Brett Schreuders, Alto Capital
Newcrest Mining (NCM)
Interest rates may rise to head off potential inflation, therefore gold would benefit. Newcrest is a top 10 global gold producer with low gearing, a strong balance sheet, good profit margins and multiple growth options. Newcrest could be a good buy at $30 levels, particularly if the gold price rises.
A junior oil and gas technology company, it’s share price has been punished since a merger proposal failed. Since then, Coretrack has successfully tested its core barrel telemetry system, but it seems to have gone almost unnoticed. The company expects its core level recorder system will be ready in October. This will provide live feedback to drilling rig operators during the coring process, something the oil and gas industry has been waiting for. A speculative buy.
With a growing appetite for risk returning to the market, conservative stocks like Metcash are often overlooked. While not a glamorous stock, Metcash offers a degree of stability, particularly when the markets run out of steam. This marketing and distribution company, comprising of IGA Food Distribution, Campbells Wholesale and Australian Liquor Marketers, provides it with stable cash flow. This year’s dividend grew by 14 per cent, and the latest annual report suggests investors can rely on this stable income stream.
Neptune Marine Services (NMS)
Neptune is a provider of integrated engineering solutions to the oil and gas, marine and renewable energy industries. A suite of services built around its unique underwater dry weld system, Neptune continues to win contracts and expand its client base. During the global financial crisis, Neptune made several acquisitions, raised cash from investors and continued to grow their business model, testament to a well-managed business with emerging market dominance.
Flight Centre (FLT)
Australia’s largest travel agent with operations in Australia and overseas has bounced off its low of $3.39 in March. Its share price was trading at $13.12 on August 14. With the travel industry still suffering under the weight of the global financial crisis, we believe Flight Centre is expensive and suggest investors lock in some profits.
David Jones (DJS)
Some stocks in the Australian retail sector appear to be defying gravity. The share price of David Jones has soared since its March low and is approaching an all-time high. We suspect the Federal Government’s stimulus handout is all but spent, and don’t expect current levels of consumer spending to continue. For this reason, we suggest some profit taking.
Sean Conlan, Macquarie Private Wealth
Origin Energy (ORG)
While full-year 2009 results and 2010 guidance are unlikely to excite, Origin remains our preferred exposure in the large cap utilities space. Progress in the Australia Pacific LNG joint venture remains key, while re-allocation of the company’s considerable capital position will also be a focus in 2010. Origin has the balance sheet, management team and opportunities to add considerable value for investors. We retain our share price target of $18.20. In early morning trading on August 14, Origin’s share price was $15.44
BlueScope Steel (BSL)
Our recommendation has been upgraded to outperform as we become increasingly confident about the global recovery cycle. We have also increased our 12-month price target to $4 a share, reflecting our discounted cash flow valuation. Expect global steel industry output to continue its recovery. Further, the reinstatement of the “cash for clunkers” initiative in the US suggests more upside risk to end-user demand, particularly in the auto sector. On August 14, the shares were trading at $3.32 in the morning session.
The airline looks cheap on a price/book value metric relative to its regional peers, Singapore Airlines and Cathay Pacific. But this does not warrant a re-rating in its own right. Qantas retains significant positive operating leverage to a rebound in business traffic and consumer demand. However, excess international capacity will prolong the recovery period.
JB Hi-Fi (JBH)
This home entertainment products company has the brand, format, offering and management team to continue as one of the strongest performers in the retail space. The growth outlook remains strong driven by its store roll-out program. The key issue is valuation rather than execution or outlook, and we would look for any pullback as an opportunity to accumulate shares.
We are retaining our underperform rating and $12.50 price target. While the stock is not particularly expensive in absolute terms, we think it will struggle to keep up with our more bullish outlook for the market in general. Also, we see little support for Caltex from the short-term macro environment, and, consequently, believe its first half 2009 result could be the high water mark for medium term earnings.
Foster’s Group (FGL)
The external environment has not improved for Foster’s. Beer remains a pricing story, global wine surpluses are no different to cycles since 1965 and it will take a shortage, not a smaller surplus, to lift pricing in wine markets, such as the UK. Suggestions Asahi Breweries is going to bid for Foster’s seem misplaced when considering its strategic objectives and financial capability.
Richard Batt, Shadforth Financial Group
AJ Lucas Group (AJL)
AJL provides engineering infrastructure, building construction and drilling services to the property, utilities, coal, oil and gas sectors in Australia and the Asia-Pacific region. The company is currently undergoing a significant internal restructure and, if it’s effective, these changes will have a substantial positive impact going forward. Also, the company’s ability to generate cash to support more investment in the energy and water industries provides good long-term exposure to the capital goods sector.
Platinum Asset Management (PTM)
An Australian based fund manager specialising in international equities. Its recent performance has been excellent, with most funds significantly outperforming their relevant benchmarks. From this outperformance, it’s expected that funds under management will grow, leading to higher revenue which comes primarily from management fees. PTM is an ideal holding for growth investors seeking to take advantage of improving equities markets.
Computershare is the world’s largest share registrar, administering more than 80 million shareholder accounts for 13,000 corporations. The recent flurry of capital raisings on the Australian market has led to an improving earnings outlook. Its scale of operations and strong balance sheet should enable CPU to generate solid long-term growth.
ResMed Inc. (RMD)
ResMed makes and distributes medical equipment for diagnosing and managing sleep disordered breathing and other respiratory problems. The company operates in more than 70 countries and has offices in Asia, Europe, North America, Australia and New Zealand. The company recently reported a solid result well above expectations. The main driver of the result was strong growth in the US from increasing market share and rising margins from foreign exchange movements and manufacturing efficiencies. A pipeline of new products will enable the company to achieve greater market share.
STW Communications Group (SGN)
This group operates advertising and media consulting businesses in Australia and New Zealand. It’s exposed to fluctuations in consumer spending and business confidence, with advertising accounting for a large proportion of revenue. We appear to be heading towards an economic recovery. However, in the short term, companies are reluctant to spend, and this may hamper the group’s earnings capacity going forward and diminish shareholders returns.
Tap Oil (TAP)
An oil and gas explorer in Australia and South-East Asia. Although the company has a large amount of cash on hand, its share price, since July, has underperformed bigger peers, such as Santos and Woodside Petroleum, and we prefer those to Tap Oil.
Other articles in this week’s newsletter
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