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Peter Rae, Morningstar

BUY RECOMMENDATIONS

Woodside Petroleum (WPL)

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

WPL is Australia’s premier oil and gas play. Production is forecast to grow strongly as its LNG projects in Western Australia come on stream. Inaugural LNG production at Pluto exceeded expectations. Well managed with a strong balance sheet, WPL is suitable for conservative investors seeking oil and gas exposure and stand-out long term growth.

AMP (AMP)

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

In our view, AMP valuations should contain premiums – relative to peers – for big market shares, strong brands, a large customer base, the industry’s lowest unit costs and particularly for its large aligned planning network, offering an enduring competitive advantage. Short term, there will be downwards pressure on fees and margins from industry change and adverse regulatory reform. But we are optimistic about AMP’s long-term prospects given the demographic trends and compulsory superannuation contributions.

HOLD RECOMMENDATIONS

BWP Trust (BWP)

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

BWP offers sole exposure to the Australian bulky goods retail sector. Income is secured by long leases to Bunnings and other tenants. Income grows through annual inflation-linked, fixed and open market rent reviews. Capitalisation rates appear to be stabilising, enabling moderate capital growth in future years as rents rise. BWP suits risk-averse investors seeking income with modest capital growth, but the stock is fairly valued at current prices.

ResMed (RMD) 

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

Sleep apnoea is a huge medical problem. RMD makes equipment for treating the condition and should benefit from strong growth by serving this huge potential market. Operating margins are impressive, typically exceeding 20 per cent, and the balance sheet has net cash. With a zero dividend policy, the stock is more suitable for growth investors.

SELL RECOMMENDATIONS

David Jones (DJS)

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

The department store giant is under pressure from weak consumer sentiment and online competition. Most cost cutting opportunities have been realised and top line growth is now needed to drive earnings growth. This will be difficult in the current environment. Given the uncertainties, we believe better investment opportunities exist elsewhere.

Fairfax Media (FXJ)

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

The structural decline of print media as audiences increasingly move online represents a material earnings risk for Fairfax. The company is undertaking several initiatives to reposition the company, including major cost cutting and restructuring its metropolitan newspapers. Its ability to monetise digital news content remains uncertain. Risks remain high as the business model enters unknown territory.

 

James Samson, Lincoln Indicators

BUY RECOMMENDATIONS

Ausdrill (ASL)

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

A vertically integrated mining services business generating about 85 per cent of earnings from production drilling. The firm recently won a record company contract for mining services in Mali, West Africa and remains well placed to leverage from growth in this region.

Emeco Holdings (EHL)

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

EHL provides earth-moving equipment to the mining sector in Australia and abroad. With strong utilisation rates in Canada expected to underpin a healthy financial report, EHL is trading on very cheap price metrics, including a price/net tangible assets ratio of 1.14 times. The company pays an attractive fully franked dividend yield of about 7 per cent at recent prices.

HOLD RECOMMENDATIONS

Credit Corp Group (CCP)

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

CCP buys bad debt ledgers from banks and other financial and telecommunication businesses. It generates earnings on collecting debts. The company has outperformed significantly in the past 12 months, so finding more growth presents challenges. We believe growth will be limited until tangible market gains are made in the US debt market.

Seek (SEK)

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

The online jobs site is a market leader. But the migration from declining print to online job advertising is maturing. Expect growth to be via acquisition or price increases passed through to existing markets. SEK is almost fully priced at current levels. The shares were trading at $6.13 on August 9.

SELL RECOMMENDATIONS

Kingsgate Consolidated (KCN)

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

Extracting benefits from acquisitions is so far presenting challenges for this gold producer. Operational issues at the acquired Challenger mine in South Australia and lower than expected mined grades at the Chatree mine in Thailand are likely to have an adverse impact this year and beyond. We believe there are better gold exposures available.

Sunland Group (SDG)

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

Despite recently listing the Gold Coast Palazzo Versace business for sale, this property developer and manager is exposed to a difficult market segment. With exposure to Dubai, and to the soft east coast Australian property development market, we believe that SDG is at risk of reporting weaker earnings on August 20.

 

James Georges, Patersons Securities

BUY RECOMMENDATIONS

Central Petroleum (CTP)

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

CTP has tenements totalling 68 million acres. An oil discovery at Surprise 1, and having mining magnate Clive Palmer as a major shareholder are positive for the investment case. CTP may become a significant oil and gas company under the leadership of experienced chief executive Richard Cottee. Cottee’s strategy of developing these assets by delegating them to farm-out partners may lead to a re-rating. A speculative buy.

Rio Tinto (RIO)

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

The share price of this global miner has been punished after equity markets priced in commodity price falls on the back of slower global growth and GDP growth in China. But many strategists believe Chinese capital expenditure programs will help reverse the GDP decline. The company announced net earnings of $US5.9 billion for the first half – down 22 per cent on the previous corresponding period – but marginally better than market expectations. Buy for the medium term.

HOLD RECOMMENDATIONS

Toll Holdings (TOL)

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

Among the dominant suppliers of transport, logistics and freight forwarding in Australia. Weak current conditions are weighing on earnings due to its exposure to domestic retail, fast-moving consumer goods and the industrial and automotive sectors. But Toll’s economies of scale can lead to a significant improvement in earnings when the economy gathers pace.

Woolworths (WOW)

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

The supermarket giant is a defensive growth stock, with a solid balance sheet and an imposing moat surrounding its economic castle. As a result of recent share price strength, we downgrade WOW from accumulate to a hold.

SELL RECOMMENDATIONS

Cardno (CDD)

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

CDD designed Telstra Stadium, the venue for the 2000 Olympics. It has been engaged as a consultant by some of the world’s leading agencies, including the United Nations, the World Bank and the Asian Development Bank. While its pipeline of projects has been admirable and market consensus remains positive, it may be prudent to lighten holdings at current share price levels. On August 8, the shares were trading at $8.46.

News Corporation (NWS)

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

The global media giant posted a fourth quarter loss of $US1.55 billion following writedowns of its publishing businesses, most notably in Australia. We expect aggressive share buy-backs in 2013. In our view, the media giant can generate a better return on capital by re-purchasing shares at lower prices rather than expensive acquisitions. As a result of recent share price strength, we downgrade the company from a hold to reduce.

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