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A mix of stocks across several sectors is a sound play for generating capital growth, income and spreading risk. A choice list of companies established by Shawn Uldridge, of William Shaw Securities, may well help round out a balanced portfolio. It’s important to regularly examine the performance of portfolios, and assess whether existing stocks are likely to meet your objectives after taking into account the Australian and global economic outlook. Uldridge offers what he considers undervalued stocks that should generate capital growth, income or a combination of both over the longer term. And with June 30 approaching, Uldridge says investors may find a bargain here as the big institutions, fund managers and investors dump under-performers for a loss to reduce capital gains tax on profits.    



Chart: Share price over the year to 03/06/2011 versus ASX200 (XJO)

AMP, along with other financial services stocks, has been sold down on Europe’s debt worries, according to Uldridge. However, trading on an undemanding price/earnings ratio of 13.8 times and a historical dividend yield of 5.76 per cent, Uldridge sees value here. The company reported an underlying profit of $760 million for the full-year to December 2010. Since then, it’s acquired the Australian and New Zealand businesses of AXA Asia Pacific. Uldridge says AMP offers quality earnings streams via a combination of low-risk insurance businesses and a wealth management arm driven by Australia’s largest financial planning network. “As superannuation is a legislated savings regime, AMP’s business is legislated for steady growth unlike so many others,” he says. “This one can be safely added to your portfolio for the long term.”

Telstra (TLS)


Chart: Share price over the year to 03/06/2011 versus ASX200 (XJO) 

An argument for long-suffering Telstra shareholders to continue holding the stock is dividend yield. When priced at $3 a share, the stock is trading on a fully franked dividend yield of about 9.4 per cent. As the argument goes, that’s better than bank interest. But it’s also trading on a relatively cheap price/earnings ratio of 9.5 times. Perhaps blue sky is emerging for Telstra. Uldridge thinks so, believing Telstra may also enjoy some capital growth from here. “Telstra may prove to be the ultimate defensive stock in times of trouble,” he says. He says a growing number of consumers are prepared to pay a premium for “what is, ultimately, a better service than what its discount peers are able to offer.”

“In the 2011 third quarter alone, Telstra added 364,000 mobile and 206,000 wireless broadband customers,” Uldridge says. “This momentum will translate into earnings growth and a stronger share price in the long run.”

Woolworths (WOW)


Chart: Share price over the year to 03/06/2011 versus ASX200 (XJO) 

Uldridge says Woolworths isn’t the cheapest stock at 16.8 times earnings and an historical 4.35 per cent dividend yield, but at $27.40 levels it’s trading at the lower end of its range. “The chances that such a consumer staple comes under any serious pressure are remote,” Uldridge says. “We like Woolworths, because the duopoly position it enjoys in supermarkets make it a steady earner, and the barriers to entry are huge.” Also, Woolworths offers multiple earnings streams from liquor shops, hotels, consumer electronics and fuel. Uldridge says Woolworths at $27.40 levels is a good entry point for a company offering a lot of upside capital growth potential.

Coppermoly (COY)


Chart: Share price over the year to 03/06/2011 versus ASX200 (XJO) 

For those wanting to significantly heighten their risk/reward profile, Uldridge says his company has been closely following Coppermoly. A mining explorer with a market capitalisation of just $15 million, Uldridge says Coppermoly has a farm-in agreement with Barrick, the world’s largest gold producer.  He says Barrick has committed $20 million for drilling to find out the size of Coppermoly’s porphyry copper deposit in Papua New Guinea. Drilling is underway again, and Uldridge expects last year’s exciting results to continue. “Although there are no dividends yet, Coppermoly could be a rewarding investment if Barrick confirms a world-class deposit,” he says. “It’s highly speculative, but those willing to take a chance could consider buying a small position relative to portfolio size.”

Oz Minerals (OZL)


Chart: Share price over the year to 03/06/2011 versus ASX200 (XJO) 

Copper and gold producer Oz Minerals has undertaken a share consolidation. Every 10 fully paid ordinary shares on issue were converted to one from May 30, 2011. Accordingly, the company’s share price has been adjusted higher to reflect the number of shares on issue falling from 3.24 billion to 324 million. The company says it consolidated its shares to bring the number on issue more into line with its peers on the S&P/ASX 100.  The consolidation has no effect on the underlying value of the company. Uldridge says that prior to the consolidation, the company’s share price had been retreating in response to a 15 per cent fall in the price of copper and a 7 per cent rise in the Australian dollar. “However, Oz Minerals is sitting on a $1 billion of cash, it’s a low-cost of producer with solid potential exploration upside from various projects,” he says. “The stock is relatively inexpensive, and we expect some share price upside in line with a stronger copper market in the second half of 2011.”

APN News & Media (APN)


Chart: Share price over the year to 03/06/2011 versus ASX200 (XJO) 

Investors have punished APN News & Media after warning EBIT (earnings before interest and tax) in full-year 2011 will be between 15 and 20 per cent lower than the previous year. The share price, falling from $2.50 to $1.395, has been been way oversold, according to Uldridge. He says the company is now trading on a price/earnings ratio of about 10 times, and an historical dividend yield of 8.5 per cent. Uldridge says there’s a possibility of corporate activity. “In this space, we have seen corporate activity across all areas, including the Ten Network, Consolidated Media and Austereo,” he says. “We wouldn’t be surprised if APN was targeted at the corporate level within the next year or two.”

Dividend yields and price/earnings ratios taken at June 1, 2011

AMP (AMP) $4.97 
Telstra (TLS) $3.03
Woolworths (WOW) $26.79
Coppermoly  (COY) 10.5 cents
Oz Minerals (OZL) $1.345
APN News & Media (APN) $1.365

Price current to market close, 3 June 2011

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