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PREVIOUS ARTICLE 18 Share Tips - 29 June NEXT ARTICLE ASX companies raise $90b in 2008/09

Michael Heffernan, Austock

BUY RECOMMENDATIONS

Coca-Cola Amatil (CCL)

You can rely on this stock to perform as a downturn has little impact on sales. Expect this well-managed company to deliver growth from product innovation, and the acquisition of SPC Ardmona making it a broader based food and beverage company.  It offers strong sharemarket fundamentals and, importantly, an attractive yield.    

CSL (CSL)

A leading Australian bio-science company, producing human vaccine and supplying blood plasma products to the world. Failing to acquire US blood products group Talecris offers a silver lining. Despite paying Talecris a break fee, a favourable foreign exchange rate movement on funds held in deposit, in anticipation of a successful acquisition, means CSL will make an $80 million profit on the failed deal.

HOLD RECOMMENDATIONS

Wotif.com Holdings (WTF)

This online accommodation-booking agency, with ancillary activities in airline travel and cars, is doing well. It has little debt and customers pay upfront fees. It’s a defensive stock, and in tough times bargain hunters seek out cheap accommodation and travel.

Wesfarmers (WES)

An industrial conglomerate that’s weathering the economic storm reasonably well. The Coles transformation appears to be gaining traction in its bid to snare more market share. The Bunnings hardware business will benefit from first home buyers incentives and a general recovery in the housing market.

SELL RECOMMENDATIONS

Tabcorp (TAH)

This major Australian wagering and gaming business has had its share of difficulties in the past few years, such as increasing taxation on poker machines, smoking bans and uncertainty surrounding gaming and wagering licence renewals, particularly in Victoria. Also, its $475 million capital expenditure program for Sydney’s Star City Casino dampens investor appeal in this cost-conscious economy.

GPT Group (GPT)

Once a premier Australian property trust before the global financial crisis hit the property sector and this company’s debt laden enterprises. The outlook for the commercial and industrial property sector is clouded. There’s plenty of time to buy property stocks if the economy recovers earlier than expected.  

Richard Batt, Shadforths

BUY RECOMMENDATIONS

Oil Search (OSH)

Oil Search is an oil and gas producer focused on operations in Papua New Guinea. The company has a strong balance sheet, although there is stgelopment risk in relation to its PNG operations. Potential upside from commercialising an LNG joint venture with major players Exxon Mobil and Santos should be the catalyst for a stock re-rating.

Rio Tinto (RIO)

A joint venture plan to combine iron ore assets with BHP Billiton in Western Australia’s Pilbara region is clearly a positive for Rio Tinto. Investor confidence in Rio Tinto is returning in response to retaining key assets and extracting potential synergies from the deal. Rio’s current share price provides an opportunity to establish a long-term holding.

HOLD RECOMMENDATIONS

ASX Limited (ASX)

The recent increase in activity through rights issues and share purchase plans indicates that earnings will remain stable even in current market conditions. Expect further improvement in the Australian equity market from increasing trading volumes. The ASX offers an ideal exposure to make gains on the back of a general economic recovery.

CSR Limited (CSR)

CSR recently announced it’s seriously considering demerging its sugar business from its aluminium and building products divisions. A demerger should be positive, enabling each individual business to be easily and accurately valued, which should provide an opportunity to raise capital and reduce debt. Existing investors should retain their holdings and see what the future holds.

SELL RECOMMENDATIONS

Spotless Group (SPT)

The share price has risen more than 50 per cent from its low in March. The company’s retailer services division, which has high fixed costs, reported a considerable earnings fall in its February interim result. If market conditions don’t improve for this division and the company in general, there may be a further deterioration in earnings when the company reports full-year results. 

Cabcharge Australia (CAB)

The ACCC has commenced legal proceedings against Cabcharge for alleged anti-competitive behaviour. The outcome of proceedings will be unknown for some time and the share price may come under pressure during the case.  Better opportunities exist elsewhere.

Sean Conlan, Macquarie Private Wealth

BUY RECOMMENDATIONS

Nufarm (NUF)

Expect a positive 2010 for this leading crop protection company in response to continuing de-stocking of Australian and global agriculture, improving farmer confidence, stronger grain prices, easing credit and stronger underlying demand. We retain an outperform recommendation and an $11.30 price target. In early morning trade on July 3, the stock was trading at $8.80

Oil Search (OSH)

We have raised our valuation and price target by 6.5 per cent to $8.30 a share to reflect reducing risk associated with the Papua New Guinea LNG project. Also, we expect management commentary regarding the potential for a third LNG train in PNG to gather momentum in coming months, adding further share price support.

HOLD RECOMMENDATIONS

United Group (UGL)

We remain concerned over the speed of stgelopments in construction markets. The potential impact on future earnings is real given 45 per cent of its order book is construction-related. Any impact should be cushioned by United’s strong infrastructure focus, estimated to be about 45 per cent of full-year 2009 earnings.

Perpetual Limited (PPT)

This fund manager stock has halved since we moved to an underperform rating in February 2008. We are now moving to a neutral investment call. Additionally, we flag positive earnings per share for the sector in response to our improving outlook for the All Ordinaries Index in 2010.

SELL RECOMMENDATIONS

Foster’s Group (FGL)

It will be difficult for the Foster’s wine business to trade its way out of trouble. Foster’s will need to acquire new capabilities to compete, and perhaps new wine leadership is a start.

Ten Network Holdings (TEN)

Ten is trading on a full-year 2010 price/earnings ratio of 28 times. Based on consensus forecasts, it’s closer to 23 times. On both metrics, the stock looks expensive. We retain an under-perform recommendation.

Other articles in this week’s newsletter

The secret ingredient to share price gains

18 Share Tips

Five steps to building wealth

Where the world’s richest live

Stock of the week

Self-managed super funds & tax exemptions

Stocks & Stats to watch out for this week

More breaking news

 

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