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Michael Heffernan, Lonsec

BUY RECOMMENDATIONS

The Reject Shop (TRS)

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

A sharply focused and well managed niche retailer targeting the lower priced end of the market. It’s likely to have benefited from buoyant Christmas shopping. Probable cuts in interest rates in the next few of months should help performance.

ARB Corporation (ARP)

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

The share price and profits of this solid performing and pre-eminent auto accessory company have rebounded strongly since the depths of the GFC in early 2009. Also, very strong sales growth of 4 wheel drive vehicles in the past 12 months is an added bonus for this company.

HOLD RECOMMENDATIONS

Crown (CWN)

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

Refurbishing Melbourne’s Crown Casino, expanding Perth’s casino and a strong performing operation in Macau provides a healthy measure of financial robustness. The possibility of another Sydney casino helps underpin buoyant expectations.

Telstra (TLS)

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

Telstra has been a stunning sharemarket performer in the past 12 months. The likely prospect the company will announce a 14-cent dividend in mid February amid potentially lower interest rates should make Telstra shares even more attractive.

SELL RECOMMENDATIONS

Lynas Corporation (LYC)

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

This rare earths exploration and production company has met obstacles with its processing plant in Malaysia. The adverse impact from community opposition shouldn’t be under estimated. Until the Malaysian situation is resolved, investors should look elsewhere.

Alumina (AWC)

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

Commodity prices, particularly aluminium, in the past year have softened. As a result, second line resource companies lose appeal. If investors are looking to buy in the resources sector, then I much prefer the major miners in the current world economic environment.

 

Charles Thomas, Bell Potter Securities

BUY RECOMMENDATIONS

National Australia Bank (NAB)

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

Whether it be for the short to the long term, an investment opportunity exists. We believe NAB is way under priced compared to domestic and UK peers. As NAB runs down its UK exposure, expect company equity to be re-rated to a domestic multiple. For financial year 2013, NAB is trading on 1.2 times book value and 10.2 times earnings. It offers more than 4 per cent earnings per share growth and a fully franked yield of 7 per cent. Taking franking credits into account, the pre-tax yield is 10 per cent, double what a US junk bond currently offers and 3 times a domestic 1-year term deposit in pre-tax terms. Our price target is $27.60.

Whitehaven Coal (WHC)

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

WHC has high quality assets at various stages of development, with annual production expected to increase from 4.9 million tonnes in financial year 2012 to 23 million tonnes by financial year 2016. Production growth in the near term will be driven by ramping up Narrabri longwall to 5.8 million tonnes a year. Production growth in the medium to long term will be driven by Maules Creek ramping up to 10.7 million tonnes a year by 2017 and Vickery to 3.6 million tonnes a year by 2018. Following its $1.2 billion refinancing deal with ANZ, Whitehaven is now fully funded to start project development at Maules Creek. Our price target is $4.40.

HOLD RECOMMENDATIONS

Wesfarmers (WES)

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

This industrial conglomerate has outperformed the S&P/ASX200 by 15 per cent in 2012. With its valuation looking full amid continuing earnings uncertainty within the resources division, we have moved from a buy to a hold recommendation.

Telstra (TLS)

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

The telecommunications giant has re-rated strongly off a low in November 2010 and now trades at a premium to our long-held $4 discount cash flow valuation. While the current premium is supported by a 6.3 per cent fully franked yield, we believe further share price appreciation is limited in the near term. Positives, which include a more rational pricing environment, market share momentum and 4G upside, have now been priced in. Retain.

SELL RECOMMENDATIONS

Wotif.com Holdings (WTF)

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

We consider the company a leader in its segment with outstanding free cash generating capacity. But there’s some uncertainty over the magnitude of future growth given the weak domestic leisure segment and the lack of exposure to international travel. The medium to long term outlook appears to be challenging amid significantly increasing competition.

Ten Network Holdings (TEN)

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

TEN’s debt has been largely addressed by a recent capital raising, but long term strategic issues remain. Revenue and ratings momentum remains negative and reversing it may require content and time. Major sporting rights are no longer available and investment in local production will be a multi year strategy. Our valuation is 20 cents and therefore a sell.

 

Andrew Doherty, Morningstar

BUY RECOMMENDATIONS

BHP Billiton (BHP)

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

BHP is a well managed global resource leader with a balanced portfolio of world class, long life and low cost assets which give it a sustainable competitive advantage. The company should do better than smaller players as commodity prices ease over time.

Origin Energy (ORG)

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

Origin is Australia’s largest integrated energy company. Domestic energy retailing is Origin’s core business and the cash cow that funds growth projects. Its Australia Pacific liquid natural gas project is the source of higher risk earnings growth in the next few years.

HOLD RECOMMENDATIONS

Telstra (TLS)

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

Shares in Australia’s leading telecommunications company have run strongly in the past year in a market hungry for yield. We think the shares will remain attractive for a while yet. The valuation is supported by robust industry positioning and solid earnings growth in mobile and data services.

Orica (ORI)

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

Orica appeals for its strong competitive position and exposure to mining volumes, which aren’t immediately hurt by softening commodity prices. The company benefits from access to ammonium nitrate near key mining regions in Australia, while the high upfront costs that are required to establish a competing facility adds to its defences.

SELL RECOMMENDATIONS

CSL (CSL)

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

This global supplier of blood plasma products has built sustainable competitive advantages through control of supply, scale of operations and integration of services from blood collection to product manufacture. The share price is beginning to look excessive after a strong run.

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.

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