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Once a listed company takes a turn for the worse – sending its share price lower over consecutive months – how difficult is to make a complete turnaround?

Paperlinx is a good example, a company that has been on broker downgrades for over a year as the high Australian dollar impacts its international competitiveness. Credit Suisse slapped an underperform on the stock as ongoing decline in European paper demand shows no end in sight. Its price target has fallen to 9 cents, down from 12 cents (see full list below of 24 sells and downgrades for the week).

Another stock that’s been a regular feature in short-selling activity and broker downgrades is surfwear brand Billabong. JP Morgan rates the stock as underweight, saying that the Christmas period will be crucial for the stock – but don’t expect miracles. Deutsche Bank obviously thinks otherwise. It increased its target price on the retailer based on last week’s upbeat AGM. Billabong’s share price has almost halved over the past year.

ResMed hit the news this week over a sudden fall in US sales of its sleeping device. Investors all too familiar with the hammering Cochlear received over its product recall, dumped the stock in droves, sending its share price some 15% lower this week. Deutsche is worried that the company may be suffering price competition or distributor market power, either of which would suppress earnings over the long haul. The high Australian dollar is also not helping matters.

Online travel booking website Wotif.com is an interesting story for investors to watch. Deutsche has cut its earnings forecasts by 3% in FY12-13 following the company’s annual general meeting; falling demand for its product due to declining domestic travel and fewer international tourists using the website to book accommodation were top on the agenda. A high Australian dollar is hurting the online travel company as fewer tourists target Australia; on top of that, Australians are choosing to travel internationally to take advantage of the strength of the dollar. Could it get worse? Deutsche dropped its price target from $4 to $3.90.

Warren Buffett shuns internet and online operators due to the high risk of competitors encroaching upon players’ market share. Wotif’s chairman Dick Mcllwain warned investors about the onslaught of foreign online travel agents determined to steal market share from the hotel-booking agency.

A further stock of note is Westfield Group, a company that could do no wrong over the past decade or so as it established a power base of retail shopping malls across the nation, and internationally. But has Westfield been priced for perfection? And these are hardly perfect times. JPMorgan rates the stock a Neutral with a price target of $8.93, down 10.5% from $9.98. Westfield is set to release its third-quarter results on 8 November, with attention focussing on jittery US growth.

Atlas Iron’s revenue has taken a hit on lower iron ore prices. As a result Credit Suisse has cut its forecast earnings and dropped its target price from $4.80 to $4.35. The broker thinks that the Pilbara-based explorer and producer is vulnerable if iron ore prices remain weak.

China, which produces over half of the world’s steel, is the biggest user of iron ore. Recently, steel mills in China have delayed purchases, or stopped buying altogether, as credit conditions tighten in the country. On the back of slowing construction activity in China, iron ore prices have come off some 30% since early September.

Discussing the fallout in China demand, Chief Executive Nev Power at Fortescue Metals reported in Reuters: “It has been a little more hand-to-mouth.” Power notes that steel mills in China are destocking.

More food for thought for Premium subscribers with exposure to iron ore pure plays is from the chief executive of Beijing Metal Consultancy, which works for some of china’s leading steel mills. As quoted by Reuters: “Everyone is desparate to lower their production costs right now. Demand for steel is very weak – if you look at investment in high speed rail, for example, there has been a fall of 50 per cent.”

 

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