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Andrew Doherty, Morningstar

BUY RECOMMENDATIONS

Metcash (MTS)

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

MTS is a dominant grocery wholesaler to independent supermarket retailers. The stock is attractive for its 7 per cent plus fully franked dividend yield and defensive earnings stream, as consumers generally cut back on discretionary spending before food and other necessities.

Regional Express (REX)

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

Australia’s largest independent regional airline offers value on a price/earnings multiple of about 6 times and a fully franked 7 per cent yield. Competition is limited as most airline routes would be unprofitable for the majors to service. Also, air ambulance and defence contracts, reduces volatility in passenger numbers.

HOLD RECOMMENDATIONS

Mermaid Marine Australia (MRM)

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

Provides marine services to the offshore oil and gas industry in WA. We expect strong earnings growth of 14 per cent a year for the next few years, making the current price/earnings ratio of 11 times look modest. Demand is strong with the large projects underway, but earnings will fall dramatically once activity declines.

Orica (ORI)

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

Orica appeals for its exposure to mining volumes, which aren’t immediately impacted by softening commodity prices. The company benefits from access to ammonium nitrate close to key mining regions in Australia. High upfront costs required for a rival to establish a competing facility adds to Orica’s defences.

SELL RECOMMENDATIONS

David Jones (DJS)

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

Sells exclusive brands in more than 40 retail stores. But since the GFC, shoppers have been frugal. Long established bricks and mortar stores have been losing sales to online competitors and global overseas retailers opening their doors in Australia. Retail competition is fierce. Better value exists elsewhere.  

Carsales.com (CRZ)

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

This online auto classifieds provider has been a powerhouse performer in the past year or so, but the valuation is now looking stretched. We don’t think the company has any sustainable advantages over competitors, as the barriers to entry are quite low.

 

Peter Moran, Wilson HTM

BUY RECOMMENDATIONS

Rio Tinto (RIO)

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

The global miner continues to produce at the lower end of the cost curve for most commodities. For iron ore, Rio’s cost of production is well below the levels seen in the recent iron ore price slump. Also, its September quarter update shows production growth ahead of schedule. It offers a strong balance sheet and substantial upside potential if prices have bottomed. Buy.

Maverick Drilling & Exploration (MAD)

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

Maverick recently reported a US$6.6 million profit, an increase of 205 per cent on the prior year. However, the key driver for Maverick continues to be future activities. Maverick will drill up to 166 oil wells in financial year 2013, and we expect production to grow from 600 barrels a day in the June 2012 quarter to 2000 a day by June next year.

HOLD RECOMMENDATIONS

Telstra (TLS)

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

At its annual general meeting, Telstra reaffirmed its fully franked dividend of 28 cents a year for financial year 2013 and indicated it may increase over time. If the NBN proceeds as planned, we expect TLS to generate an incremental NBN cash flow of $2.4 billion, allowing headroom to increase the dividend to 35 cents a share in full year 2015.

APA Group (APA)

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

Assuming the APA Group takeover bid for Hastings Diversified Utilities Fund proceeds in line with the current bid terms of scrip and cash, our valuation for APA will be $4.97. Stable cash flows and a yield of 7 per cent are also behind our hold recommendation.

SELL RECOMMENDATIONS

OrotonGroup (ORL)

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

This retailer is well managed and there’s potential its Asian business will one day provide rewards. However, with its Ralph Lauren licence expiring next year – amid a tough retail environment – and its Asian operations likely to provide losses for the foreseeable future, we recommend investors sell at current levels.

GPT Group (GPT)

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

We expect this property group to lift earnings by 7.2 per cent for financial year 2013. Earnings quality may be examined if the company relies too heavily on lower interest rates and asset sales to drive growth. With our forecast yield down to marginally above 5 per cent, we see better value elsewhere.

 

Scott Marshall, Shaw Stockboking

BUY RECOMMENDATIONS

Qube Logistics (QUB)

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

QUB continues to gain customers via integrated service provisions and innovation. The company owns several key land banks that will be stgeloped for warehousing or intermodal sites. Container volumes are forecast to continue growing. QUB remains well funded with gearing at 25 per cent amid a $150 million undrawn debt facility. There’s scope to significantly increase its presence in the regional bulk rail market.

SEEK (SEK)

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

Long term value remains based on its international employment investments and no significant deterioration in Australian employment. Value drivers include fees from new job ads placed on its Australian website, a growing international student market in Australia and international education strategies.

HOLD RECOMMENDATIONS

Amcor (AMC)

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

AMC remains a low risk, defensive company generating high levels of free cash flow. Total shareholder return is expected to range between 11 per cent-to-15 per cent a year, including a 5 per cent unfranked dividend yield. AMC dominates each of its packaging markets, and is typically larger than its nearest competitor.

SAI Global (SAI)

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

There were several profit impacting issues in 2012 that aren’t expected to be repeated in 2013. Signs of improving performance should be clearly visible with the 2013 first half profit result. This information provider is financially strong and we expect it to continue its aggressive acquisition strategy. It’s a solid, well-managed company.

SELL RECOMMENDATIONS

Coca-Cola Amatil (CCL)

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

We have forecast group earnings per share growth of 8 per cent in the year to December 2012 – dependent on the weather in the critical November and December months and ongoing strong growth in Indonesia. Our valuation is based on a 30 per cent premium compared to the market. This reflects the company’s strong brand value, strong management and cash flow generation. But it’s mostly factored into the share price that’s moved ahead of itself, in our view. The shares were trading at $13.60 on October 25.

Carsales.com (CRZ)

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

CRZ has been a spectacular performer in the past 12 months, especially after its deal with Telstra to manage the Trading Post’s general merchandise online site. While the company is an undisputed leader in the automotive sales market and now has the opportunity to grow its general merchandise sites, we believe these opportunities are more than reflected in the share price.

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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.