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Clive Briggs, RBS Morgans

BUY RECOMMENDATIONS

Amcor (AMC)

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

This global packaging giant offers a defensive earnings stream, excellent management and strong cash flows that should support a robust dividend yield, acquisition growth and further capital management initiatives. It’s using innovation and R&D to drive differentiation and to grow market share. It’s all so focusing on operating efficiencies to provide a lowest cost position.

Cardno (CDD)

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

CDD offers unique exposure to the growing environmental consulting sector. The Environmental Business Journal global markets survey 2012 supports previous findings that environmental business growth is expected to exceed 9 per cent in 2013. CDD is yet to fully benefit from integrating and cross selling its recent ATC acquisition by leveraging multiple services across an expanded footprint. Also, expect further complementary value-adding acquisitions given its strong balance sheet and track record.

HOLD RECOMMENDATIONS

AMP (AMP)

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

AMP remains well positioned, but a recent update highlighted the continuing tough operating environment in wealth management and life insurance. Targeting the SMSF market, as a strategic priority, remains sound, with recent acquisitions lifting SMSF funds under management to $10 billion. Leveraging a meaningful revenue opportunity will take time.

Brambles (BXB)

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

BXB is a well managed company, achieving targeted pallet efficiencies and synergies from the IFCO integration. It met  growth targets for the RPC (reusable plastic containers) business and delivered on the Better Everyday program that aided its recent strong Pallets Americas result. However, the macro environment is likely to remain challenging during the next 12 months and earnings upside appears limited.

SELL RECOMMENDATIONS

OZ Minerals (OZL)

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

OZL continues to face operating cost challenges at Prominent Hill. Key risks, in our view, include limited long-term production potential at Prominent Hill, and the Carrapateena copper/gold project is long dated and costly. There’s also acquisition risk, as the company continues to reserve $750 million for potential acquisitions. We prefer PanAust Limited.

Metcash (MTS)

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

MTS offers an attractive 8 per cent yield at a reasonable valuation. However, its independent supermarket network, particularly the IGA business, is up against fierce competition, which poses challenges. We prefer Woolworths.

 

Darren Jackson, Calibre Investments

BUY RECOMMENDATIONS

Pharmaxis (PXS)

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

Pharmaxis is approaching a key US Food and Drug Administration meeting on January 30 for its flagship drug Bronchitol. As with all speculative biotech companies, there’s a significant risk around unfavourable regulatory decisions. However, Pharmaxis has successfully achieved FDA approval for its niche drug Aridol, and has already received marketing approval for Bronchitol in Australia and the European Union. A speculative buy.

PrimeAg Australia (PAG)

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

PrimeAg is selling its agricultural assets, which should be completed by the end of this quarter. The company’s share price is trading at noticeable discount to its net asset value of $1.58 a share. Given the strong appetite from Chinese buyers for Australian agricultural land, we are optimistic about successful sales. The shares were trading at $1.19 on January 10.

HOLD RECOMMENDATIONS

Lynas Corporation (LYC)

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

The execution risk of the company’s Malaysian plant has reduced substantially, as it’s now expecting to produce finished rare earth products within weeks. At current valuation levels, we remain neutral as rare earth prices remain weak (and may weaken further with additional supply) and issues regarding waste disposal appear to have been delayed rather than solved. 

Gindalbie Metals (GBG)

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

With the recent strong rebound in iron ore prices, our attention has turned towards higher cost producers more leveraged to the iron ore price. Gindalbie Metals, having recently completed a capital raising and trading below GFC lows, is at the forefront of our attention. Suitable to accumulate on price weakness.

SELL RECOMMENDATIONS

James Hardie Industries (JHX)

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

House prices in the US have rebounded strongly and early signs point to a recovery. However, this building products company is trading on a high earnings multiple, perhaps too far ahead of the recovery. The upcoming debt ceiling debate in the US Congress is a good catalyst to take a profit as stocks exposed to America may be pressured if politicians fail to provide a satisfactory outcome.

Energy World Corporation (EWC)

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

In the past, this company, in our view, has over promised and under delivered on its energy projects dating back to 2007. Although significant upside could materialise, we believe investors would be better off selling and putting the proceeds into an energy company with a proven track record, such as Woodside Petroleum.

 

James Georges, Phillip Capital

BUY RECOMMENDATIONS

Paladin Energy (PDN)

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

Changing circumstances may work in this uranium producer’s favour. A new Japanese Government may stick with nuclear power. China is also building several nuclear reactors. The price of uranium is increasing off its Fukushima lows. Several brokers have upgraded the stock and quarterly production figures going forward should be higher. This stock ticks boxes and deserves consideration.

Woodside Petroleum (WPL)

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

The Pluto LNG project will generate future value, and additional capacity at Browse should be soaked up by strategic investors, such as PetroChina by way of off-take agreements. Long term investors should consider accumulating this stock on dips. Good potential value here.

HOLD RECOMMENDATIONS

Atlas Iron (AGO)

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

The share price has climbed rapidly in the past few months. It closed at $1.75 on January 8. The spot iron ore price has rallied and the company has announced expansion plans. But as a single commodity company, income is vulnerable to price volatility.

Charter Hall Group (CHC)

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

Balance sheet gearing for this integrated property group is low. This company is also benefiting from a portfolio of quality assets. A distribution yield of about 5.8 per cent, particularly in a low cash rate environment, makes this story more appealing than it’s been for a long time. Hold.

SELL RECOMMENDATIONS

Sandfire Resources (SFR)

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

Sandfire’s copper discovery in 2009 at DeGrussa in WA has produced exponential returns for shareholders. The balance sheet has $100 million in cash and its debt should be rapidly repaid from production. Despite the positives, current market capital implies a healthy premium to its activities, so we advocate a sell.

Insurance Australia Group (IAG)

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

IAG, as one of the largest general insurers in Australia and New Zealand, continues to face challenges in generating meaningful growth. Being a mature business presents obstacles. Questions remain about its ability to deliver growth in Asia. And then there’s always the possibility of catastrophes. At current levels, we consider it a sell. The shares closed at $4.74 on January 8.

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