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John Rawicki, State One Stockbroking

BUY RECOMMENDATIONS

Atlas Iron (AGO)

 

Chart: Share price over the year to 08/07/2011 versus ASX200 (XJO) 

Atlas is an iron ore producer and explorer with large tenements in Western Australia’s Pilbara region. With two fully-operational mines, the company produces six million tonnes of direct shipping ore annually. Production is expected to double by 2013. The company’s likely acquisition of FerrAus will lift AGO’s iron ore reserves by about 300 per cent, making it a very good deal for both parties.

Stock code: AGO

Charts: Atlas Iron Limited

More news: Atlas Iron Limited

 

Diatreme Resources (DRX)

 

Chart: Share price over the year to 08/07/2011 versus ASX200 (XJO)  

A junior mineral sands developer, Diatreme has a highly lucrative project in South Australia’s Eucla Basin.  The high proportion of zircon makes it a particularly attractive deposit. We have calculated a NPV (net present value) of 53 cents a share for the company, an enormous premium to its July 7 price of 11 cents.

Stock code: DRX

Charts: Diatreme Resources Limited

More news: Diatreme Resources Limited

 

HOLD RECOMMENDATIONS

JB Hi-Fi  (JBH)

 

Chart: Share price over the year to 08/07/2011 versus ASX200 (XJO)  

It’s hard to bet against JBH given its recent track record. But a slow down in discretionary spending on large ticket items, such as flat screen TVs, would impact store revenues. JB Hi-Fi is undergoing rapid growth via an aggressive store roll-out program. The business has proven to be very resilient, trading strongly throughout the global financial crisis and it should ride out the current wave of volatility.

Sims Metal Management  (SGM)

 

Chart: Share price over the year to 08/07/2011 versus ASX200 (XJO)  

Sims recycles metals and other materials from scrap traders and processes it for melting into new products. Demand for scrap metal is increasing due to its lower cost as a steel-making ingredient. Exports to developing economies are also rising, and any recovery in US construction activity is expected to drive both demand and supply for scrap metals.

SELL RECOMMENDATIONS

Aquila Resources  (AQA)

 

Chart: Share price over the year to 08/07/2011 versus ASX200 (XJO)  

Aquila’s dispute with joint venture partner Vale over marketing of coal is expected to hurt profits. The Queensland floods will also impact the bottom line. We downgrade our full-year 2011 forecast to a $63 million loss. We expect a $6 million loss in operating cash flow in the 2011 second half, compared with a $31 million profit in the 2011 first half.

Stock code: AQA

Charts: Aquila Resources Limited

More news: Aquila Resources Limited

 

Duet Group (DUE)

 

Chart: Share price over the year to 08/07/2011 versus ASX200 (XJO)  

Duet owns a portfolio of energy utility assets across Australia. The balance sheet looks a little stretched so the company is reducing gearing levels through debt repayments and asset sales. We believe Duet’s current distribution levels may be unsustainable and there’s a chance of a cut.

Stock code: DUE

Charts: Duet Group Limited

More news: Duet Group Limited

 

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Michael Heffernan, Austock

BUY RECOMMENDATIONS

MAP Group (MAP)

 

Chart: Share price over the year to 08/07/2011 versus ASX200 (XJO)  

Gradual improvements in world economies and the potential for more air travel on the back of discount fares make MAP an attractive proposition, particularly from a dividend perspective. The recent mooted swap of its European airport shares for Sydney airport shares, plus a sizeable cash component from the Ontario Teachers’ Pension Plan fund will provide MAP with capital management opportunities.

Stock code: MAP

Charts: MAP Group Limited

More news: MAP Group Limited

 

Ridley Corporation (RIC)

 

Chart: Share price over the year to 08/07/2011 versus ASX200 (XJO)  

A maker of animal feed stock and the producer of Cheetham Salt offers attractive fundamentals. With more favourable conditions operating in the agricultural sector amid a positive contribution from the Camilleri (stock feed) business, the future looks promising.

Stock code: RIC

Charts: Ridley Corporation Limited

More news: Ridley Corporation Limited

 

HOLD RECOMMENDATIONS

Thorn Group (TGA)

 

Chart: Share price over the year to 08/07/2011 versus ASX200 (XJO)  

Formerly Radio Rentals of Australia operates in a largely recession proof area of the economy, concentrating on the rental and buy markets for those unable to afford the purchase price outright. It has low debt levels and pays an attractive fully franked dividend.

Lynas Corporation (LYC)

 

Chart: Share price over the year to 08/07/2011 versus ASX200 (XJO)  

This company has a strong growth profile for products in high demand given the use of rare earths in mobile phones and plasma televisions. Major producer China has, in the past, curbed exports of rare earths and a further announcement from China about export quotas is expected in the near future. Mitsubishi now has a 9.99 per cent stake, which underlines confidence in the Lynas business.

SELL RECOMMENDATIONS

Qantas Airways (QAN)

 

Chart: Share price over the year to 08/07/2011 versus ASX200 (XJO)  

Australia’s premier airline, which suffered significantly during the global financial crisis, is now struggling in an increasingly competitive aviation environment amid high oil prices and the threat of future industrial disputation.

Stock code: QAN

Charts: Qantas Airways Limited

More news: Qantas Airways Limited

 

Bank of Queensland (BOQ)

 

Chart: Share price over the year to 08/07/2011 versus ASX200 (XJO)  

Floods and cyclones in Queensland had an impact on many businesses, which flowed to the banking sector. While the outlook for the financial services sector is reasonable, the major banks are preferred.

Stock code: BOQ

Charts: Bank of Queensland Limited

More news: Bank of Queensland Limited

 

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Chris Elliott, Shadforth Financial Group

BUY RECOMMENDATIONS

Foster’s Group (FGL)

 

Chart: Share price over the year to 08/07/2011 versus ASX200 (XJO)  

Foster’s has recently demerged wine from beer after years of failing to consolidate both into a single and highly profitable operation. Foster’s, Australia’s leading brewing company with popular brands, also has RTD (ready-to-drink spirits) and non-alcoholic beverages. With such a strong global beer brand, it has huge takeover potential. We have already seen SABMiller launch a low-ball takeover offer of $4.90 a share. But it may have to up the ante and a rival bidder may emerge.

Stock code: FGL

Charts: Foster’s Group Limited

More news: Foster’s Group Limited

 

Commonwealth Bank of Australia (CBA)

 

Chart: Share price over the year to 08/07/2011 versus ASX200 (XJO)  

Commonwealth Bank will release its full year results in August 2011.  Some are expecting another record profit despite concerns regarding lending margins, slower business lending and possibly an increase in residential mortgage defaults.  CBA has consistently grown shareholder value for many years. With a forecast fully franked dividend of $3.10 for 2010/11, investors can expect a final dividend of about $1.78 a share.

Stock code: CBA

Charts: Commonwealth Bank of Australia Limited

More news: Commonwealth Bank of Australia Limited

 

HOLD RECOMMENDATIONS

Woodside Petroleum (WPL)

 

Chart: Share price over the year to 08/07/2011 versus ASX200 (XJO)  

Pluto project setbacks have hurt the share price. Several months ago, the rumour mill was humming about a possible takeover of WPL. The share price then was almost $10 higher than it is now. But Pluto LNG costs have increased again, taking the project to $14.6 billion and pushing production back six months. Despite this, WPL is well managed and offers a strong balance sheet. The company is suitable for conservative investors seeking oil and gas exposure.

Wesfarmers (WES)

 

Chart: Share price over the year to 08/07/2011 versus ASX200 (XJO)  

Curragh coal operations took the brunt of flood and water-related impacts, so we expect operations will struggle to break even in the 2011 second half. We also expect cash costs per tonne to significantly reflect reduced production. But the company’s other businesses appear to be on track.

SELL RECOMMENDATIONS

Pacific Brands (PBG)

 

Chart: Share price over the year to 08/07/2011 versus ASX200 (XJO)  

PBG manages some of Australia’s most recognised brands, such as Bonds, Slazenger, Hard Yakka, KingGee and Dunlop. In the past 12 months, PBG has been restructuring – and culling non-performing brands – but it’s failed to meet expectations with the stock price continuing to fall.  We expect revenue pressures for some time.

Stock code: PBG

Charts: Pacific Brands Limited

More news: Pacific Brands Limited

 

Treasury Wine Estates (TWE)

 

Chart: Share price over the year to 08/07/2011 versus ASX200 (XJO)  

Treasury Wine Estates is the biggest listed pure wine company in the world. Its stable includes Beringer, Lindeman’s, Penfolds, Rosemount and Wolf Blass. Australia, the US and the UK account for about 80 per cent of sales. But a global over-supply of grapes and a strong Australian dollar exposes TWE to volatile earnings. I believe Foster’s is a better choice as it offers shareholders more stable earnings.

Stock code: TWE

Charts: Treasury Wine Estates Limited

More news: Treasury Wine Estates Limited

 

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