDF offers good value to my $1.68 valuation. It also offers a strong yield – near 6 per cent including franking value. The shares finished at $1.485 on December 9.
G8 Education (GEM)
Chart: Share price over the year
The largest listed childcare centre operator in the sector. The share price suffered in response to a failed bid to purchase rival group Affinity Education and from the resignation of the company’s chairwoman Jenny Hutson. However, following the appointments of new chairman Mark Johnson and auditors from 2016, GEM is rebuilding trust with the market. The company is trading at a discount to my $4.12 valuation and offers a dividend of 6 cents a quarter. The stock finished at $3.28 on December 9.
HOLD RECOMMENDATIONS
Vita Group (VTG)
Chart: Share price over the year
This national telecommunications company provided a guidance update on December 10, reiterating the strength of the business and announcing that it will close the remaining eight Next Byte stores. These are positives, and the guidance was strong in terms of earnings from the core business. However, the market has reacted and the stock is quite fully priced.
Magellan Flagship Fund (MFF)
Chart: Share price over the year
Focuses on international exposure for Australian investors. This listed investment company is trading near net tangible assets, and has outstanding options set for exercise in 2017. These options could dilute the stock if and when exercised. Lately, MFF’s underlying investments have performed well, but so has the share price.
SELL RECOMMENDATIONS
Silex Systems (SLX)
Chart: Share price over the year
Focuses on using laser technology for uranium enrichment. Uranium markets are weak. It’s difficult to see uranium recovering in the short term given oil prices so low. Positives include technology and potential. But given a weak uranium market, there’s better investment options available elsewhere.
Mineral Resources (MIN)
Chart: Share price over the year
Historically performed iron ore crushing operations, but made significant investments in iron ore mining and exports. Low iron ore prices are putting the squeeze on production revenue and additional pressure on the services business, as miners look for cost savings throughout the supply chain. Although a strong business, there’s too many risks at this stage in the commodity price cycle.
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This column does not imply any stock recommendations or offer financial advice. Readers should do further research of their own or talk to their adviser before acting on themes in this article.
