Astute investors are always looking for value. The lead-up to June 30, 2011 is a good time to look as institutions, fund managers and big investors prepare their portfolios for the end of the financial year. During the next four weeks, the big players are more likely to take a loss on underperforming or over sold stocks to reduce capital gains tax on profits.  Accordingly, equities analyst James Samson, of Lincoln Indicators, has established a list of companies whose share prices have been flat or under-performed during the past 12 months. But the companies have strong business behind them, Samson says. He suggests investors monitor his list for a potentially cheap entry point. Share prices may fall further from here, but over the long term they offer good upside potential. “Companies with strong businesses which have underperformed this financial year may present investors with value opportunities on the back of tax selling,” he says.

Macarthur Coal (MCC) 


 Chart: Share price over the year to 27/05/2011 versus ASX200 (XJO)

Last year, Macarthur Coal tabled a bid to buy Gloucester Coal while, at the same time, other companies Peabody and New Hope Corporation were circling Macarthur. But each proposal was withdrawn as plans to introduce a resource super profits tax emerged. Macarthur’s share price was punished. “These events caused some investors to pay over the odds for Macarthur during financial year 2011,” Samson says. He says opportunities may arise as some Macarthur shareholders sell and cut their losses to reduce capital gains tax on profitable performers. Macarthur Coal offers strong potential upside via coal prices trending up. “The company’s fourth mine project, the Codrilla coal deposit, is showing promise and the future looks bright,” he says.

Aquarius Platinum (AQP)


Chart: Share price over the year to 27/05/2011 versus ASX200 (XJO) 

Aquarius Platinum shares were sold off in March in response to the Zimbabwean Government imposing mine regulations under the Indigenous Empowerment Act. Essentially, the Act requires companies operating in Zimbabwe to sell 51 per cent of an asset to the Government. Samson believes the imposition has been largely priced into the stock. “Aquarius remains a large business with a strategically strong market position to supply platinum,” he says. “Although concerns surrounding Zimbabwean operations are justified, the company is a lot more diversified geographically than these assets alone.” Samson says despite a marginally weaker March quarter production report, first half 2011 revenue was up 63 per cent to $336 million. “The stock looks under valued at current levels,” he says.

Computershare (CPU)


Chart: Share price over the year to 27/05/2011 versus ASX200 (XJO) 

Samson says Computershare, a global share registry and investor relations services provider, has been punished after half-year results didn’t meet expectations. He says according to guidance, full-year earnings will fall between 5 and 10 per cent on 2010 earnings of $301 million. While not expecting a renewed boom in merger and acquisition activity, Samson says there does appear to be longer term upside value from its recent purchase of BNY Mellon Shareholder Services. “Investors should be alert to possible future opportunities created by a weaker share price,” he says.

ResMed (RMD)


Chart: Share price over the year to 27/05/2011 versus ASX200 (XJO) 

Innovative medical products maker ResMed hasn’t been spared the headwinds of a strong Australian dollar. Samson says a delay in rolling out its new S9 VPAP product line has also contributed to a weaker share price this financial year. But ResMed, well known for treating sleep apnea, is in strong financial health, according to Lincoln Indicators. “Given the company’s strong underlying performance, we believe ResMed offers solid potential upside on the back of recently posting record quarterly revenue of US$313 million,” Samson says. “A strong Australian dollar is the risk.” (CRZ)


Chart: Share price over the year to 27/05/2011 versus ASX200 (XJO) has established a dominant market position in Australia. But its shares, along with other companies in the auto advertising space, have been under pressure lately following the announcement of News Limited’s joint venture with three automotive dealer groups promoting rival site “Despite this, our view is that remains in a position of relative strength,” Samson says.  “Its model is resilient given the superior product offering to dealers and private sellers alike.” Samson estimates that aggressive competition may result in initially losing market share of between 2-to-3 per cent. The share price has been recently trading around July 1, 2010 levels of $4.70 and closed at $4.69 on May 25. It may fall further if fund managers dump the stock in the lead-up to June 30. “This will provide a solid long-term buying opportunity,” Samson says. Holdings (WTF)


Chart: Share price over the year to 27/05/2011 versus ASX200 (XJO) 

While Australian manufacturers have suffered under a strong Aussie dollar, so too has the domestic tourism industry. Samson says the share price of Holdings has underperformed amid a struggling but competitive Australian accommodation market in the past 12 months. “However, Wotif does remain the dominant player in the domestic accommodation space, and is a company looking to expand via organic growth – both geographically and innovatively,” he says. “Wotif has entered the Asian market and is expanding sites into multi-lingual offerings.”

July 1, 2010
May 25, 2011
Macarthur Coal (MCC) $12.12 $11.66 
Aquarius Platinum (AQP)  $5.70 $5.10
Computershare  (CPU) $10.51 $9.23
ResMed   (RMD)  $3.61 $3.04 (CRZ) $4.70 $4.72 Holdings (WTF)  $5.35 $5.06


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