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James Georges, Octa Phillip Securities

BUY RECOMMENDATIONS

Retail Food Group (RFG)

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

This company recently completed a $46.54 million capital raising. The book build was significantly oversubscribed at $2.85 a share. The capital raised will be used to pay down debt after the purchases of Pizza Capers and Crust Pizza were added to existing businesses, such as Donut King, Michel’s Patisserie and Brumby’s Bakery. With its strong balance sheet, high cash flow conversion and its franchise model, we see this company as a dependable investment.

BHP Billiton (BHP)

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

BHP’s recent share price retreat reflects commodity pricing volatility, and to the downside. China’s stimulus spending looks like supporting the price of coking coal and iron ore, which are used in steel production for infrastructure projects. Expect this diversified company to benefit from any improvement in the global economy.

HOLD RECOMMENDATIONS

Washington H. Soul Pattinson and Company (SOL)

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

One for the long term investor, SOL is a well managed investment house bringing exposure to building materials, coal mining, telecommunications and pharmaceuticals. But we have downgraded from a buy to a hold on what has been a rapidly rising share price. Above $13.50, we recommend as a hold. It closed at $13.64 on October 16.

QR National (QRN)

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

The recent sell down of the Queensland Government’s interest to predominately offshore investors has helped reduce the overhang pressures on the register. While the stock isn’t cheap from a price/earnings point of view, QRN National is unlikely to face fierce competition anytime soon.

SELL RECOMMENDATIONS

GrainCorp (GNC)

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

Australia’s GrainCorp confirmed it had received an all-cash takeover offer from US grain handler Archer Daniels Midland, valuing the company at $A2.68 billion. We believe there’s an unlikely chance of a rival bidder, and as this is a strategic takeover proposal, it’s at the high end of the valuation. Sell.

Billabong International (BBG)

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

After extensive due diligence, Bain Capital and TPG private equity have walked away from buying BBG. We can’t justify holding this surf wear company. Even if you believe the company’s forward estimates on earnings guidance, the stock doesn’t fit our model portfolio.

 

James Samson, Lincoln Indicators

BUY RECOMMENDATIONS

Monadelphous Group (MND)

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

Despite the potential for a peak in mining capital expenditure within the next two years, MND is a business with a proven track record. It offers strong financial health and continues to set the benchmark for mining services. We believe that while pressure is building in the sector, MND’s increasing diversification into energy, infrastructure and maintenance services places the business in a strong position to withstand any cyclical downturn and continue its growth trajectory.

Roc Oil Company (ROC)

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

ROC is a profitable oil producer with major assets in South East Asia. We believe that recent successful drilling in the Beibu Gulf will provide the company with a potential upside catalyst. Furthermore, with oil prices remaining at subdued levels, there may be an additional boost should commodity prices push higher.

HOLD RECOMMENDATIONS

Cardno (CDD)

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

This global engineering and environmental consultancy business has performed exceptionally well after a period of strong acquisition led growth. However, given continued tightening in global market conditions, and the potential weakness in resources capital expenditure, CDD is fully priced at current levels. The shares were trading at $7.93 on October 18.

Coca-Cola Amatil (CCL)

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

Apart from defensive attributes, CCL does have future growth prospects. The company has a foothold for expansion in South East Asia, and has been lifting margins through cost cutting measures. Given the stock is currently trading on a forward price/earnings ratio of about 18 times, share price upside may be limited.

SELL RECOMMENDATIONS

Seek (SEK)

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

With higher unemployment rates during September, SEK may find employers are less willing to spend on advertising vacancies. Furthermore, we are wary of the company’s balance sheet following an unsuccessful hybrid issue in June this year.

Perpetual (PPT)

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

Since the global financial crisis, PPT has continued its negative earnings trend. Generating growth may be difficult if the ASX continues to trade at subdued levels. Increasing financial advice regulations compound its difficulties. As such, in our view, the risks don’t justify investment at these levels.

 

Michael Heffernan, Lonsec

BUY RECOMMENDATIONS

Westpac Bank (WBC)

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

This bank, which has a large coverage in New South Wales, is poised to benefit from a stronger housing sector on the back of lower interest rates. Westpac’s report in a few weeks time will be watched carefully amid reasonable expectations of a solid result and a higher dividend compared with the same period a year ago.

ANZ Bank (ANZ)

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

The only Australian bank with a significant footprint in Asia, it’s been a strong performer so far this year. As with Westpac, the combination of interest rate reductions, a reasonable report to come and a potential dividend increase should lead to a run-up in the share price if past experience is any guide.

HOLD RECOMMENDATIONS

Amcom Telecommunications (AMM)

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

A highly successful company involved in fibre-based communications to the public and private sectors. It pays a fully franked dividend yield of 4 per cent and has been benefitting from an increasing focus on broadband and fibre optic communications in recent times.

ARB Corporation (ARP)

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

This innovative 4-wheel drive accessories company, offering attractive fundamentals, has performed well in the past two years. Furthermore, it’s a major beneficiary from increasing sales of 4-wheel drive vehicles in the past year.

SELL RECOMMENDATIONS

Mineral Resources (MIN)

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

A well-credentialed mining crushing contractor, as well as an iron ore and manganese producer. But it’s suffering from the flow-on effects of a recent downturn in capital expenditure programs in the resources sector. Future profitability  may be squeezed, as demand for our major minerals possibly softens amid more global supply in the next 12 months.

Bradken (BKN)

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

This mining services company, which produces consumables for the mining sector, has shown resilience in the past few years in the wake of the global financial crisis. But a weaker outlook for major mining companies is likely to flow to this company as well.

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Please note that TheBull.com.au simply publishes broker recommendations on this page. The publication of these recommendations does not in any way constitute a recommendation on the part of TheBull.com.au. You should seek professional advice before making any investment decisions.