6min read
PREVIOUS ARTICLE Experts like these Hong Kong s... NEXT ARTICLE Is the US market about to tank...

Tax time can provide opportunities to unearth a bargain. Analysts say big fund managers, institutions and investors are more tempted to sell underperforming stocks to reduce capital gains tax on others recording profits.

Joshua Stega, of JAS Wealth, says the lead-up to the end of the financial year is an important period for fund managers.  

“To ensure positive feedback from investors, fund managers will often clear their portfolios of any out-of-favour holdings,” Stega says. “This provides an opportunity for smart investors to find oversold stocks. We think resource stocks will remain under considerable selling pressure as they have been among the worst performers in the market.”

Market experts put forward the following stocks to add to your watchlist at this time of the year.

Whitehaven Coal (WHC)

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

Stega says coal sales of 7.9 million tonnes for the nine months to March 31, 2014, were 25 per cent higher than the previous corresponding period. He says construction at Maules Creek was 36 per cent complete at the end of March and was on schedule and budget.

“Whitehaven offers a diversified suite of Tier 1 assets and there’s potential for a corporate takeover,” he says.

Stega says Whitehaven’s share price was trading at $2.42 in August 2013. Downgrades to 2014 guidance followed due to operational issues and much weaker coal prices.

Recently, Stega says Whitehaven was trading towards the bottom of its 52-week range and the shares closed at $1.485 on June 4, 2014. “We think the Whitehaven stock price provides a compelling entry point for long term investors,” Stega says. “Our price target is $2.25. Coal has an important future as part of global energy mix.”

OceanaGold Corporation (OGC)

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

Gold stocks are traditionally an investor safe haven, and, as such, have been poor performers in the global market rally. OceanaGold reported a net loss of $US47.857 million for calendar year 2013 after writing down its New Zealand assets amid a weaker gold price. The net loss followed a profit of $US20.672 million in 2012. For the 2014 first quarter, the company reported a net profit of $US58.9 million.

Stega says he expects OGC to post earnings per share of 41 cents for 2014. It was recently trading on a price/earnings multiple of 5.73 times versus the broader market of more than 16 times. “Based on our forecasts, we estimate a free cash flow yield of 20 per cent for each of the next two years,” he says. “This means that by the end of the 2016 calendar year, the equivalent of 32 per cent of the current OGC market cap will be made up of cash. OGC offers a long term opportunity for those with an appetite for risk.”  

Santos (STO)

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

Gas production fell short of expectations and this contributed to company under-performance last year, according to Peter Moran, of Wilson HTM. Also, concerns about construction delays at the Gladstone LNG project amid a shortage of feed gas to fully supply train 2 weighed on the stock.

“However, we see these concerns as missing the key point – Santos is currently undergoing transformational change with exposure to two new long life gas projects, which will see cash flows almost double in a few short years,” Moran says.

“The Papua New Guinea LNG joint project (STO 13.5 per cent) has commenced gas sales and is the largest contributing project to our valuation. Costs appear to be under control for the Gladstone LNG project. In the Cooper Basin, Santos has potentially huge unconventional gas resources and we don’t see any issues as we move closer to production next year.”

Myer Holdings (MYR)

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

Online competition and new bricks and mortar players entering the market are often cited as reasons to avoid this department store giant. Recently, the shares have again been punished, partly in response to the arrival of Swedish retailer H&M and a rejuvenated David Jones under likely new owners and managers.   

Moran says while Myer sales growth has been slow, reflecting a subdued economy, this is adequately factored into the share price. While interest rates may have bottomed, they are unlikely to rise anytime soon.

Moran says: “Competition concerns are likely to be over exaggerated and new management at David Jones may provide as many positives as negatives. With solid cash flows and a forecast yield above 7 per cent, recent price weakness provides a buying opportunity.” The shares closed at $2.08 on June 4.

Qantas Airways (QAN)

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

Michael Heffernan, of Lonsec, says the airline continues to cut costs and the market has responded by significantly lifting the company’s share price this calendar year. Restructuring and rationalisation continues, and the decision to refrain from adding capacity on domestic routes should ease long-running price wars with rival Virgin Australia. People will continue to travel, as airfares are still relatively cheap compared to a decade or two ago.

Qantas reported a first half underlying loss of $252 million. Heffernan says the market has already factored in a disappointing full year result, but expects operational improvements going forward.

“Qantas had to take the tough decisions by cutting jobs and other costs and changing routes to give it every chance of becoming a long term viable business,” Heffernan says.

The shares were trading at 95.25 cents on December 10, 2013. They closed at $1.355 on June 4. “Qantas isn’t for the faint hearted, but potential exists for further price gains off a low base if the restructuring lives up to expectations,” he says.       

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.

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

1. Unearth a bargain stock at tax time: Tax time can provide opportunities to unearth a…

2. 18 Share Tips –  10 June 2014: 18 Share Tips to BUY, SELL & HOLD from…

3. Cloud computing and self storage – 2 AREITs to watch: Smaller, specialist AREITs less affected by…

4. Any bargains here? Perusing the shorts: Share market investing offers the opportunity…

5. What is your investment wealth ratio?: As a rough ‘rule of thumb’, we look for the…

6. Why does the eurozone need a negative interest rate?: While the UK and US can keep interest rates…

7. Infrastructure spending to blame for budget shortfalls: The analysis found states and territories have…

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…