Carey Smith, Alto Capital
The share price of the retail giant has retreated about 30 per cent from last year’s highs and was recently trading on a price/earnings multiple below 15 times. This is largely due to concerns over its hardware division and increasing competition from ALDI. We believe this provides a great opportunity to buy a stake in one of Australia’s leading and best known companies. The shares were trading at $28.30 on May 21.
STW Communications Group (SGN)
One of Australia’s largest marketing and communications groups. The share price has fallen around 50 per cent in the past 12 months as tough trading conditions impacted the industry. But with a 10 year record of generating positive free cash flows and dividend payments, we believe the shares have been over sold.
This diversified miner, recently spun out of BHP, instantly became the third largest miner listed on the ASX, with operations in Australia, South Africa and South America. With a strong balance sheet, no debt and potentially strong cash flows, the company provides potential for merger and acquisition activity, as either predator or prey.
QBE Insurance (QBE)
Australia’s largest insurer has enjoyed a good run in the past few months. The share price is up almost 30 per cent largely due to increasing interest rates in the US and a weakening Australian dollar. We feel investors should hold their positions and resist temptation to take a quick profit as further share price gains are expected in coming months.
Ramsay Health Care (RHC)
The share price of Australia’s premier and largest private hospital operator has more than quadrupled since 2010, as investors switched into defensive and yield stocks. We believe the share price has significantly overshot fair value, as it was recently trading on a price/earnings ratio above 25 times and a dividend yield below 2 per cent.
Technology One (TNE)
This listed software giant has benefited from renewed interest in the technology sector with its share price up more than 50 per cent in the past 12 months. Recently trading on a price/earnings multiple above 30 times and a dividend yield below 2 per cent, we believe the company is overvalued and suggest investors take profits.
Matthew Litchfield, PhillipCapital
Magellan Financial Group (MFG)
I see the fund manager’s recent pullback in price as an attractive buying opportunity. MFG has experienced strong growth in funds under management. Its long track record of investment performance underpins increasing performance fees.
Retail sales for the third quarter were in line with our expectations. The Coles supermarket division appears to be increasing market share. The Bunnings hardware chain and Officeworks are performing well. The company has a good track record of producing excess returns even in weak retail markets.
Rewardle Holdings (RXH)
Provides a digital customer engagement program for SME merchants. Management is delivering on its goal of merchant and member growth. Recent positive news includes securing AirAsia as a partner for its rewards program and the rollout of Rewardle product in 10 IGA branded supermarkets.
BHP Billiton (BHP)
Following the recent demerger of South32, BHP has simplified its portfolio into big, long life assets. The company also intends to retain its progressive dividend policy. No longer managing non core assets will cut costs. A quality company for investors looking for world class, tier 1 and low cost assets.
The Reject Shop (TRS)
I see better opportunities elsewhere following the weak result for the first half of 2015. Net profit after tax fell 24 per cent on the prior corresponding period to $12.8 million. I feel the discount variety market in Australia offers little shareholder value in what is a fiercely competitive retail sector.
Fortescue Metals Group (FMG)
The recent share price increase seems supply driven and may only be brief. Now may be a good time to reduce exposure to the iron ore sector. In my view, FMG has high debt levels and is a relatively high cost producer.
Joshua Stega, JAS Wealth
AMP Capital China Growth Fund (AGF)
Aims to achieve long term capital growth by investing in China A shares. The shares are trading at a significant discount to their net asset value. In our view, the shares are worth more than $2. On May 21, the shares closed at $1.69. AGF is a target of a UK-based activist hedge fund, which we believe will push the shares higher.
Lovisa Holdings (LOV)
A vertically integrated business that sources, develops, imports, distributes and sells fast fashion jewellery. Its business model enables Lovisa to generate gross profit margins of about 75 per cent. LOV has proven it can profitably rollout and operate stores in offshore markets. This is a high growth story and despite a high price/earnings multiple, we’re happy to accumulate a position.
Westfield Corporation (WFD)
Owns and operates a portfolio of retail centres in the US and the UK. What we like is the company’s $US11.8 billion development pipeline, which should further enhance the quality and prominence of the portfolio. WFD was recently trading on a price/earnings multiple of about 20 times and a dividend yield of about 3.4 per cent, which we believe fully values it in the current market. We’re happy to hold the stock at current levels.
A leading manufacturer and marketer of home improvement and garden care products. We like the Dulux business, but competitors such as Valspar and the aggressive rollout of the Masters hardware chain are likely to cap company margins and market share. DLX was recently trading on a price/earnings multiple of about 20 times and a yield of 3.5 per cent, which we believe leaves the company fully valued. We’re happy to hold this stock in response to Australia’s strong property market.
A leading Australian agribusiness, owning assets spanning the grain and oil seed supply chain. In our view, GNC’s first half 2015 result was weaker than expected. EBITDA for the main storage and logistics division was $27 million, well below our estimates of about $49 million. First half net profit after tax of $35 million was 25 per cent below our estimates. While fiscal year 2015 guidance is retained, we think the outlook is looking challenging, particularly as we expect an El Nino weather event in the near term.
A diversified chemicals company, Orica posted a 15 per cent decline in earnings from continuing operations in the 2015 first half after adjusting for profit on asset sales. Our sell view is based on a tougher outlook for its key Australasia market, where we see limited growth of about 3 per cent per annum in the next few years. A recent share price bounce provides a good opportunity to sell.
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.