Ben Faulkner, Sanlam Private Wealth
BUYS RECOMMENDATIONS
CSL (CSL)
Chart: Share price over the year
Profit takers moved when this blood products group recently hit an all time high of $145. A stronger Australian dollar has also weighed on the stock. While it may be argued the shares were fully priced or overvalued at $145, we see the recent pull back as a good entry point for a defensive stock that continues to deliver strong reliable earnings. The shares were trading at $127.61 on August 17.
Aristocrat Leisure (ALL)
Chart: Share price over the year
This gaming machine company offers a solid and reliable business that consistently grows earnings. In our view, a stronger Australian dollar was behind investors taking profits after recent price highs. We believe the share price retreat provides a buying opportunity, as we expect it to start climbing to recent highs of $23.66 on June 26. On August 17, the shares were trading at $21.40.
HOLD RECOMMENDATIONS
ALS Limited (ALQ)
Chart: Share price over the year
This analytical laboratory services company is in a nice uptrend since its recent AGM. While it’s at the upper end of its price range, we’re not a buyer and retain our holding position. But we would see any pull back to $7.50 as a buying opportunity as earnings gather momentum with a recovery in commodity exploration. Speaking with junior resource exploration companies, we hear ALQ laboratories have a backlog and are experiencing delays with their assays. So, the next commentary should show increasing volumes and we may see the stock re-rate to higher prices. The shares were trading at $8.035 on August 17.
BHP Billiton (BHP)
Chart: Share price over the year
We believe a new bull market commodity cycle is still in the early stages of a multi year cycle. Recently, commodity prices had been moving higher, particularly copper and coal. BHP provides good exposure to a diversified commodity mix and reliable low cost mines. Further increases in commodity prices should be positive for company earnings. We view any pull back below $25 as a good buying opportunity. The shares were trading at $26.025 on August 17.
SELL RECOMMENDATIONS
Commonwealth Bank of Australia (CBA)
Chart: Share price over the year
The company is under pressure following allegations it had breached money laundering laws. We believe poor sentiment will continue to weigh on the stock. Also, regulatory attention is likely to remain on the banking sector, adding further pressure.
JB Hi-Fi (JBH)
Chart: Share price over the year
While recent results looked good, we concluded that the commentary was cautious. Integrating The Good Guys acquisition isn’t without risk and the company is up against more competition from online sources, such as Amazon. We view JBH as in a downtrend that may see the stock fall towards $20. The shares were priced at $31.20 on September 7, 2016. On August 17, the shares were trading $25.72.
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Tony Locantro, Alto Capital
BUY RECOMMENDATIONS
Red Metal (RDM)
Chart: Share price over the year
Remains my preferred junior resource company. Stronger lead and zinc prices can lead to an increase in the value of its Maronan resource, which may generate corporate appeal for RDM. In search of major mineral deposits, RDM has an enviable suite of high risk/high reward projects where any one of them could deliver a good result for shareholders.
Metal Bank (MBK)
Chart: Share price over the year
Recent high grade gold results at the Triumph Project in North Queensland highlight the potential to host a multi million ounce gold deposit. Further drilling to be undertaken in the near term could lead to more exploration at depth in search of a bulk tonnage resource. One of my preferred emerging gold juniors.
HOLD RECOMMENDATIONS
HRL Holdings (HRL)
Chart: Share price over the year
Following the recent acquisitions of Morrison Geotechnic and OCTFOLIO, this environmental management company’s recent quarterly cash flow report showed revenues of $5.5 million and net cash of $199,000 from operating activities. Integrating the two businesses appears to be going well and there’s potential for operational improvements. HRL is one of my key small industrial suggestions, albeit with a higher risk profile.
AdAlta (1AD)
Chart: Share price over the year
A small biotech working in fibrosis, which is a niche sector. Antibody AD-114 is being developed and promising pre-clinical toxicology results have been released. A third study is progressing and we expect results to be released soon. Due to a manufacturing delay, we expect the phase one trial of AD-114 to be completed in the second half of 2018. The delay will provide further opportunities to accumulate stock.
SELL RECOMMENDATIONS
Commonwealth Bank of Australia (CBA)
Chart: Share price over the year
In my view, the east coast property bubble is in its final stages. The bank stands accused of breaching money laundering laws, which has put its reputation under intense scrutiny. The money laundering allegations somewhat overshadow its recent record full year profit of $9.88 billion.
Westpac Bank (WBC)
Chart: Share price over the year
WBC’s share price has been more stable than CBA’s. However, over stretched property prices, particularly in Sydney and Melbourne, is behind my recommendation. Also, calls for a Royal Commission into banking are getting louder and this is likely to have a major impact on sentiment.
Robert Makdissi, Baillieu Holst
BUY RECOMMENDATIONS
Janus Henderson Group PLC (JHG)
Chart: Share price over the year
The recently released 2017 second quarter result was ahead of our expectations. It was partly due to a strong fund performance, better fund in-flows and margins exhibiting a stronger underlying business. Synergies post the recent merger are ahead of schedule. Higher funds under management and improving performance create upside risk. The company offers good relative value in the funds management sector.
Praemium (PPS)
Chart: Share price over the year
The recent annual result for this financial services technology provider shows strong revenue growth combined with margin expansion. The company is actively seeking growth in higher margin international products and new capabilities, both organically and via acquisition. We continue to believe in the structural growth of separately managed account (SMA) platforms. This should result in the company continuing its strong growth trajectory. It’s currently trading at attractive market multiples, considering the expected growth in revenue.
HOLD RECOMMENDATIONS
Mayne Pharma Group (MYX)
Chart: Share price over the year
A recent market update revealed thinner margins in generic pharmaceuticals. MYX is experiencing margin pressure in the US generics market, which may create short term headwinds. Other divisions continue to perform strongly. The company is trading on undemanding multiples and has a strong product pipeline.
Nufarm (NUF)
Chart: Share price over the year
A stronger Australian dollar and weaker seasonal conditions have been reflected in a softer share price for this crop protection products company. While volatility is expected to continue due to the nature of any agricultural focused business, we believe this underplays the longer term cost efficiency story for the company. Corporate activity continues to be an upside risk.
SELL RECOMMENDATIONS
APA Group (APA)
Chart: Share price over the year
The emerging east coast gas supply shortfall is attracting attention from regulators and policy makers. APA could be pressured to cut pipeline charges, which would reduce medium to long term revenue growth and prevent windfall returns. In our view, there’s little scope for growth, either organically or via acquisition in what we see is an increasingly competitive market. Any increase in bond yields will leave this energy infrastructure company exposed to a potential share price fall.
JB Hi-Fi (JBH)
Chart: Share price over the year
While its recent report showed good year on year sales growth, we believe the company faces headwinds, including Amazon’s entry into the domestic market. Add a benign wage growth environment and we believe discretionary spending will struggle to increase.
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