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Carey Smith, Alto Capital

BUY RECOMMENDATIONS

Australian Pharmaceutical Industries (API)

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

API is the leading franchisor in the Australian pharmacy industry, supplying 360 Priceline and Priceline Pharmacy stores and more than 4000 independent pharmacies. Trading on a price/earnings ratio below 10 times and offering a fully franked dividend yield above 6 per cent, we believe API offers good value for the more aggressive investor.

Sonic Healthcare (SHL)

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

This international medical diagnostics company was an old market darling, but its share price has traded in a band of  $11 to $16 since 2005. This is despite earnings per share and its dividend increasing by 40 per cent and 45 per cent respectively over the same period. SHL is considered a defensive play due to its constant and reliable strong cash flows. The shares closed at $13.24 on May 1.

HOLD RECOMMENDATIONS

Metcash (MTS)

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

The third force in Australian food retailing provides marketing and distribution services to 2500 independent grocery stores across Australia. The stocks suits conservative investors attracted to the defensive nature of the sector, with the company trading at a 30 per cent price/earnings ratio discount to Woolworths and Wesfarmers. It also provides a superior dividend yield.

Resolute Mining (RSG)

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

The second largest gold producer on the ASX, with annual production exceeding 400,000 ounces, has suffered along with the entire gold sector. Its share price is down more than 50 per cent since September last year. We recommend investors ride out the current turbulence, as it would be a shame to sell a well-run gold miner at these levels, particularly if sentiment towards the sector changes. The shares closed at 89.5 cents on May 1.

SELL RECOMMENDATIONS

Ramsay Health Care (RHC)

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

The share price of Australia’s premier and largest private hospital operator has tripled since 2010 in response to investors switching to defensive stocks. We believe the share price has significantly overshot fair value, as it’s been recently trading on a price/earnings ratio approaching 25 times and a dividend yield marginally above 2 per cent.

Telstra Corporation (TLS)

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

The share price of Australia’s dominant telecommunications company has risen from $2.60 in 2011 to close above $5 on May 1. Investors chasing income pushed up the price. With the dividend yield now below 6 per cent, we have lowered TLS’s investment rating to a sell, and believe the large capital gains of the past two years are a thing of the past.

 

Warwick Grigor, Canaccord Genuity

BUY RECOMMENDATIONS

Goodrich Resources (GRX)

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

GRX has completed the acquisition of the Ellendale Diamond Mine and placed the shortfall from the recent 1-for-1 rights issue at 15 cents. Based on the March quarter, and adding the guidance for the June quarter, annualised revenue could exceed $110 million and EBITDA would be about $19 million. The current cash position is about $13 million. These are strong numbers and the shares were trading at a discount of 29.5 cents on May 1.

Orinoco Gold (OGX)

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

The company is evaluating a high grade gold project in Brazil near Troy Resources’ Sertao gold mine, which recovered 247,000 ounces at 29 grams per tonne. So far, OGX has identified favourable mineralisation, with multiple quartz veins in three zones ranging in thickness from 4 meters to 25 metres. It could pursue a narrow high grade mine, or the economics may justify bulk tonnages and lower grades of around 5 grams per tonne. The structure could host between 2 million and 3 million ounces of gold, but the next step is to bulk test the project prior to committing to optimum scale and style. We believe there’s potential here that’s gone unnoticed.

HOLD RECOMMENDATIONS

New Talisman Gold Mines (NTL)

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

NTL is in a process of redefining itself, acquiring 20 per cent of the Mpokoto heap leach gold project in the Democratic Republic of Congo. It has rights to 50 per cent. This is an advanced project, with more than $20 million spent so far. The resource is almost 400,000 ounces and there’s potential for another 1 million ounces, all at a grade of 1.6 grams per tonne – which is high grade for heap leach. NTL still holds promising New Zealand assets, but immediate interest will centre on the Mpokoto project.

Peninsula Energy (PEN)

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

As 2013 progresses, we are starting to see a tighter supply and demand equation for uranium. Chinese demand is ramping up. PEN is well advanced with plans to start production at its Wyoming project in 2014. A re-rating of the shares can be expected.

SELL RECOMMENDATIONS

Syrah Resources (SYR)

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

Someone forgot to tell Syrah shareholders the boom is over. This amazing high flying graphite stock, with exploration licences in Mozambique, seems to be defying gravity with a market capitalisation around $242 million. There’s no world shortage of graphite. If you are actually chasing a serious, advanced graphite company, we see better value in Talga Resources or Triton Minerals, both with a market capitalisation of about $11 million. Common sense will tell you what to do, but, in our view, the Syrah share price is looking vulnerable at these dizzy heights. The shares were trading at $1.76 on May 1.

Tanami Gold NL (TAM)

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

TAM has finally had the good sense to shut its troublesome gold mining operation in the Northern Territory. It lives at the behest of its creditors. This comes hard and fast after the raising of $65 million in a rights issue, of which $55 million was used to repay debt. We see an uncertain future, so it’s best to move on to something with upside.

 

Darren Jackson, Calibre Investments

BUY RECOMMENDATIONS

Astro Japan Property Group (AJA)

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

A Japanese REIT that’s positioned to benefit from Bank of Japan’s quantitative easing. AJA’s share price trades at around a 20 per cent discount to net tangible assets, utilising trailing property valuations and the current exchange rate. The REIT’s underlying assets are diversified across 36 buildings, with 226 tenants in Tokyo and Osaka. The rental yield is higher than 5 per cent. Portfolio gearing is at 60 per cent, which in an environment of very cheap debt and rising asset prices might be considered quite moderate and advantageous.

Woodside Petroleum (WPL)

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

Besides a special dividend, this oil and gas giant is increasing the payout ratio from 50 per cent to 80 per cent. Companies paying cash instead of burning it should be highly rewarded in the current macro environment (and this has been the case with WPL). Management has set a good precedent for future project approvals.

HOLD RECOMMENDATIONS

Greencross (GXL)

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

Greencross has been a success story via a model of growing its stable of veterinary practices through acquisitions. Currently, acquisitions are financed through internal cash flow, so there’s minimal equity dilution or balance sheet debt. The prices paid are by no means excessive. The share price has increased about 40 per cent since the start of the year, so we retain our hold recommendation. 

Xero (XRO)

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

This accounting software developer has blue sky potential in rolling out its innovative online accounting system. Recent and continuing interest from overseas investors has seen the company’s market capitisalisation balloon to $1.3 billion, so it’s by no means small, undiscovered or, for that matter, cheap.  The calibre of existing backers, including Peter Thiel, (co-founder of PayPal and angel investor into Facebook), Sam Morgan (founder of TradeMe) and Craig Winkler (co-founder of MYOB) provides some credence to the current valuation. 

SELL RECOMMENDATIONS

Syrah Resources (SYR)

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

SYR has managed to define the world’s largest graphite deposit and it’s high grade. But the graphite price has fallen by more than 40 per cent since its 2012 peak, while known reserves continue to increase. The supply side currently exceeds market demand.

Leighton Holdings (LEI)

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

We remain cautious about the mining services and contracting sectors. We believe recent broker upgrades of LEI are too optimistic in a future challenging project environment. Also, the recent resignation of its chairman and two directors following a rift with major shareholder Hochtief is a red flag to us.

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

Bull trend for property-related stocks

We Test 7 High Yielding Stocks for Dividend Reliability

As crazy as it sounds, we’re believers in gold stocks

Trading Is Timing

Modern Portfolio Theory vs. Behavioral Finance

10 Investment Themes Over The Next 10 Years

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.