18 Share Tips – 10 December 2012

Cleo Nanni, Alpha Broking

BUY RECOMMENDATIONS

Commonwealth Bank (CBA)

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

Australia’s largest retail bank continues to reward investors. From about $47.50 in March this year to recently breaking $60 shows its appeal. On December 5, it was trading at $61.07. The CBA is a top performer. It’s also a major funds manager and is increasing market shares in general and life insurance. Consider buying for continuing growth and an upcoming dividend early next year.

Wesfarmers (WES)

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

An industrial conglomerate benefiting from its diverse operations, including Coles supermarkets, the Bunnings hardware chain, Officeworks and other retailers. It also operates businesses in resources and chemicals, among others. The recent price action has been positive, from about $28.50 in June to be trading at $35.73 on December 5. Solid income streams appeal, as do consistent fully franked dividends.

HOLD RECOMMENDATIONS

National Australia Bank (NAB)

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

The first of the big four to lower its mortgage rate by 20 basis points on December 5. For 2012, NAB has been committed to offering the lowest variable home loan rate of the big four banks. This has been a clever strategy. But its UK operations have been a drag on the group. Resolving UK issues would unlock value.

Westpac Bank (WBC)

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

The major banks appeal for their fully franked dividends, particularly in uncertain times. Westpac is rapidly clawing back its final 84-cent dividend after going ex-dividend on November 9. It gives some indication of investor appeal. I consider it a must hold for investors looking for income.

SELL RECOMMENDATIONS

David Jones (DJS)

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

Interest rate cuts take time to filter through the economy. Consumers will spend at Christmas time, but they remain cautious. Also, will shoppers spend at high-end department stores, discount stores or online? Too many uncertainties here for my liking. What happens after Christmas? The banks and infrastructure stocks look far better alternatives.

Myer Holdings (MYR)

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

In November, the company announced first quarter sales had risen 1 per cent. A welcome rise, but moderate. The share price has been improving and was trading at $2.20 on December 5. But if the Christmas season doesn’t show a healthy return on sales, the share price will again come under pressure.

James Georges, Octa Phillip Securities

BUY RECOMMENDATIONS

Service Stream (SSM)

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

SSM has been awarded a network remediation contract with Telstra worth $180 million over three years. It involves pit and infrastructure work relating to the NBN rollout. Potential exists for the contract to be extended to seven years worth $420 million. It could win further NBN contracts worth substantial amounts. Our share price target is 56 cents. The shares were trading at 37 cents on December 5.

Cash Converters (CCV)

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

This company recently raised $32.7 million and will use the funds to buy franchised stores within the network and convert them to corporate outlets. The funds will also be used to grow the Australian and UK personal loan books. This business does well in tough times. Following a strong first quarter and potential growth opportunities, this company looks promising. Buy on dips.

HOLD RECOMMENDATIONS

Coffey International (COF)

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

Following COF guidance, we have lowered full year 2013 EBITDA by $1.1 million to $39 million, a reduction of 3 per cent.  But the company is forecasting a reduction in debt in 2013, a positive sign, as it’s much too high for a firm with few fixed assets. The bad news is factored in the share price for this professional services consultancy. If you hold, monitor performance. 

Qantas Airways (QAN)

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

The company is aggressively cutting costs and an alliance with Emirates should be positive. Qantas is trading at a discount to book value. Speculation exists that former chief executive Geoff Dixon is leading a team to take control of the airline and potentially unlock vale. Hold for now.

SELL RECOMMENDATIONS

James Hardie Industries (JHX)

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

Despite a recovery in US housing, James Hardie’s recent quarter failed to impress us. Soft volumes and prices have hurt margins for this building products company. Its recent share price rally to more than $9 puts it above our fair value of $8. We suggest investors lighten holdings at these levels. The shares were trading at $9.15 on December 5.

Cabcharge Australia (CAB)

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

For the past 30 years, Cabcharge has enjoyed an almost monopoly position in the taxi fare processing industry. Despite the benefits of first mover advantage, the current 10 per cent surcharge has been subjected to more competition. The Reserve Bank is heavily scrutinising the hefty charges and there’s potential for Cabcharge to lose its dominance.

Brendan Fogarty, Alto Capital

BUY RECOMMENDATIONS

Orinoco Gold (OGX)

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

We believe this company offers great value and potential. It has extended the thick sulphide-rich zone to 620 metres down plunge. A 1 tonne bulk sample returned an average head grade of 22.1 grams of gold a tonne and free milling gold recoveries were 86 per cent via a simple gravity circuit. We are impressed with management and exploration upside at the Brazil’s Curral de Pedra Gold Project. Further drill results are pending.

Newcrest Mining (NCM)

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

Continuing with our gold exposure theme, the leverage of Newcrest Mining’s gold production makes it good buying for those seeking relative exposure to the gold price. Further expansion at Lihir and Cadia should see Newcrest return to its previous status as a low cost, low sovereign risk gold producer.

HOLD RECOMMENDATIONS

Cabcharge Australia (CAB)

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

The RBA’s decision to tackle surcharge payments, with particular emphasis on the taxi industry has fostered a downgrade in the company’s earnings expectations. Despite this, Cabcharge remains a strong market leader with relatively stable cash flows. It still offers a reasonable dividend yield of about 6 per cent.

Wesfarmers (WES)

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

This solid long-term performer has been trading well of late, due mainly to its sustainable cash flow, diversified earnings streams and continuing market share across its divisions. Its coal operations, representing 13 per cent of the group’s total earnings, will impinge on growth in the near term. Hold pending a turnaround in its resources division.

SELL RECOMMENDATIONS

Fortescue Metals Group (FMG)

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

This year’s iron ore price decline has placed pressure on the higher cost producers. FMG’s peers Vale, Rio Tinto and BHP produce higher grade and superior lump products. With net debt at $US5.9 billion at June 2012, and rising with further capital spending next year, Fortescue’s balance sheet is likely be tested in coming months.

GrainCorp (GNC)

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

The bid from US agribusiness major Archer Daniels Midland has increased from $11.75 to $12.20. The time has arrived for patient investors to take a profit on GrainCorp’s closing price of $12.30 on December 6 and look for greener pastures.

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