Sean Conlan, Macquarie Private Wealth
Incitec Pivot (IPL)
Although managing director Julian Segal’s departure is a hurdle for investors to overcome, IPL offers a very good asset suite with plenty of leverage to an eventual improvement in global fertiliser demand and pricing.
Oil Search (OSH)
Oil Search remains our top sector pick, and we have raised our price target by 3 per cent to $7.40 a share. Given the catalysts on offer, OSH can materially outperform the oil price this year, while we think others in the sector may struggle on this front.
Automotive Holdings Group (AHE)
This listed vehicle group announced a good nine-month result in tough times. New car sales have fallen, but indications are the decline is starting to stabilise. Refinancing its floor plan facilities removes a key business risk.
Boart Longyear (BLY)
Although the stock looks cheap on a valuation basis, this is not enough to overcome continuing balance sheet/debt concerns and a high level of earnings risk. Until these issues are resolved (which still appears some time off), the stock is unlikely to improve.
Pacific Brands (PBG)
The clothing manufacturer announced an extension to the maturity profile of debt facility tranches. While this key negative catalyst has been removed, the fundamentals are not compelling. We continue to believe that investing in PBG involves significant risk.
Brambles is likely to remain under short-term pressure in light of CHEP potentially losing customers. This is compounded by a struggling global economy, and continuing demands on the company to improve asset quality.
Ben Potter, ABN AMRO Morgans
Tatts Group (TTS)
Tatts would be a welcome addition for investors seeking a high quality defensive company with a strong balance sheet and attractive dividend yield. The company has started 2009 well with solid revenue growth from its UNiTAB wagering business. Its cash position allows it to consider new business opportunities, including NSW lotteries, Tasmanian TAB and Victorian wagering licences.
Woodside Petroleum (WPL)
Woodside management has a proven track record of turning out successful LNG projects. Expect corporate activity in this sector during the year. Press speculation about a BHP Billiton or Shell bid in the sector adds to Woodside’s appeal.
Oz Minerals (OZL)
Chinese group Minmetals has offered to buy many Oz Minerals assets, solving a major debt problem that almost put the company out of business. Oz Minerals now has cash in the bank, and has retained its core asset, Prominent Hill, potentially offering significant upside.
With a $4.6 billion capital raising successfully completed, this industrial conglomerate can now focus on its operational performance, which includes turning around the Coles business. A recent company report suggesting Coles is improving has pushed up the Wesfarmers share price.
Flight Centre (FLT)
This travel agent company has flagged its earnings will come under more pressure in the short term. This is surprising given the May-June period is often its busiest trading period of the year. We have significantly downgraded our profit forecasts for the full year. The acquisition of Liberty has been highly detrimental to Flight Centre’s business.
Sims Metal Management (SGM)
Historically, SGM’s share price has traded in line with ferrous scrap prices. But we see scrap metal demand taking another leg downwards. The balance sheet is sound, but a lack of earnings visibility is a concern, and the current share price appears to be factoring in a short term recovery in its overall business. We believe this is unlikely.
Brendan Fogarty, Alto Capital
Suitable only for speculative investors, this junior oil and gas technology company has gained market attention. Coretrack has a unique patented technology known as the Core Level Indicator System, which provides real-time intake measurement for the oil and gas industry. Provided imminent company tests are successful, the opportunities for its innovative technology are immense given the significant savings in time and costs for oil and gas drilling on a global scale.
Aristocrat Leisure (ALL)
The second biggest global provider of gaming machines and systems recently completed a $200 million institutional placement at $3.25 a share, and is seeking up to $75 million via a share purchase plan. The combined raisings will see the group’s net debt levels fall below $150 million. In conjunction with the capital raising, Aristocrat announced a first half profit downgrade to between $40 million and $50 million due to a deteriorating Japanese market. With most of the bad news behind it, buying below $3.50 provides exceptional value.
Newcrest Mining (NCM)
Newcrest remains a high quality, low cost gold producer with long-term production and plenty of exploration upside. With a limited choice of gold stocks left on the ASX after several years of consolidation, Newcrest is the ideal exposure to the Australian dollar gold price. The downside is the stock tends to trade above valuation, but it remains a useful hold in a balanced portfolio in these uncertain times.
Westpac Banking Corporation (WBC)
The financials have enjoyed a solid bounce, including Westpac, which has risen more than 30 per cent off its low of $14.40 to its current level. Expect Westpac’s fully franked dividend yield to fall below 6 per cent. Hold for the long term and you should do well regardless of short-term fluctuations.
Monadelphous Group (MND)
This engineering, construction and industrial services group is highly leveraged to the resources, energy and infrastructure sectors. The recent hefty downgrade from industry peer Macmahon Holdings highlights the greater risk in this cyclical sector. There is a reasonable risk Monadelphous may have to do the same, although its strong balance sheet is a comforting factor. I’m more comfortable staying out of this sector entirely until the outlook improves.
Extract Resources (EXT)
The share price of this Australian-based Namibian uranium explorer has increased almost five fold since late last year on the back of a large, low-grade uranium resource and big Rio Tinto investment. While we believe Extract has discovered a company-making deposit, current market capitalisation above $1 billion is excessive considering the relatively early stage of the project.
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