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Shawn Uldridge, William Shaw Securities

BUY RECOMMENDATIONS

National Australia Bank (NAB)

Chart: Share price over the year to versus ASX200 (XJO)

After the recent share price rout, NAB is trading on a dividend yield of about 7.4 per cent after closing at $23.69 on May 23. With full franking credits, a grossed up yield equates to more than 11 per cent. The company goes ex-dividend on May 31, so buying now will deliver three dividend payments if you retain the stock for the next 14 months. In a falling interest rate environment, bank shares are more attractive than term deposits.

AMP (AMP)

Chart: Share price over the year to versus ASX200 (XJO)

Shares were trading around seven-month lows on May 23. Latest results were in line with expectations, but, like other stocks, the price has fallen in a weaker market. The partially franked stock is yielding about 7.5 per cent. AMP is exposed to superannuation growth and sharemarket performance, so any cyclical strength in either will be positive for AMP.

HOLD RECOMMENDATIONS

BHP Billiton (BHP)

Chart: Share price over the year to versus ASX200 (XJO)

Investors are selling BHP on fears of a slowdown in China and weaker commodity prices. BHP has been recently trading at mid-2009 levels, when commodity prices were much lower today. BHP is far more profitable today than three years ago. Many negative expectations are priced into the stock.  If unfounded, selling today could prove a big mistake.

Newcrest Mining (NCM)

Chart: Share price over the year to versus ASX200 (XJO)

In just three months, the share price of this gold producer has fallen from about $35 to finish at $24.74 on May 23.  Negative sentiment amid hedge funds reportedly selling $2 billion of gold recently are contributing to bullion price falls. We bet that Newcrest will bounce quickly when hedge fund selling eases.

SELL RECOMMENDATIONS

Telstra Corporation (TLS)

Chart: Share price over the year to versus ASX200 (XJO)

In the past 12 months, the share price has significantly risen to close at $3.56 on May 23. The company’s mobile division has grown to the detriment of competitors, such as Vodafone. But we don’t see much profit growth in a technology market that’s constantly changing. Telstra is viewed as a safe haven, but we suggest investors lock in some profits at these levels.

Harvey Norman (HVN)

Chart: Share price over the year to versus ASX200 (XJO)

The discretionary bricks and mortar retail sector is in the doldrums. The HVN share price has been moving sideways for about 10 months and, going forward, we believe it could fall further due to continuing margin pressure in electronics and white goods.

 

Peter Rae, Morningstar

BUY RECOMMENDATIONS

Orica (ORI)

Chart: Share price over the year to versus ASX200 (XJO)

Despite concerns the resources sector may be slowing, we expect iron ore and coal production to continue growing over the next decade. This is good news for this explosives and chemicals maker, as an expanding mining industry will sustain demand. We forecast strong earnings growth in the next few years.

Commonwealth Bank of Australia (CBA)

Chart: Share price over the year to versus ASX200 (XJO)

The major banks are suffering from higher funding costs and slower credit growth. But they remain highly profitable and shareholders will continue to benefit from very attractive, fully franked dividends. CBA trades at a marginal premium to its peers, but it’s our preference, as we believe it carries the lowest risk of the major banks.

HOLD RECOMMENDATIONS

APA Group (APA)

Chart: Share price over the year to versus ASX200 (XJO)

APA is an industry leader in gas infrastructure. It has interests in transmission and distribution assets across Australia, which are responsible for delivering more than half the nation’s domestic gas usage. Gas continues to be the fastest growing energy source in Australia, and the company’s portfolio is well positioned to share in this growth. It also offers investors a high dividend yield.

Sirtex Medical (SRX)

Chart: Share price over the year to versus ASX200 (XJO)

SRX has developed an effective treatment for liver cancer. Sales growth is consistently strong despite the treatment being used as a last resort. Large scale trials in progress should significantly promote use. Risks include weak intellectual property protection, SRX’s limited resources and a single product portfolio. Big upside potential compensates for these risks.

SELL RECOMMENDATIONS

Domino’s Pizza Enterprises (DMP)

Chart: Share price over the year to versus ASX200 (XJO)

DMP is the master licence holder for the Domino’s pizza brand in Australia, New Zealand, France, Belgium and The Netherlands. DMP has achieved strong growth in the past few years, with a ramp up in Australian store numbers driving scale benefits and attractive margins. This strong growth looks set to continue, but at current prices the shares appear overvalued. One to watch should the share price retreat. The shares closed at $9.35 on May 23.

Duet Group (DUE)

Chart: Share price over the year to versus ASX200 (XJO)

Duet is a diversified energy infrastructure owner. The portfolio comprises majority interests in the Dampier-to-Bunbury Pipeline, United Energy and Multinet Gas. DUE is much improved after restructuring to simplify and de-risk. It offers a high yield and is suitable for income investors, but we believe it’s overvalued. The shares finished at $1.85 on May 23.

 

Richard Batt, Shadforth Financial Group

BUY RECOMMENDATIONS

Blackmores (BKL)

Chart: Share price over the year to versus ASX200 (XJO)

An industry leader in distributing vitamins and supplements in Australia and South East Asia. The company is well positioned to benefit from an ageing population and health-conscious consumers. The recent volatility in the Australian market provides investors with an opportunity to establish a holding in a company that offers growth potential and a solid fully franked dividend.

ResMed (RMD)

Chart: Share price over the year to versus ASX200 (XJO)

Develops medical devices to treat sleeping disorders. It recently delivered record revenue and income for the quarter ending March 31, 2012. Earnings per share rose an impressive 29 per cent to 44 cents compared to the same period last year. The result was driven by strong revenue growth of 18 per cent in the Americas and 4 per cent elsewhere in the world. RMD has proven its ability to develop new treatments and we expect more of the same in the future.

HOLD RECOMMENDATIONS

Orica (ORI)

Chart: Share price over the year to versus ASX200 (XJO)

A well managed company that has competitive advantages in its Australian and global explosives businesses, with proven capital management skills. The company recently announced its first half result, which was marginally ahead of expectations with strong demand for explosives in the key mining markets of Australia, Asia and Latin America. The outlook remains positive for ORI and long-term investors should retain their exposure to this investment.

Qube Logistics (QUB)

Chart: Share price over the year to versus ASX200 (XJO)

Qube owns stakes in stevedoring and land logistics businesses and has a highly competent and experienced management team. The company recently announced it had secured funding for continuing growth. This includes increasing its stake in Moorebank, which is set to become Australia’s largest intermodal rail terminal. The development of Moorebank will go a long way to cementing QUB as one of Australia’s largest port logistics operators.

SELL RECOMMENDATIONS

Ausenco (AAX)

Chart: Share price over the year to versus ASX200 (XJO)

AAX provides engineering and project management services in an industry that’s fragmented and where many players can compete on various project components. This means AAX has no real competitive advantages and its business is exposed to the commodities cycle, which can rapidly soften. Margin pressure across the industry is likely to tighten in the next 12 months, so investors should consider reducing their exposure.

Southern Cross Media Group (SXL)

Chart: Share price over the year to versus ASX200 (XJO)

Owns radio and television assets in regional Australia. It has a primary TV affiliation with Channel Ten. The company is facing challenging conditions, as advertising revenue is cyclical and highly dependent on good economic conditions. Weakness in Ten Network’s ratings won’t help earnings, so we prefer other investments.

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