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Shredded share prices potentially provide a building foundation for 2009, but generating wealth will require selective buying, according to analysts and brokers in the nation’s top investing houses. They say the worst may not be over, but we are unlikely to know the bottom until three-to-six months after the recovery begins. No one is going to ring the bell at the bottom.

With the sharemarket down by more than 40 per cent this year, CompareShares asked brokers and analysts to recommend a single, favourite stock they believe will reward investors in 2009 and to predict what level the All Ordinaries Index will be trading at in 12 months. The All Ordinaries Index was 3487 points in early trading on Friday, December 12.

Richard Batt, of Shadforths, says Woodside Petroleum heads his 2009 buy list as he expects the share price to rise in line with a recovery in crude oil prices and increasing demand for Woodside’s liquefied natural gas. Batt is predicting the oil price will double to US$80 levels in the next 12 months as OPEC cuts production to kick-start demand and reverse falling prices. Batt expects the global economy to improve next year in response to credit markets eventually thawing, lower interest rates and big government spending. Increasing Asian demand for LNG will fuel Woodside’s revenue growth, and the company’s Pluto project, to be finished in 2010, will significantly lift production.

Batt believes the All Ordinaries Index will finish at 4400 points by the end of next year in response to a stronger global economy.

Brendan Fogarty, of Alto Capital, recommends Westpac Bank for capital growth and dividends. Fogarty is also keen to emphasise that Westpac offers relatively low-risk exposure in what he expects to be a volatile 2009, particularly in the first three months. He says Westpac’s $2.5 billion capital raising alleviates capital concerns in tight credit markets, and the St George acquisition makes it Australia’s biggest bank, providing it with a more diversified earnings stream. “The St George acquisition gives Westpac greater exposure to wealth management, which complements banking activities,” Fogarty says. “Westpac is the one stock I would buy for 2009. The potential is there to reward investors with attractive returns.”

Fogarty expects the All Ordinaries Index to be about 4700 points in 12 months. “History shows that after big sharemarket falls, there tends to be a partial recovery,” he says. “And lower interest rates and inflation plus the Federal Government’s stimulus package should be good for the economy and banks and particularly Westpac.”

Mark Goulopoulos, of Tolhurst, says he can’t go past QBE Insurance as his top 2009 pick, describing the company as one of the best-managed insurers in the world. QBE has again been on the acquisition trail, bringing another six companies under the QBE umbrella, including US under-writing agency ZC Sterling for US$575 million. QBE’s “opportunistic acquisitions in a globally weak insurance market” will lift earnings for one of the few insurance companies in the world with a strong balance sheet. “And QBE is probably one of the best at making acquisitions work,” he says.

Goulopoulos expects the All Ordinaries Index to be trading at 4100 points by next year’s end after a healthy rally during 2009 fizzles on a poor economic outlook in 2010.

Andrew Doherty, of Morningstar, says brewer Lion Nathan is his 2009 premium stock. Lion Nathan will continue growing earnings off its strong beer brands and efficiency gains. He says Lion Nathan’s average 28 per cent operating margins across beer, wine and spirits should continue because it has pricing power against the competition. It offers an attractive fully-franked dividend, but its current yield of about 6 per cent is expected to fall in line with a rising share price. Doherty says Lion’s takeover offer for Coca-Cola Amatil will probably be unsuccessful as Coca-Cola in the US is unlikely to sell its 30 per cent stake in the Australian soft drink bottler. But Lion Nathan is an attractive proposition as a stand-alone company.

Doherty expects the All Ordinaries Index to be trading at 3800 points by December next year in response to lower interest rates lifting retail spending and consumer confidence, but the Australian sharemarket will remain volatile.

Peter Russell, of Intersuisse, says BHP Billiton trading at $30 levels is good value. “It’s volatile and well traded so it provides room for moving in and out of the stock in the short term,” Russell says. “If you get caught, don’t worry – it will be much higher in the longer term than it is today.” He says BHP Billiton was not going to be spared the 2008 meltdown. “The whole market has been shot so BHP Billiton deserves to be shot as well,” Russell says. “But BHP Billiton is a good example about how to provide investors with a clear picture and direction. When times were good, it went after Rio Tinto. When the weather changed, BHP withdrew the offer. A few more company miners and investors should have done the same.” He says BHP Billiton’s global suite of diversified commodities and sheer size are other reasons why it sits at the top of his buy list.

Russell predicts the All Ordinaries Index will finish just above 4000 points by the end of next year after global markets respond positively to stimulus packages and a fresh direction from the new Barack Obama administration in the US.

Cleo Nanni, of Novus Capital, is another BHP Billiton fan, but is equally optimistic about blood products company CSL. “Firstly, I believe BHP is still the nation’s premium company,” Nanni says. “The best thing that didn’t happen to BHP was the acquisition of Rio Tinto.”

Nanni says CSL is well managed, has little debt and offers solid growth from its highly successful anti-cervical cancer drug Gardasil and the recent acquisition of US-based plasma products leader Talecris. CSL is continuing to expand in the US and has a history of doing deals that create shareholder value. “CSL doesn’t buy a company unless it’s confident it will be making money in a very short time,” he says. “The fall in the Australian dollar against the US greenback should significantly lift CSL’s royalties for Gardasil in 2009.”

Nanni expects the All Ordinaries Index to be trading at 4300 points in 12 months. However, he warns: “I think February’s reporting season is going to be a shocker. Expect many company’s earnings to miss guidance and targets. By April 2009, the All Ordinaries will be testing 3200 point levels. Then we will rally strongly after all the bad debts have been written off.”

Richard Morrow, a director of E.L &C. Baillieu, has no hesitation in recommending Rio Tinto as his top buying pick, saying the stock has been way over-sold by “scare brokers and investors” since BHP Billiton shelved its acquisition plans. Morrow says: “Rio is the best mining company in the world and global demand for Rio’s commodities will remain strong.” He says Rio is responding to the global economic downturn by committing to cut $10 billion in debt and slashing 14,000 jobs across the world. “But focus on the big picture over the longer term,” Morrow advises. “Rio has what the world will still continue to demand and its share price will benefit.”

Morrow expects the All Ordinaries to be finish next year at 4100 points. “I’m not too concerned about the index because it’s somewhat distorted by the performance of the 10 big stocks,” Morrow says. “I just what to be in the right stocks and sectors.”

Michael Heffernan, of Austock, recommends Origin Energy, saying it sits in the “safety zone” as a power and gas distributor to 3 million houses and businesses in Australia and New Zealand. He says Origin is cashed up after selling half its coal seam gas assets to ConocoPhillips for US$9 billion as part of a joint venture to produce liquefied natural gas. Heffernan expects strong global demand for LNG from the Asia Pacific and international markets. “Origin offers a good blend of growth and safety and its share price is trading more than $3.50 off its year high of $19.68,” he says.

Heffernan believes the All Ordinaries Index will finish next year at 4400 points. “The market will turn – it’s only a question of when,” he says. “Sharemarkets look ahead, so it will start recovering before the Australian economy shows signs of improving.”