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Carey Smith, Alto Capital

BUY RECOMMENDATIONS

Leighton Holdings (LEI)

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

In the past three years, Australia’s largest engineering firm has suffered from a loss of investor confidence as construction losses, Middle East business woes and boardroom battles resulted in a share price fall of about 60 per cent. We believe today’s depressed share price offers a great entry point for this turn-around story, and is suited for investors with a three year-to five-year time frame. The shares closed at $16.32 on November 20.

QBE Insurance (QBE)

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

QBE is recovering from its recent lows and appears to be in a strong uptrend, following the very quiet US hurricane season so far (June 1 to November 30). Increasing long term interest rates in the US and a weakening Australian dollar are also positive for QBE, as it invests its float (money received from premiums but not yet paid out in claims) in high quality fixed interest rate instruments. QBE is potentially in the early stages of a multi-year up trend.

HOLD RECOMMENDATIONS

Computershare (CPU)

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

This global leader in investor services operations is expected to be benefit from an increase in initial public offerings (IPO’s) in Australia and the US, along with more merger and acquisition activity. CPU generates a large proportion of its earnings outside Australia, so any weakening in the Aussie dollar will have a substantially positive impact on the group’s earnings in Australian dollar terms.

ASX Limited (ASX)

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

The dominant securities exchange operator relies primarily on the number of trades and volumes to generate revenues. The increase in algorithmic trading, more M&A activity and the list of new IPOs forecast in the next three months should result in the company reporting a solid 2014 profit result. 

SELL RECOMMENDATIONS

Telstra (TLS)

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

The share price has almost doubled since 2011, as investors chased income. With the dividend yield recently below 5.5 per cent, we have lowered our investment rating to a sell, and believe the large capital gains of the past two years are a thing of the past.

Xero Limited (XRO)

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

The share price of this high tech market favourite has soared in the past 12 months from $4.70 to close at $32 on November 20. Market capitalisation is above $4 billion. With only $NZ50 million in total sales for the 12 months to September and yet to produce a profit, we believe the market has been swept up by the excitement, and believe new investors are likely to be disappointed going forward. If you were lucky enough to get some shares early, we believe it’s time to sell for a large profit. 

 

Peter Russell, Russell Research

BUY RECOMMENDATIONS

nearmap (NEA)  

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

nearmap has developed a top quality aerial photo mapping system. Its internationally patented technology provides clients frequent, customised and detailed pictures quickly and economically over Australia’s most populated areas. Subscription revenue has built rapidly, and the company could show a useful profit this financial year. nearmap has cash for expansion – possibly to some US cities first.              

Select Harvests (SHV)              

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

Australia’s largest vertically integrated almond grower and processor is globally significant as Californian competition is now suffering from drought. An acquisition of mature orchards in South Australia adds to upgraded guidance for the current crop and its pricing. It generates almost 90 per cent of income from its own plantations.               

HOLD RECOMMENDATIONS

Slater & Gordon (SGH)             

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

This leading Australian consumer law firm is now replicating its strategy in the UK. It already employs about 800 people in 11 locations across the UK and is pursuing further opportunities. Accumulate for long term double-digit growth.                

Integrated Research (IRI)           

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

IRI develops and distributes performance management and diagnostic systems for business-critical IT communications and payment infrastructures. It has more than 1000 global customers, including banks, card payment processors and telephone, utility and IT leaders. IRI’s suite supports multiple platforms, vendors and global partners. The payments market is growing, IRI is profitable, debt free and pays a 5 per cent yield.

SELL RECOMMENDATIONS

Metcash (MTS)             

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

The company’s IGA supermarket brand is increasingly pressured by a war between Woolworths and Coles. In the past eight years, its share price has trended down. The price has fallen $1 since May due to intensifying competition. The 28 cent franked dividend is a small benefit and may need reviewing if margins fall.      

Transpacific Industries Group (TPI)

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

After four years of transformation, TPI’s shareholder Warburg Pincus sold its 33.9 per cent stake in a placement at $1.05. Recently, 11 of 42 underperforming businesses have been sold, a new CEO has been appointed and the New Zealand business is to be divested. Trading conditions remain tough. Future earnings are fully priced for this waste manager. 

 

Darren Jackson, Calibre Investments

BUY RECOMMENDATIONS

Sundance Resources (SDL)

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

The overhang from merger arbitrage funds has all but cleared, with Senrigan Capital/Blackstone now doubling down and becoming long term holders. A key catalyst for a re-rating will be arranging joint venture project finance with infrastructure providers and discussions are currently underway. The Sundance valuation has also been benefiting from recent strength in the iron ore price.

Slater & Gordon (SGH)

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

The law firm has been a top performer. It was recently trading on 17 times earnings, but has been making acquisitions in the UK at between 4-to-5 times earnings. So its acquisitions have been highly earnings accretive. Currently, SGH is in negotiations to make one of its biggest acquisitions. The expectation is it will be on the same low multiple. 

HOLD RECOMMENDATIONS

Kathmandu (KMD)

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

In a recent trading update for the 16 weeks to November 17, group sales were up 0.9 per cent on the prior corresponding period to $NZ70.9 million. Same store sales growth were by more than 3 per cent in Australia and New Zealand. This company proves once again that traditional retailing, if done properly, can be lucrative.

Freelancer (FLN)

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

For those lucky enough to get stock, this has been the IPO of the year and a coup for Australian investors. Its current valuation is at a substantial multiple to current revenues, but this should change in time with further acquisitions and expansion. 

SELL RECOMMENDATIONS

Paladin Energy (PDN)

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

The uranium price is yet to rebound. Meanwhile, Paladin still remains operationally inept and loss making. The company’s balance sheet carries too much debt. Purely one for the traders looking for some volatility, or an unlikely turnaround. 

Cochlear (COH)

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

On relative value basis, the company appears expensive and, in, my view, offers poor prospects for organic earnings growth in the near term. COH has been losing market share to competitors in the hearing device space. Notably, Sonova reported strong growth within its advanced bionics division. Reduce.

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.