Paul Clarke, State One Stockbroking

BUY RECOMMENDATIONS

Incitec Pivot (IPL)

 

Chart: Share price over the year to 10/09/2011 versus ASX200 (XJO)

Produces and distributes explosives and fertilisers, with operations in Australia, the US, Canada and Mexico. IPL supplies more than 50 per cent of Australia’s agricultural needs and, as a result, has pricing power due to dominating the fertiliser market in eastern states. Key company advantages include strong chemicals knowledge, a distribution network and explosives production skills. During bumper crop cycles, investors are rewarded with robust dividend streams.

Telstra Corporation (TLS)

 

Chart: Share price over the year to 10/09/2011 versus ASX200 (XJO)

Fixed line, mobile and internet products provide strong cash flows. The National Broadband Network deal is worth $11 billion to Telstra. Its latest earnings result was well received by the market. It pays an annual fully franked dividend of 28 cents a share. Telstra offers capital growth, a potentially higher share price and a bright outlook.

HOLD RECOMMENDATIONS

Echo Entertainment Group (EGP)

 

Chart: Share price over the year to 10/09/2011 versus ASX200 (XJO)

Owns casinos in Sydney, Brisbane, Townsville and on the Gold Coast. EGP was formed as a result of a demerger from Tabcorp Holdings. The refurbished Star Casino in Sydney is aiming to lift daily numbers from today’s 25,000 to a target of 30,000. We expect the company to deliver a solid return on its casino investments.  

ResMed (RMD)

 

Chart: Share price over the year to 10/09/2011 versus ASX200 (XJO)

Develops, makes and distributes medical equipment for treating sleep and respiratory disorders. The company is a market leader in the sleep disorder field and continues to release new products with enhanced technology. It generates strong margins (generally above 20 per cent) and has a strong balance sheet with about $600 million in cash.

SELL RECOMMENDATIONS

Murchison Metals (MMX)

 

Chart: Share price over the year to 10/09/2011 versus ASX200 (XJO)

Murchison is an iron ore producer in Western Australia. Its projects are in early stages of development and will require significant capital expenditure. We can’t see any meaningful profitability or dividends until at least 2015. It reported a full-year 2011 net loss of $16.6 million and its cash balance at June 30 was just $12 million. The outlook appears difficult for a company with single commodity exposure.     

Elders Limited (ELD)

 

Chart: Share price over the year to 10/09/2011 versus ASX200 (XJO)

The company recently announced its intention to exit the forestry business. We expect that will result in further writedowns. The agriculture and automotive businesses are highly cyclical, making for difficult trading conditions. Elders has downgraded  net profit after tax guidance to between $1 million and $5 million for full year 2011.

 

James Samson, Lincoln Indicators

BUY RECOMMENDATIONS

Boart Longyear (BLY)

 

Chart: Share price over the year to 10/09/2011 versus ASX200 (XJO)

Interim results in August showed revenue and margin growth in its drilling services and product operating segments. It also upgraded guidance for financial year 2011. Recent sample volumes, analysed by laboratory services company Campbell Brothers, suggest drilling levels remain high despite the weaker macroeconomic environment.

Iluka Resources (ILU)

 

Chart: Share price over the year to 10/09/2011 versus ASX200 (XJO)

After a big share price run, recent market weakness has created an opportunity for those that missed the boat to take up a position in this mineral sands producer. With supply contracts locked in at high prices, ILU presents investors with exposure to a unique niche within the resources sector.

HOLD RECOMMENDATIONS

Reckon Limited (RKN)

 

Chart: Share price over the year to 10/09/2011 versus ASX200 (XJO)

Reckon provides sales and support for accounting and wealth management software in Australia, New Zealand, the UK, US and Asia. Despite the somewhat defensive nature of its business and a reasonably solid 2011 financial report, we believe the shares are fully priced at current levels. On October 6, the company was trading at $2.53.

Blackmores (BKL)

 

Chart: Share price over the year to 10/09/2011 versus ASX200 (XJO)

This vitamin and supplement company sells in Australia and south east Asia at the premium end of the market. Despite negative publicity regarding a pharmacy cross-selling scheme, we believe the company has a bright future despite the shares being fully priced at this point. The shares were $29.60 on October 6.

SELL RECOMMENDATIONS

Ludowici (LDW)

 

Chart: Share price over the year to 10/09/2011 versus ASX200 (XJO)

Ludowici designs, makes and markets mineral processing equipment. Interim results highlighted weaker sales and earnings than the prior corresponding period. The interim report also showed higher gearing than its previous reported results and negative operating cash flows. This all points to more risk in an economic environment with heightened uncertainty.

Macmahon Holdings (MAH)

 

Chart: Share price over the year to 10/09/2011 versus ASX200 (XJO)

Cost blowouts and writedowns resulted in this engineering and construction company reporting a $13.2 million loss for the six months to December 2010. For the year to June 30, 2011, the company posted a profit of only $1 million compared to $37.9 million a year earlier. Project delays and cost blowouts are the risks for construction companies. Until management proves it can meet targets, we prefer others in the sector.  

 

Cleo Nanni, Alpha Broking

BUY RECOMMENDATIONS

Regis Resources (RRL)

 

Chart: Share price over the year to 10/09/2011 versus ASX200 (XJO)

This Western Australian gold producer recently announced a maiden net profit after tax of $36.3 million for the year ending June 30, 2011. It completed a successful transition from explorer to producer after starting operations at the Moolart Well deposit. It sold 72,342 ounces at an average delivery price of A$1402 an ounce. We expect a stronger performance going forward from more production and a rising gold price as uncertainty continues to reign.  

Wesfarmers (WES)

 

Chart: Share price over the year to 10/09/2011 versus ASX200 (XJO)

A company strength lies in diversity of operations – and performance. Coles continues to deliver strong earnings growth, up 21.2 per cent for the year ending June 30, 2011. Bunnings recorded another good result, with earnings up 10.2 per cent. Resource earnings increased by 123.6 per cent due to higher coal prices. This company is defensive and growing at the same time. It’s poised to do even better when the economy improves.

HOLD RECOMMENDATIONS

BHP Billiton (BHP)

 

Chart: Share price over the year to 10/09/2011 versus ASX200 (XJO)

Assets are in prime locations to service ever increasing demand from Asia. The company’s significant advantages are its low cost operations and strong balance sheet. The recent share price action indicates range bound trading between $34 and $38. Accumulate at the bottom end of the range.

Rio Tinto (RIO)

 

Chart: Share price over the year to 10/09/2011 versus ASX200 (XJO)

World class assets include aluminium, coal, copper, diamonds, gold, iron ore and uranium. The company’s share price has fallen from recent highs above $85 to low $60 levels due to global uncertainty and falling commodity prices. Hold, as the share price should recover when the global economy shows signs of improving. The stock is trading at an attractive price for those with a long term view. On October 6, the shares were priced at $62.90.

SELL RECOMMENDATIONS

Altius Mining (AYM)

 

Chart: Share price over the year to 10/09/2011 versus ASX200 (XJO)

Recently listed and disappointed investors. Shares in this gold explorer were issued at 20 cents in the initial public offering. On October 6, the company was trading at 7 cents. Its primary assets are in far north Queensland and New South Wales. I expect a higher gold price, but there are better alternatives than Altius available to investors.

CBio Limited (CBZ)

 

Chart: Share price over the year to 10/09/2011 versus ASX200 (XJO)

A biotechnology company focused on developing new products to treat autoimmune and inflammatory diseases. Junior biotech companies are high risk/reward plays. CBio’s share price has plunged from a year high of 77 cents to 20 cents on October 6. In today’s volatile market and the biotech sector in particular, I prefer companies with proven income streams that look like they can be sustained for the longer term.

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