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Michael Gable, Fairmont Equities

BUY RECOMMENDATIONS

ResMed (RMD)

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

From the start of 2012, RMD had been trending up, more than doubling in value. Then in October 2013, it entered a short term downtrend, reaching a low in March. In April, we saw RMD break that short term downtrend and start to rally strongly. It has since taken another breather. Measuring the price action from the March low to the June high, we notice it had pulled back 50 per cent of that range to about $5.20. That should represent strong support and we expect RMD to resume the longer term uptrend from this point, heading to its valuation above $6. On July 30, the shares closed at $5.49.

Ainsworth Game Technology (AGI)

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

Another stock that’s enjoyed a fantastic run in the past few years. When assessing the longer term trend, the recent pullback is merely a small correction in the greater scheme of things. The company is trading on a low price/earnings multiple, has zero debt and offers great upside earnings potential. It’s been recently hovering around strong support and should be able to stage a rally from this level in coming weeks. We anticipate price levels at least back to mid $4 levels. On July 30, the shares closed at $3.77.

HOLD RECOMMENDATIONS

CSL (CSL)

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

While the stock always looks expensive, holders of CSL shouldn’t be put off by the recent pullback. Since peaking in March, the stock has come back in three waves. A three-wave pullback is merely a counter trend move, so it appears CSL is  correcting back against the longer term uptrend. In the past few weeks, we have witnessed divergence between price and our momentum indicators, so there’s a strong chance renewed buying will come back in and ensure that CSL has minimal downside from here.

Seek (SEK)

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

The SEK chart looks very bullish. The previous rally during February saw the stock climb about $6.50 in about four weeks. The stock cannot retrace even half the move it made in February, so it clearly indicates the bulls are still in control. The longer SEK uses up time here, the stronger the move when it eventually breaks to the upside, which could see it reach $20 levels in a very short amount of time. So SEK is a hold right here, but worth watching on a daily basis to ensure we can catch the break as soon as it happens. If that happens, it gets elevated to a buy.

SELL RECOMMENDATIONS

BHP Billiton (BHP)

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

We like BHP longer term, but the charts indicate an opportunity on the short side. Often when BHP runs up into a result which is well received (they recently released quarterly production results), it will often gap up, stay strong for a few days and then pull back at least a couple of dollars. With the stock back in high resistance territory and the Relative Strength Index looking over bought, we could expect BHP to weaken from here for the next few weeks. Therefore, in the short term, there is an opportunity to trade out. One strategy being used by our clients is the selling of call options against their long term holdings.

Oil Search (OSH)

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

Oil Search has released some good numbers recently, but there’s something wrong with the way it’s now trading. After peaking in June, it struggled to go higher, looking as though it was undergoing some distribution. Then on July 9, it broke down on big volume. Since then, it’s struggled to go higher, finding that trading range in June to be some heavy resistance. As a result, OSH appears at risk of becoming cheaper and dropping down towards $9. The shares were trading at $9.45 on July 31.

 

Joshua Stega, JAS Wealth

BUY RECOMMENDATIONS

Astro Japan Property Group (AJA)

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

Invests in, manages and develops properties in Tokyo. Our confidence in the company’s strategy is growing and we believe the portfolio is stabilising. This coupled with the Bank of Japan’s stimulus package leaves AJA operating with some strong tailwinds. Despite a decent run in the past few months, AJA still trades at a 30 per cent discount to net tangible assets. We believe its emerging capital management strategy will be a catalyst for closing the gap.

Aristocrat Leisure (ALL)

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

Has outperformed relative to the broader market and is benefiting from increasing demand for gaming machines. Its recent US acquisition, while larger than expected, is expected to deliver a new level of business growth. A key area to watch is the potential for further expansion in the US. While it was recently trading on a price/earnings multiple of 27 times, we feel the potential from the recent acquisition warrants a buy rating.

HOLD RECOMMENDATIONS

Seek (SEK)

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

Australia’s premier online job classifieds provider, Seek is chasing international growth opportunities. We retain a fair value rating on Seek in response to a modest improvement in employment conditions, monetising international businesses units IDP and Zhaopin and Seek’s changing business mix. We’re happy to hold Seek at current levels, but it’s not cheap as it was recently trading on 30 times earnings.

NRW Holdings (NWH)

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

An Australian civil construction and mining services business.  It operates in a cyclical industry, so predicting future work levels is difficult. We feel it’s the wrong time in the cycle to be aggressively adding this exposure to portfolios. The current share price reflects this risk and, from a valuation standpoint, we rate the stock as a hold.

SELL RECOMMENDATIONS

Macquarie Group (MQG)

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

A full service investment bank and global provider of banking, financial, advisory, investment and funds management services. We have been historically cautious towards MQG given the uncertainty of investment banking in Australia. For the year ahead, we believe investors may be relying on performance fee upside for the company’s business units to meet guidance. In our view, the biggest gains in MQG’s share price have already been achieved. Look for better value elsewhere.

GrainCorp (GNC)

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

Provides logistics, storage and handling services to the grain industry. After the Foreign Investment Review Board blocked the bid from Archer Daniels Midland, our investment case has reverted to fundamentals, which have deteriorated in recent months. We’re also concerned about the company’s business model as more competitors enter the market with bulk grain and port infrastructure. In our view, the chances of GNC being acquired are remote. Recently trading on a price/earnings multiple of more than 20 times warrants our sell recommendation.

 

Peter Moran, Wilson HTM

BUY RECOMMENDATIONS

Independence Group NL (IGO)

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

IGO’s June 2014 quarterly report was broadly in line with expectations with full year EBITDA of $174.8 million. We continue to like IGO for its high quality mines and diverse commodities. We expect nickel to generate 27 per cent of fiscal year 2015 revenues. We forecast $140 million of free cash flow in fiscal year 2015. Our target price of $5.25 a share offers a 12-month total shareholder return of 10 per cent. The shares closed at $4.89 on July 30.

AGL Energy (AGK)

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

The AGL share price fell following the announcement that EBIT for 2015 would fall by $186 million in response to axing the carbon tax. However, we believe removing the carbon tax is positive for its recently purchased Macquarie Generation and expect earnings to actually improve beyond 2015. As such, we see the recent pullback as a buying opportunity.

HOLD RECOMMENDATIONS

Macquarie Group (MQG)

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

Macquarie updated first quarter 2015 trading conditions at its recent AGM. First quarter 2015 profit was down on the previous corresponding period and 2014 fourth quarter. We have reduced our forecasts by about 5 per cent, and still upside appears limited without a market recovery or higher performance fees, both of which are uncertain.

GUD Holdings (GUD)

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

GUD’s earnings outlook differs greatly between its divisions, with the main focus on Dexion and Sunbeam. Dexion should benefit from restructuring and a larger order book. However, Sunbeam faces subdued market conditions and margin pressure from a lower Australian dollar. If GUD can deliver its $30 million cost-out target, then the share price looks cheap. Our forecasts give partial credit for the target and on that basis the share price is trading at fair value.

SELL RECOMMENDATIONS

Monadelphous Group (MND)

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

While the 7 per cent yield appears attractive, the resources and engineering construction sectors look weak and our analysis suggests there are fewer big construction projects for MND to work on. As such, we expect double digit declines in revenue and earnings for each of the next three years. We have downgraded to sell.

GWA Group (GWA)

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

GWA Group’s fiscal year 2014 trading update was again disappointing and highlights the potential market share loss GWA is facing in its key bathrooms and kitchens businesses. The potential sale of the Dux and Brivis businesses would be positive. But we believe management may face difficulties in selling the loss making Dux business, so we haven’t yet factored that into our forecasts. With margins likely to remain under pressure, better investment opportunities exist elsewhere.

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