7min read
PREVIOUS ARTICLE Gold-Stock Rebirth NEXT ARTICLE Silver shorts hit record extremes, short squeeze looms

A federal election result can’t come quick enough for sharemarket investors. Brokers are dealing daily with nervous clients fearing a fresh political announcement or plan may wreak havoc on their investments.

Salary packaging company McMillan Shakespeare remains overtly fresh in the subconscious of investors. McMillan’s share price was slaughtered in response to the Rudd Government announcing it would tighten fringe benefits tax guidelines on novation car leases. McMillan’s share price plunged more than 40 per cent on July 25 and about $500 million was wiped from its market capitalisation.

The major banks took a hit on August 1 after the Rudd Government flagged a levy on deposits. But the shares bounced on August 2 when it was quickly digested that bank customers would foot the levy.

Nevertheless, pre-election announcements are unnerving some investors as they wonder what might be next in the lead-up to the September 7 election.

Carey Smith, of Alto Capital, says discretionary capital spending is on holidays until an election result is known. “Companies, listed and unlisted, are reluctant to commit to big capital projects in this uncertain environment,” Smith says. “You just don’t know what’s going to be announced next from either party.

“As for McMillan Shakespeare, its outlook is a bet on the election outcome. If Labor wins, the share price will certainly fall further. If the coalition wins, the share price will certainly rise because the status quo (prior to Rudd’s announcement) will most likely remain.”      

In the meantime, thebull.com.au asked five analysts to choose a single stock they believe offer good prospects irrespective of the election result. Analysts say their chosen stock should weather market downturns, while rewarding investors on signs of better times.   

CSL (CSL)

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

What appeals about CSL to Michael Heffernan, of Lonsec, is the company has “immunized itself” from uncertainty ruling the Australian economy. “As we have seen over the years, political decisions can have a major impact on company outlook,” Heffernan says.

He says CSL generates most of its revenue overseas and will report its full year result on August 14. CSL’s interim result in February for the six months to December 31, 2012 showed sales revenue had risen 7 per cent on the previous corresponding period to US$2.5 billion and reported net profit after tax was up 24 per cent to $US627 million.  

Heffernan says CSL’s share price in early August was up about 23 per cent in calendar 2013. But as a global leader in the blood plasma and vaccine industries, Heffernan says he sees upside for a company with a good long-standing track record and proven fundamentals mixed with defensive qualities.

Trading above $66 on August 5, Heffernan is forecasting a 10 per cent rise in the next 12 months.

Flight Centre (FLT)

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

Scott Marshall, of Shaw Stockbroking, says FLT dominates its space in Australia and has a growing presence in global markets.

Shaw has upgraded its price target to $48 to reflect the strong outlook for this dynamic group. Marshall says the company’s recently announced profit guidance for full year 2013 implies a significant improvement in profit margins in the second half. This margin improvement should be sustainable.

Marshall says Shaw is confident about the medium term outlook. “In the past, Flight Centre has shown earnings resilience during Australian dollar volatility,” Marshall says. “With the global footprint now well established, the group has opportunities for revenue growth geographically and through the various travel segments in which they operate.

“The strength of management, a conservative financial structure, geographical spread and market shares should ensure that, while the group trades on a high price/earnings ratio, this is justified by its growth prospects.”

Slater & Gordon (SGH)

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

Peter Moran, of Wilson HTM, says the commercial law firm isn’t cheap, but it’s defensive and building exposure in the UK. On Wilson HTM numbers, SGH has recently been trading on a 2014 financial year price/earnings ratio above 11.5 times.

“Company earnings are largely immune to the health of the broader Australian economy and SGH would be most unlikely to suffer from legislative changes impacting earnings,” he says.

“I wouldn’t expect to double your investment in the short term, but SGH is reasonably good value when considering the quality of their earnings,” Moran says of a company specialising in personal injury, conveyancing and family, property and employment law.  

“SGH will grow organically and via bolt-on acquisitions. We expect it to achieve earnings growth above 10 per cent a year in the foreseeable future. Recently, the fully franked dividend yield was almost 3 per cent.”

Ramsay Health Care (RHC)

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

Owns and operates private hospitals in Australia, Europe and more recently in Asia. James Samson, of Lincoln Indicators, says the company has consistently delivered growth in earnings per share and return on assets in the past five years.

Samson says Lincoln first recommended Ramsay to clients in February 2011 when the price was $17.70. A share price above $36 on August 6, 2013 is testament to a resilient business resilient model. Samson says the share price continued making gains in a sideways market and struggling global economy.

“Essentially, the strength lies in the investment case,” Samson says. “Demand for hospitals is defensive. RHC has a strong track record of operational excellence, and has the balance sheet and resources to invest in new markets. It can grow earnings via acquisition or organic means.

“While the stock is expensive, recently trading on a forward price/earnings ratio of almost 24 times, such a premium is justified due to the underlying business quality.”

ASX Limited  (ASX)  

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

Carey Smith says the ASX enjoys virtual monopolies in most market segments. “Its business model is to take a fee on every transaction (clipping the ticket),” he says. “While individual fees per transaction are generally very small, the sheer volume of transactions generates significant fees.  

“As the ASX is basically a technology services provider, it has very low operating costs and little capital expenditure as a percentage of its revenues, enabling the ASX to report one of the highest operating margins in Australia – greater than 70 per cent at the EBIT level (earnings before interest and tax).”

Smith says while the ASX isn’t cheap when recently trading on a price/earnings ratio of more than 17 times, “its monopoly position and large profit margins ensure it can ride out any downturns in the economy and financial markets”.

“It’s never reported loss since listing in 1998,” Smith says.

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

1. Take Profit – Why A Global Sell Off is Likely: Medium-term outlook still good, but global…

2. 5 Defensive Stocks For Nervous Nellies: A federal election result can’t come quick…

3. 18 Share Tips – 12 August 2013: 18 Share Tips to BUY, SELL & HOLD from…

4. 5 Mining Services Stocks To Watch This Earnings Season: This earnings season there are three key trends…

5. Property bubble? That’s the theory, anyway: As Australian housing prices have boomed over…

6. Silver shorts hit record extremes, short squeeze looms: Silver has suffered a miserable year so far…

7. Dow Jones Index to 68 points?: President Obama has decided to modify the…

8. Top 10 shorted stocks: Each day we feature the top 10 shorted stocks…

9. Stocks on a roll: ASX rolling 52-week highs for the previous…

10. Stocks on the slide: ASX rolling 52-week lows for the previous…

 

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.