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Brendan Fogarty, Alto Capital

BUY RECOMMENDATIONS

Metcash (MTS)

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

Defensive times call for defensive measures. In a difficult market, we’re seeing value based stocks with consistent income and a high yield outperform. Metcash has established a reliable business model in each of its divisions – IGA Food Distribution, Campbells Wholesale, Australian Liquor Marketers and Mitre 10 Hardware. The recent capital raising to fund the acquisition of Automotive Brands Group has seen the company’s share price decline to attractive buying levels. The shares were trading at $3.19 on July 26.

Laconia Resources (LCR)

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

Laconia Resources, like many listed junior resource companies, is trading at levels well below its fundamental value. Laconia has two advanced JORC (Joint Ore Reserves Committee) resources – the Peru Rasuhuilca Gold-Silver Project and the WA-based 701 Mile high-grade silver prospect. Upcoming drilling to further prove up the Rasuhuilca resource should begin the recovery for Laconia.

HOLD RECOMMENDATIONS

Alesco Corporation (ALS)

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

The cyclical nature of the housing and commercial construction sectors has taken its toll on companies such as Alesco. While earnings before interest and tax declined 20 per cent, Alesco is relatively low geared at 16 per cent debt-to-equity and retains solid cash flow. Hold until the property sector improves.

Atlas Iron (AGO)

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

This Pilbara based iron ore producer and explorer is set for continuing production growth from operational mines at Pardoo and Wodgina. It aims to double current production to 12 million tonnes a year by 2014. Hold and wait for better conditions in the iron ore sector to accumulate stock in this growth company.

SELL RECOMMENDATIONS

Harvey Norman (HVN)

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

Growth to date can be partially attributed to an effective retail franchise system and in prime real estate to house its retail assets. The weak retail environment doesn’t help. Previous growth in property holdings is likely to decline in the short term. Sell and wait for a better retail and commercial property outlook.

Transurban Group (TCL)

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

This large toll road operator offers a secure defensive earnings stream, which has recently appealed to investors But the stock looks overbought at these levels. Given toll roads are handed back to governments when ownership rights expire, long-term returns could be limited.

 

Hamza Habib, Patersons Securities

BUY RECOMMENDATIONS

Metcash (MTS)

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

Operates in the grocery, liquor and hardware wholesale industries. Although we’re not expecting strong sales growth and big share price increases in the short term, the company offers a fully franked dividend yield above 8.5 per cent, making it an attractive play in today’s volatile market.

Woodside Petroleum (WPL)

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

June quarterly production was well above most analyst forecasts, as Pluto-1 achieved better than expected utilisation rates. As a result, WPL has increased production guidance. There may be an increase in fully franked dividends in response to an expected increase in earnings.

HOLD RECOMMENDATIONS

IOOF Holdings (IFL)

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

This financial services provider has good cash flow, a solid balance sheet and pays a fully franked dividend yield above 7 per cent. But weak market sentiment may put pressure on its share price in coming months.   

Leighton Holdings (LEI)

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

Recent contract wins have been positive for the company’s order book, but operational issues in the Middle East and at the Victorian Desalination Plant persist. Don’t expect any short term upside in the share price.

SELL RECOMMENDATIONS

Westpac Bank (WBC)

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

The bank has outperformed the S&P/ASX 200 in the past 12 months as investors continue to chase yield. But European debt and economic troubles are from fixed. Increasing wholesale funding costs may continue to cause headwinds for the banks. The next dividend is months away.

Maverick Drilling and Exploration (MAD)

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

The company’s share price has rallied from 22 cents in January to $1.19 on July 26. The company has completed the first tranche of a $50 million placement at $1.02 a share. Shareholder approval will be needed in late August for a second tranche. An overhang of new shares may put downward pressure on the share price.

 

James Cooper, Morningstar

BUY RECOMMENDATIONS

Australian Agricultural Company (AAC)

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

Good rainfall and abundant pastures will lead to solid weight gains and provide ideal breeding conditions for full year 2012 and 2013. With favourable seasonal conditions, AAC expects a much stronger cotton crop in full year 2012, with production up 90 per cent on the previous year. We continue to see AAC as an asset play, suitable only for patient investors seeking exposure to the pastoral sector.

Iluka Resources (ILU)

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

This mineral sands company significantly cut guidance for 2012 sales volumes, following two smaller reductions, due to falling demand. We believe the share price reaction is overdone. The company has healthy margins, cash flows, a strong balance sheet and enviable flexibility to negotiate a cyclical downturn. The same can’t be said about many of its peers.  

HOLD RECOMMENDATIONS

Amcor (AMC)

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

In recent years, this packaging giant has worked hard to dispel lingering perceptions that it’s an underperformer. Its transformation in the past five years make it a better business offering greater diversity. To avoid competing purely on scale, we like AMC’s strategy of shifting focus towards higher value-added unique products and faster growing geographical regions.

Aristocrat Leisure (ALL)

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

The gaming machine company is implementing further operating cost controls. A significant release of games in major markets will help drive earnings growth. But conditions remain challenging, with limited discretionary spending directed to gambling.

SELL RECOMMENDATIONS

Fairfax Media (FXJ)

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

Plans to introduce a subscription model present challenges, such as getting readers to accept they will have to pay for digital content. In response, we expect major newspaper circulations to decline. The new business model is yet to be tested. Too many risks.   

Transpacific Industries Group (TPI)

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

TPI’s waste management business, very much an essential service, is a strong cash generating business. But extended periods of weak economic conditions set the foundations for low residential and non-residential construction. We maintain TPI’s waste management operations are robust, with dominant market shares in Australia and New Zealand. But we feel lower volumes will restrict top line growth.

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