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Peter Russell, Russell Research

BUY RECOMMENDATIONS

M2 Telecommunications Group (MTU)

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

It bought Primus Telecom in June last year. It virtually doubled EBITDA to $55 million in the December half on revenue up 65 per cent. Underlying earnings per share rose 32 per cent to 20 cents. Integration and synergies are on track with extra customer services, including IP, Commander and Cloud. M2 is set for its eighth EPS growth year and pays a 5 per cent franked yield.

Seek (SEK)

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

I like this stock. I said on January 21, 2013 in a feature story published on this website that Seek ticks all the boxes. The price then was $7.79. Seek is the outright leader in online job advertising in Australia and New Zealand. It has been leveraging its leadership into countries covering 20 per cent of global GDP. That’s before noting its expertise and growing profits in the burgeoning online education markets. Watch this space, but consider buying first. 

HOLD RECOMMENDATIONS

FlexiGroup (FXL)

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

This leading vendor finance, lease, interest free, point-of-sale and card credit provider almost doubled its share price last year. It has strong relationships with vendors, a proven depth of off-balance sheet funding and a ruthless focus on efficiencies, product and online innovations and acquisitions. Sound financials and a 3.5 per cent franked yield on a price/earnings ratio of about 16 times support growth plans well into double digits. Accumulate, as the game has a long way to run.

Magellan Financial Group (MFG)

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

We continue to say “add to positions” in this dynamically growing funds manager. We said it was set for growth in this publication in October last year when the price was $3.31. Funds under management have risen substantially in the past few years and now exceed $10.4 billion after winning a major UK mandate, initially of $3.1 billion. Now globally recognised for its investment focus, we believe there’s plenty more to come. 

SELL RECOMMENDATIONS

David Jones (DJS)

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

Sales slowed in the second quarter driven by electronics, music and games. DJS will focus on its high margin categories, but the future still looks tough. We would look elsewhere.

Treasury Wine Estates (TWE)

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

After a demerger, the new focus can reap rewards. Since May 2011, this global wine group has accentuated its luxury and accessible quality wines and reduced the costs of doing business. The share price has risen, so a 2.5 per cent yield on a price/earnings ratio of about 25 times now looks stretched for its asset-heavy long-term business.

 

Michael Heffernan, Lonsec

BUY RECOMMENDATIONS

Woolworths (WOW)

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

The supermarket giant recently produced a super result. It’s been a reliable profit and dividend performer over many years and continues to expect sound profit growth. The Masters hardware roll-out looks to be on track, and divesting some of its property assets is a smart move.

Sydney Airport (SYD)

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

This company continues to benefit from increasing air travel due to lower fares. Revenue from car parking and its extensive retail offering provides excellent income flows. Expect Sydney Airport to benefit further if the global economy continues to improve.

HOLD RECOMMENDATIONS

Monadelphous Group (MND)

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

A mining services company with a stellar sharemarket history and attractive fundamentals. However, it was punished late last year in response to major mining companies planning to cut back capital expenditure. Although its recent report was underwhelming, MND is the cream of the mining services sector.

Qantas (QAN)

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

Australia’s premier airline suffered significantly during the global financial crisis and now struggles in an increasingly competitive aviation environment amid continuing high oil prices. On the positive side, its link with Emirates makes sense as does focusing more on Asia. Its recent report gives cause for optimism.

SELL RECOMMENDATIONS

Origin Energy (ORG)

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

This energy retailing company, which is also involved in gas production and exploration, has been adversely impacted by its potential contribution to the multi-billion dollar LNG asset in Queensland. Its recent report was unimpressive. Other sectors and stocks have more appeal.

Transfield Services (TSE)

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

In the past, this engineering and construction services company has benefited from the robust resources and infrastructure sectors. But its recent report was disappointing. The relatively subdued outlook for the mining sector and associated capital expenditure will probably act to restrain its future profit growth.

 

James Georges, PhillipCapital

BUY RECOMMENDATIONS

Ansell (ANN)

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

Ansell’s recent first half result showed a profit fall of 15 per cent to $55 million. This medical glove and condom maker expects the second half result to be stronger and retained its guidance for the financial year, with the potential for low double-digit earnings growth. An on-market share buy-back, a potentially better second half and a modest dividend yield should attract investors seeking exposure in the defensive earnings space.

Nufarm (NUF)

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

The share price nosedived after Monsanto cancelled the Australasian “Roundup” distribution agreement. Margins on this highly commoditised product have been eroding for years as China’s big global supply halved the price of the main ingredient glyphosate. Nufarm will be looking to brand its own version, which should increase margins. Other specialised crop chemical products are delivering good margins. It still has corporate appeal given Sumitomo’s significant stake in the company. Buy on dips.

HOLD RECOMMENDATIONS

Monadelphous Group (MND)

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

This leading engineering group has been able to weather the storm better than most other mining contractors in the same sector due to its quality contracts and sound management. Although the company has experienced stronger revenue growth, it can’t escape the realities of margin pressures across the board.

Wesfarmers (WES)

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

A consistent performer over the years with large mature businesses. Coles and Bunnings generate about 75 per cent of earnings. Along with the recent recovery in equity markets, this stock has started to breach valuation metrics and therefore, in our view, can only merit a hold.

SELL RECOMMENDATIONS

Aquila Resources (AQA)

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

Aquila’s $227 million first half profit was solely due to its one-off $430 million sale of its Isaac coal mine. Exploration and corporate costs mean we expect an underlying loss for the business. In the absence of operating mines, this company is increasingly becoming a cash box, with 60 per cent of its market capitalisation being cash. A lower price will start to attract longer-term value.

Whitehaven Coal (WHC)

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

This company is experiencing a myriad of issues, including the overhang on the register from the Nathan Tinkler stake to the recent resignation of long serving managing director Tony Haggarty. The backdrop for the coal price is weak. The exodus of funds on the register suggests that you really don’t need to be here.

Click on the links below to read other articles from this week’s newsletter

3 Small Cap Stocks With Big Potential

Playing the Price of Iron Ore in 2013 and Beyond

Market crash 1929, mystery unraveled?

National economy grows but some non-mining states in recession

How International Financial Crises Occur

Choosing Between Major and Junior Mining Stocks 

Top 10 shorted stocks

Stocks on a roll: ASX rolling 52-week highs

Stock on the slide: ASX rolling 52-week lows

 

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.