James Bryce-Lind, Patersons Securities
Regis Resources (RRL)
I am bullish on gold. From a technical perspective, gold has been consolidating its 2012 downtrend below $US1370 an ounce. More recently, the precious metal has made a string of higher lows, indicating an impending bullish move. It appears volatility has returned in 2018. Liquidity, strong organic cash build, zero debt and exploration upside make RRL my pick of the Australian gold stocks. The 3.5 per cent fully franked dividend yield is a kicker.
*Patersons raised capital for RRL in 2008 National Australia Bank (NAB)
I am bullish on banks in the short term. The NAB share price appears to be the most resilient of the banks in the past month. Its recent dividend yield was above 6 per cent. I believe outside any broader market shock, the banks should find support from investors heading towards reporting and dividend season in May. Potential negative news flow from the Royal Commission poses a risk to the banks. HOLD RECOMMENDATIONS
Forever overvalued in my view, but a quality growth story. Seek continues to generate increasing revenue and EBITDA of 26 per cent and 20 per cent respectively in the 2018 first half. A big acquisition or entry into another international market could be a game changer for this online recruitment company. BetaShares US Equities Strong Bear Hedge Fund – Currency Hedged (BBUS)
Chart: Share price over the year
I am bearish US equities over the medium term and am happy to hold this leveraged short until the middle of the year. Increasing volatility in equities, a rising gold price, fundamental shifts in global monetary policy and a stronger Japanese Yen point to rising fear in global markets. Not for your average investor.
Domino’s Pizza Enterprises (DMP)
In my view, this former stock market darling is now a disappointment. The share price is way off its 52 week high of $67.05 on May 11 last year. The company’s franchise model has attracted scrutiny. Domino’s is continuing to remove wages underpayments from its system. Recently, about 16 per cent of shares on issue were short, up from 9 per cent in April 2017. It recently had the third largest short position on the ASX. The shares were trading at $43.02 on March 8. Sydney Airport (SYD)
A highly geared bond proxy, which recently broke its five year uptrend. I believe bond-like equities will continue to experience selling pressure over the medium term. High multiples in the past five years have been justified by lower global bond yields, which I forecast will move higher. We’re also concerned about capital expenditure.
Jeremy Hook, TMS Capital
BUY RECOMMENDATIONS Woodside Petroleum (WPL)
The energy giant has made a solid start in 2018. It recently reported an 18 per cent increase in net profit after tax to $1.024 billion for full year 2017. The recent acquisition of Exxon Mobil’s stake in the Scarborough gas field provides much needed additional production. WPL is now a buy for growth and yield. InvoCare (IVC)
The funeral operator was heavily sold before and after a solid full year 2017 result. For a business with stable operating metrics, its share price can be quite volatile. We exited the stock in late 2017 and now think there’s value. The shares closed at $13.64 on March 7. HOLD RECOMMENDATIONS CSL (CSL)
This blood products company has been one of our best performers over many years, but following a strong share price performance since its first half 2018 result, we think it’s time to move to a hold. We’re still positive about the long term outlook, but expect the price to consolidate. It’s a premium stock, but is now trading on full multiples. Seek (SEK)
This online recruitment company has performed very well over the past year. Although we have generally seen offshore growth as the real appeal, we’re impressed with the performance of domestic operations in the 2018 first half. Taking full ownership of Seek Asia is sensible. At around $20, we believe in the long term value of SEK, but find it hard to see short term upside, so we have reduced it to a hold. The shares closed at $20.02 on March 7. SELL RECOMMENDATIONS Domino’s Pizza Enterprises (DMP)
It’s already fallen from its lofty highs, but we expect it to fall further. In our view, its excessive valuation was predicated on offshore growth that had stalled, and the de-rating is likely to hurt shareholders who convinced themselves that the pizza maker was a tech stock. IOOF Holdings (IFL)
Its market capitalisation has grown above $3.6 billion after acquiring the wealth assets offloaded by ANZ. Recent inflows are welcome, but, in our view, the valuation of this financial services company is stretched and the stock has room to fall.
Darren Jackson, Sanlam Private Wealth
BUY RECOMMENDATIONS Phoslock Water Solutions (PHK)
PHK uses CSIRO developed technology to treat contaminated water. The company recently announced a maiden profit with strong growth prospects. Given water shortages in South Africa amid China’s pollution crackdown, we think the tailwinds are strong for the company and the sector. Iluka Resources (ILU)
Mines mineral sands, including zircon and rutile. Iluka reported positive dynamics in a zircon market with moderate demand growth and tight supply conditions. The zircon price continues to grind higher, recently hitting a fresh five year high. This paints a brighter outlook for Iluka. HOLD RECOMMENDATIONS BlueScope Steel (BSL)
A steel producer and supplier. Recently, US President Donald Trump announced tariffs on imported steel and aluminium. At first, the announcement sounded negative. But we believe BlueScope may be exempt from tariffs, as it’s already a producer in the US via its North Star steel mill. Additionally, China’s pollution crackdown is supporting global steel prices. Watpac (WTP)
Watpac is a construction and mining services firm. On February 26, WTP entered into a scheme implementation agreement with its major shareholder BESIX Group SA. If successfully implemented, the agreement enables BESIX to acquire a further 50 per cent of the shares it doesn’t already own in WTP at 92 cents. Prior to this announcement, the WTP stock was priced at 67 cents. Watpac shares closed at 76.5 cents on March 7. SELL RECOMMENDATIONS Nine Entertainment Co. Holdings (NEC)
The stock had recently gained more than 30 per cent since reporting strong half year results. However, in our view, the TV industry is in structural decline, so we can’t justify NEC’s recent 13 times forward earnings valuation – one of the highest in the stock’s history. Retail Food Group (RFG)
A franchisor of well known brands, such as Michel’s Patisserie, Gloria Jeans and Donut King. Its business model is under immense stress and the company may face a class action. The company’s debt in its recent report was more than market capitalisation on March 8, which we find worrying.
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