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Michael Heffernan, Lonsec

BUY RECOMMENDATIONS

Computershare (CPU)

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

Consistently delivers sound results in challenging circumstances. With sharemarkets improving from the depths of the GFC, Computershare should reap the benefits, as it’s a key player in the delivery of post trade equity transactions in major economies around the world. A stronger US dollar will also help.

ResMed (RMD)

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

A leading Australian medical device maker for treating breathing disorders. A sound business model should ensure its medium term growth performance. Its recent report was also better than the market expected. The continuing upward move in the US dollar is icing on the cake.

HOLD RECOMMENDATIONS

Credit Corp Group (CCP)

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

A specialist operator in the debt recovery area.  It has proved to be a sound performer in a competitive market. It has attractive sharemarket fundamentals and a strong profit growth profile. However, the possibility of a sharp increase in the unemployment rate is a risk factor for its medium term profitability.

Thorn Group (TGA)

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

Formerly Radio Rentals of Australia, TGA operates in a largely recession proof area of the economy. It focuses on the rental and buy markets for those unable to afford the purchase price outright. It has a low debt level and pays an attractive fully franked dividend.

SELL RECOMMENDATIONS

JB Hi-Fi (JBH)

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

This company has been a fabulous performer in the past year after taking a battering. With the economy still fragile, it may be prudent for investors who bought in at a lower price to take some profits. The shares were trading at $15.40 on June 5.

Decmil (DCG)

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

Designs and constructs accommodation villages for mining areas in Western Australia and Queensland. It performed well in the resources boom, but is now impacted by the cut back in capital investment by major mining companies. Bottom fishers can afford to be patient.

 

James Samson, Lincoln Indicators

BUY RECOMMENDATIONS

Forge Group (FGE)

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

FGE announced it’s retained a stable order book despite weakening conditions impacting the mining and mining services sectors in recent months. The company is in strong financial health and has also announced an acquisition, which will provide ongoing revenue in the US. We believe FGE represents value on a forward price/earnings ratio of almost six times.

Credit Corp Group (CCP)

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

A collections management business, CCP has excelled in the Australian market. The company has possibly reached its ceiling on domestic shores, but appears likely to grow US operations in coming years. The company takes a prudent approach to debt. Its management team has a good track record and the future remains bright.

HOLD RECOMMENDATIONS

iiNet (IIN)

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

The mid-cap telecommunications space was hit hard at the end of May. These over-performing stocks had perhaps run too hard and were due to correct. According to our analysis, iiNet is in strong financial health and we are confident about the longer term attributes of the business.

Sky Network Television (SKT)

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

SKT provides content to New Zealand through its subscription TV offering. The business has performed well and should be considered somewhat defensive in a challenging market given its subscription-based business model. With the share price up by about 15 per cent since February, the market appears to be fully valuing SKT.

SELL RECOMMENDATIONS

Karoon Gas Australia (KAR)

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

KAR’s early stage exploration and development at the Browse Basin is likely to come under scrutiny following Woodside Petroleum’s decision to explore floating LNG options. We believe the recently buoyant share price over values a business that, in our view, is unlikely to turn a profit in the short term. There’s expectations of volatile energy prices and an uncertain future gas export market, so we prefer WPL as an LNG exposure.

Aquila Resources (AQA)

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

Despite bouncing from its lows in the past month, we remain concerned over the viability of AQA’s West Pilbara iron ore project, particularly with persisting uncertainty at Anketell. As iron ore prices decline for the short term, we believe there’s too much risk in AQA’s projects to justify an investment.

 

Darren Jackson, Calibre Investments

BUY RECOMMENDATIONS

M2 Telecommunications Group (MTU)

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

Strategically, we like yielding industrials that have strong sustainable earnings growth. We have been particularly fond of the burgeoning telco/broadband sector. Within the sector, MTU has been a standout through its string of acquisitions, which have been earnings accretive and offer easily extractable synergies. The most recent acquisitions include Dodo and Eftel. The share price has been in a strong uptrend since listing in 2004, and there’s no reason to suggest that the recent sell off is anything more than just a bump in the road.

Magellan Financial Group (MFG)

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

Continues to grow funds under management over the long term. The outlook is optimistic for MFG. It offers strong management and performance and is able to win mandates over others. The RBA cash rate is low, attracting more funds into infrastructure and equity funds, so current returns are at least retained. One to buy on weakness. 

HOLD RECOMMENDATIONS

ANZ Bank (ANZ)

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

The US yield trade is beginning to subside on mere mention of a tapering off in quantitative easing. Overseas investors have been dumping yield, but domestically the yield trade has further to play out, so this will provide some support. We like ANZ for its dividend yield (5.5 per cent plus franking credits) and its growth prospects.  

NuEnergy Gas (NGY)

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

The company is transitioning from a speculative energy explorer to fast becoming a de-risked gas producer. First gas sales are expected in December 2013. One to hold and wait for a re-rating by the market.

SELL RECOMMENDATIONS

Aurizon Holdings (AZJ)

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

Formerly QR National, earnings are derived from freighting go

ods and mostly tied to meeting performance targets. While acknowledging the roll off of its legacy contracts has been beneficial, a significant portion of earnings are generated from freighting coal. This leaves AZJ especially vulnerable to any volume downturn in coal. Given there’s a general long-term global shift away from coal to natural gas, the current earnings multiple may come into question at some point in the future. Take a profit.

RCR Tomlinson (RCR)

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

RCR has been a beneficiary of the resources boom. The company has a robust order book, reported record profit and the share price recently hit a five-year high. However, we question how long this performance can continue given the resources super cycle has peaked and capital expenditure will decline. Margins remain thin and debt incurred through the Norfolk Group (NFK) acquisition adds further risk and, in our view, increases the chances of a capital raising.

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

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