Which stocks are brokers targeting in 2013? We asked six experienced stockbrokers to put forward a listed company they expect to perform well in 2013; and the reasons why.

Peter Russell, Russell Research

Seek (SEK)

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

Russell says Australia’s dominant jobs website is expanding its footprint in Asia by increasing its 55.5 per cent stake in Chinese employment website Zhaopin to 72.3 per cent. In Asia, it owns 69 per cent of JobsDB and 22 per cent of JobStreet. It has a 51 per cent stake in Brazil’s leading job search operator, Brasil Online, and 57 per cent of Mexico’s leading job search operator, OCC.

“These regions are among the fastest growing and cover 20 per cent of global GDP,” Russell says.

Russell believes that Seek has a sound track record of successfully executing long-term opportunities. “Since 2004, Seek’s revenue, EBITDA and net profit after tax have delivered 32 per cent compound annual growth,” he says. “We expect 2013 and 2014 to deliver double digit growth, with a price/earnings ratio sliding below 15 times and a franked yield increasing to more than 3 per cent.”

Russell says Seek’s educational services are also showing profitable growth. Partnerships with Swinburne University and Laureate Education bolster its profile in the new online education market.

“Also, a rapidly growing middle class in Asia will take advantage of opportunities offered by online education,” Russell says. “In my view, Seek ticks all the boxes.”

Charles Thomas, Bell Potter Securities

Neon Energy (NEN)

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

Thomas classifies this small oil and gas company as a speculative buy. It has production and development assets in the heavy oil fields of California plus exploration potential in two large blocks in offshore Vietnam. It also has interests in Indonesia.

“The Board and management have an excellent track record for building up small companies,” Thomas says. “NEN also own a substantial petroleum database covering south east Asia, which provides a degree of competitive advantage in this region.”

Thomas says that cash flow from the Californian oil fields is covering overheads, enabling a reasonable investment to grow  the production base. The current cash position is almost $30 million. NEN retains 25 per cent equity in Vietnam blocks 105 and 120, where farm-in partner ENI of Italy will drill big gas and oil targets in 2013.

“Our risked valuation is 73 cents a share on a fully diluted basis,” he says. “This stock should be considered speculative and, as such, will not suit all investors, but it has great potential to be a market star in 2013.”

Richard Morrow, Baillieu Holst

Contango MicroCap (CTN)

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

Morrow has gone out on a limb, predicting a good 2013 for smaller companies with undervalued share prices and strong fundamentals. He says Contango is a lower risk play for capturing organic growth and dividend flow. This investment company has recently been trading at a 10 per cent discount to its underlying assets.  

“CTN is attractive because the portfolio comprises more than 30 different small companies, so the spread of holdings partly insulates investors from the volatility in the smaller company sector,” he says. “In my experience, well managed smaller companies often reward investors and this company is paying an impressive dividend yield above 7 per cent. In my view, the second line of the industrial market will deliver superior dividend and profit returns compared with the bigger companies in 2013.”  

Richard Batt, Shadforth Financial Group

Blackmores (BKL)

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

A leading distributor of vitamins and supplements in Australasia and south east Asia, Batt says the growing appeal of the company’s products are driven by an ageing population and a distinct shift towards healthy lifestyles. In Australia, BKL enjoys a market share of more than 20 per cent and its products focus on treating common ailments, such as obesity, cardiovascular and joint problems. Multiple distribution channels, such as pharmacies, supermarkets and health food stores, add appeal.

“Offshore diversification is continuing, particularly across Asia, with 20 per cent of the group’s revenue now coming from international sales,” he says. “Blackmores offers a solid franked dividend yield and good potential for capital growth.”

Peter Moran, Wilson HTM

Alumina (AWC)

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

Moran says Alumina’s share price has rebounded from its lows in July last year, but is still trading about 60 per cent below early 2011 levels. Moran expects the share price to continue its recovery in response to productivity improvements and rising alumina prices.

“Last year, Indonesia banned bauxite exports (a key component in the production of alumina), severely impacting Chinese alumina smelters relying on Indonesian bauxite for over a third of its needs,” he says. “At the same time, the alumina book was rolling off lower priced five-year legacy contracts onto index pricing, resulting in higher prices for AWC.”

James Samson, Lincoln Indicators

Mermaid Marine Australia  (MRM)

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

Samson says the vessel operator’s Dampier supply base and slipway provides a competitive edge when tendering for contracts. “Securing work for the newer Broome supply base and contracting another vessel (currently under construction) places the business in good stead for further share price appreciation and earnings growth,” he says. “Since listing (1999), MRM has performed consistently and is now trading at all time highs above $3.50. With a forward price/earnings ratio of 13 times, we believe it appropriate for MRM to trade at a premium to the market and its peers.”

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