Michael Heffernan, PhillipCapital
BUY RECOMMENDATIONS
AGL Energy (AGL)
Chart: Share price over the year
This vertically integrated energy stock bought the Loy Yang power plant at a great price, and also has interests in the renewable sector. It has been a solid performer in an uncertain environment, has sound fundamentals and attractive growth prospects.
Boral (BLD)
Chart: Share price over the year
Has benefited from increasing activity in the local building industry and has been a strong sharemarket performer in the past year. Its acquisition of major US builder Headwaters paints a positive outlook.
HOLD RECOMMENDATIONS
Commonwealth Bank of Australia (CBA)
Chart: Share price over the year
The share price of Australia’s premier bank has been hit hard, exacerbated recently by the bank tax. However, at its current price, it looks a compelling buy. Its full year report is due in early August and investors can also look forward to an attractive dividend.
Telstra (TLS)
Chart: Share price over the year
The partial recovery from a share price retreat represents an opportunity to buy a blue chip stock offering a most attractive fully franked dividend.
SELL RECOMMENDATIONS
Wesfarmers (WES)
Chart: Share price over the year
The stock has been hit hard due to a soft retail sector, the continuing presence of Aldi, the imminent entry of Amazon, the recent fall in the coal price and a resurgent Woolworths. However, while bargain hunters may be interested, conservative investors may like to wait until the stock has consolidated in an upward direction.
Sigma Healthcare (SIG)
Chart: Share price over the year
A leading Australian pharmaceutical manufacturer and distributor with sound fundamentals. Recently, it looked like it had overcome its troubles of the past few years and was heading in the right direction. But I prefer to avoid stocks involved in litigation.
Tony Locantro, Argonaut
BUY RECOMMENDATIONS
Great Boulder Resources (GBR)
Chart: Share price over the year
A high risk/high reward junior explorer focusing on advancing a portfolio of well located gold assets in WA. The real excitement should come from drilling the Mt Venn nickel-copper-cobalt targets. The previous owner Gold Road Resources, in the hunt for water, ended up with mineralisation at the edge of a massive 2 km anomaly. This stock is illiquid, but I would expect this to change as drilling draws closer.
AdAlta (1AD)
Chart: Share price over the year
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A biotech junior focusing on idiopathic pulmonary fibrosis (IPF), where i-body AD-114 has already shown promising signs in treating lung tissue in mice. 1AD is also looking at other treatment potential in eyes and kidneys. The IPF sector has seen some significant upfront payments from majors, and with safety trials set to start in early 2018, I would expect an increase in attention. The appointment of Dr Robert Peach to the board (he previously oversaw an $8 billion US takeover) highlights the commercial potential for AD-114.
HOLD RECOMMENDATIONS
Red Metal (RDM)
Chart: Share price over the year
RDM remains my preferred resource junior on the ASX. A recent announcement focused on a new project with geological similarities to Oz Minerals’ Carrapateena project. RDM’s market capitalisation of about $25 million is underpinned by the Maronan lead-silver, copper-gold resource, with further discovery potential at depth. Recent share price weakness provides an opportunity to accumulate the stock leading into some major drilling programs.
Metal Bank (MBK)
Chart: Share price over the year
MBK continues to explore the Triumph Gold Project in North Queensland, working towards outlining shallow gold resources, while expanding the potential at depth. The Eidsvold Project will also be drilled in the near term. Multi-million ounce potential remains, and this would likely see a major share price re-rating. The share price has been subdued due to a lack of exploration results. I recommend MBK as a hold, or high risk speculative buy for those without exposure.
SELL RECOMMENDATIONS
InvoCare (IVC)
Chart: Share price over the year
This funeral company has experienced a strong rally, and, in my view, is now in the take profits zone, with the aim of looking for a re-entry around $12. A number of high price/earnings ratio stocks have disappointed the market, and IVC will need to keep the momentum going to justify its lofty valuation. The shares closed at $14.73 on June 16.
Cochlear (COH)
Chart: Share price over the year
COH closed at $154.34 on June 16. The hearing implants provider is one of the success stories on the ASX. But, in our view, it’s exposed to a potential correction should the market dip, or earnings fail to justify a recent hefty price/earnings multiple of around 40 times. I’d prefer to lighten with some profits, with a view to buying back in a fearful market.
Tony Paterno, Ord Minnett
BUY RECOMMENDATIONS
The Star Entertainment Group (SGR)
Chart: Share price over the year
Delivered defensive, stable and transparent domestic earnings growth and invested strategically in expansion and refurbishment in the Australian market. We expect continued earnings growth, particularly from its projects in Brisbane and the Gold Coast, coupled with disciplined capital allocation. We believe the Australian domestic gaming market is growing, which should be positive for Star, given its 40 per cent market share. Star’s electronic gaming machine business offers a high margin and a predictable and recurring portion of earnings.
Orora (ORA)
Chart: Share price over the year
Earnings growth should be delivered via clear cost saving opportunities from the relatively new B9 paper manufacturing facility in Botany, NSW. A weaker Australian dollar should benefit the translation of earnings from the North American division and from a scaling up of this division.
HOLD RECOMMENDATIONS
Crown Resorts (CWN)
Chart: Share price over the year
Crown is taking steps to capitalise on strength in the domestic market through refurbishments and expansion projects. We believe CWN offers a bright outlook, as Australia is one of the top tourism destinations for Chinese citizens.
Macquarie Group (MQG)
Chart: Share price over the year
Guidance is for fiscal year 2018 earnings to be broadly in line with fiscal year 2017. We expect earnings to be supported by asset realisations, with the outlook now more transactionally dependent as opposed to the growth in annuity-style earnings seen in recent years.
SELL RECOMMENDATIONS
Sonic Healthcare (SHL)
Chart: Share price over the year
Following a period of outperformance, the stock was recently trading 10 per cent above of our valuation. In our view, the key downside catalyst is the likely confirmation of funding reforms planned in Germany and the US. We believe these cuts aren’t fully reflected in consensus estimates. We note that historically, the share price adjustment comes only when earnings fall short of expectations rather than when funding cuts are announced.
ARB Corporation (ARB)
Chart: Share price over the year
Despite the downturn in commodities, the company has continued to grow sales, assisted via the store roll out in the Australian market. However, the stock has re-rated materially over the past several years and was recently trading at a substantial premium to the Small Industrials Index. We see downside risk to current fiscal year 2017 consensus forecasts.
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.
