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Joshua Stega, JAS Wealth

BUY RECOMMENDATIONS

SpeedCast International (SDA)

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

A leading satellite service provider in the Asia Pacific. Improving technology and falling hardware costs are resulting in increasing demand for satellite connections. In the next three to five years, we expect organic growth and bolt on acquisitions to deliver consistent double digit growth. Given the near term growth potential, we are buying an initial stake in SDA at current levels. The shares closed at $3.10 on July 16.

Sonic Healthcare (SHL)

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

The largest pathology company in Australia and third biggest in the US. Due to the favourable demographics of an ageing population, we are buyers of high quality health care names. The pathology business is highly scalable and we expect Sonic to continue acquiring, most likely in the US or in Belgium, which have both been areas of recent expansion. Given the defensive nature of health care businesses and the available growth opportunities, we’re happy to buy at these levels. The shares closed at $22.46 on July 16.

HOLD RECOMMENDATIONS

Commonwealth Bank of Australia (CBA)

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

We believe in CBA’s business, management and strategy. It has an excellent franchise, strong asset quality and continues to generate returns on equity in excess of domestic peers. But we do caution the stock is priced to perfection, and any hint of bad news would most likely result in a correction. We’re watching the banks very closely. Investors with larger holdings should be prepared to take some profits.

QBE Insurance Group (QBE)

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

Australia’s largest listed insurer with global operations. QBE has long been a stock to avoid, with the share price doing little in the past few years. Macro benefits include a lower Australian dollar and the increasing possibility of interest rate increases in the US. Both these macro events will increase QBE’s bottom line. Recently, on a price/earnings multiple of only 14 times, this is a stock we have our eye on.

SELL RECOMMENDATIONS

Caltex Australia (CTX)

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

A leading fuel transport marketer and convenience store operator across Australia. The Caltex share price has performed strongly in the past 12 months in response to closing refineries. We believe CTX is fully valued at current levels. In the absence of growth opportunities, such as acquisitions in the region, we’re taking profits here.

BT Investment Management  (BTT)

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

Manages institutional, wholesale and retail funds. We believe BT is trading at a premium to the market of between 5 per cent to 10 per cent. We feel the premium is unjustified considering global economic uncertainty. We’re not that bullish about the prospects for fund management businesses in the near term. So we’re selling BT in response to it recently trading on a price/earnings multiple of about 20 times.

 

Jonathon Feil, Morgans   

BUY RECOMMENDATIONS

Slater & Gordon (SGH)

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

The share price of this Australian law firm was punished recently after acquiring Quindell’s professional services division (PSD) in the UK. SGH wrote off about 40 per cent of PSD revenue before the acquisition based on extensive due diligence over six months. So we remain comfortable with the story and see recent weakness as a buying opportunity. The shares were trading at $3.73 on July 16.

Austex Oil (AOK)

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

A US based oil and gas producer in North Oklahoma and the Mississippi Lime region. The stock has suffered substantially in response to weak oil and gas markets. However, it offers a strong balance sheet, an operational focus on risk-adjusted returns and aggressive hedging to the end of 2016 (done at $US80 a barrel in Oct 2014). It’s well run and managers bought stakes in the company at higher levels.

HOLD RECOMMENDATIONS

MG Unit Trust (MGC)

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

Controlled by Australian dairy farmers. Morgans was jointly involved in the issue. The final IPO price was set at $2.10, which was at the bottom of the book build range, implying net profit after tax of 13.6 times and a fully franked dividend yield of 7.4 per cent for fiscal year 2016.  The shares were trading at $2.27 on July 16. Our price target is $2.55.

Sirtex Medical (SRX)

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

The shares have been on a roller coaster ride in 2015. The shares were priced at $39 on March 13, then fell to $17.53 on March 17. Investors initially slashed the price after results from its much-anticipated SIRFLOX study failed to meet expectations. Upon greater examination of the SIR-Spheres treatment for liver disease, the market took away some positives and incrementally sent the price up to trade at $30 on July 16. However, nothing in the report changes our view that while the device clearly works in the liver, the results will have limited impact in driving adoption of the device into first line metastatic colorectal cancer.

SELL RECOMMENDATIONS

Lovisa Holdings (LOV)

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

A relatively recent Morgans IPO, the company provides exposure to the highly attractive fast fashion jewellery industry. The stock has enjoyed a quality run on the back of buying 21 fashion accessory stores in South Africa in March. First half sales were stronger than guided in the prospectus. Happy to take a profit at this level and look at other opportunities. The shares were trading at $3.23 on July 16.

Cochlear (COH)

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

The company’s share price has risen substantially in the past 12 months to be trading at $86.26 on July 16. The hearing implants maker is priced at a level substantially above analyst consensus estimates. I feel there is too little room for error at current prices.

 

Boe Campion, Ord Minnett

BUY RECOMMENDATIONS

South32 (S32)

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

We initiate coverage on this diversified metals and mining company with a buy recommendation, and see guidance as the next catalyst. In our view, the investment case for S32 is attractive with undemanding valuation metrics and low gearing. Furthermore, we expect positive near term guidance on cost savings, productivity measures and strategic direction. Our net present value-based target price of $2.95 offers significant potential upside from the July 16 trading price of $1.787. Key risks include lower commodity prices, particularly for aluminium and alumina, higher than expected costs and higher than anticipated capital expenditure.

ResMed (RMD)

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

Key ResMed rival Fisher & Paykel Healthcare recently posted earnings and revenue growth in its obstructive sleep apnea division. We believe ResMed is also well positioned to benefit, particularly from flow generator products. We continue to see valuation upside in ResMed and retain our accumulate recommendation. The shares were trading at $7.82 on July 16.

HOLD RECOMMENDATIONS

Hotel Property Investments (HPI)

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

HPI has renegotiated its debt facilities and terminated hedges, driving a substantial improvement in its distribution profile for the next few years. It upgraded fiscal year 2015 dividend per share guidance by 1.2 per cent to 16.3 cents, or 8.4 cents for the second half due to lower debt costs and maintenance capital expenditure. For the first time, it also provided fiscal year 2016 dividend per share guidance of 17.7 cents, implying a strong distribution yield of 6.6 per cent.

Telstra (TLS)

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

Yield support may continue to see the stock trade around current levels, but over the medium term we see the stock drifting lower. The shares were trading at $6.455 on July 16. Keep on eye on this stock.

SELL RECOMMENDATIONS

Woolworths (WOW)

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

Expect a new grocery retailer to enter the market given the strong financial performance at ALDI. Had ALDI failed to perform, it would most likely have acted as a deterrent to potential new entrants. There’s the prospect of another specialised format operator – be it discount or premium – considering or reconsidering an entry into Australia. This would put more pressure on the existing majors and other independents. Woolworths faces challenges in its hardware division.

Ansell (ANN)

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

The condom and rubber gloves maker has unveiled $15 million in cost reduction initiatives, which will assist in offsetting the effects of adverse currency movements and continuing uncertain economic conditions. The European fallout from Greece is a concern as management contemplates renewing guidance for fiscal year 2016. In the meantime, Ord Minnett has adjusted its fiscal year 2015 forecast to reflect an uninspiring organic growth profile. We retain our lighten recommendation. Our target price is $22.01. The shares were trading at $25.14 on July 16.

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