Michael Gable, Fairmont Equities
BUY RECOMMENDATIONS
CSR Limited (CSR)
If you’re brave enough to buy a stock that’s fallen substantially since its peak in May and has exposure to the weakening housing market, CSR may be the answer. Although its earnings are likely to fall from cyclical highs, this building products maker has zero debt and its cash generation should be strong enough to support a healthy dividend. It will begin to attract investors seeking income.
CSL (CSL)
Blood fractionation is a complex process, which leaves CSL as a technical leader in a field with few competitors and high barriers to entry. CSL has an extensive network of collection centres, which it continues to aggressively grow. It offers diverse revenue streams, high margins and strong operating efficiency. It’s an Australian success story saving lives every day.
HOLD RECOMMENDATIONS
Western Areas (WSA)
Has demonstrated it can acquire quality nickel assets, and its recent purchase of Odysseus appears to be another example. The new mine will generate solid cash flow for a decade when operations begin in 2022. The company already runs two of the best producing nickel mines, Flying Fox and Spotted Quoll, in Australia. WSA should benefit as world nickel stockpiles continue to decline and fears regarding China’s growth outlook abate.
Fortescue Metals Group (FMG)
This iron ore miner has been substantially de-risked, as debt has halved over the past few years, courtesy of the substantial cash the company generates. China closed non-compliant steel mills for lengthy periods on environmental grounds. The price FMG received for its iron ore fell. However, as shipments return to normal, FMG’s cash generation from existing mining operations should reward the patient investor.
SELL RECOMMENDATIONS
Newcrest Mining (NCM)
Quarterly gold production was weaker than we expected and costs remain persistently high due to mining interruptions. The share price has been supported by recent strength in the Australian dollar gold price, but as it approaches cyclical highs of $A1800, there may be better opportunities elsewhere.
Afterpay Touch Group (APT)
Operates a buy now, pay later platform. The company has enjoyed a bumper ride in the past 12 months, rising from a year low of $4.70 on November 27, 2017 to a high of $23 on August 24, 2018. But the stock has since plunged on the prospect of a tighter regulatory regime being introduced across the industry. Its penetration of the US and UK markets has been slower than we expected, which means revenue growth may disappoint. The shares finished at $12.96 on November 1.
Michael Heffernan, PhillipCapital
BUY RECOMMENDATIONS
Cochlear (COH)
The share price has plunged since early September. But its future profit growth looks favourable due to significant investments in product development and other initiatives over the past few years. Shares in this hearing implants maker closed at $179.38 on November 1. It may turn out to be an opportunity. Steadfast Group (SDF)
An insurance broking business, with equity in a network of firms operating across Australia. Its recent update was most satisfactory. Moreover, it’s a stock that tends to fly under the radar, with little debt and a moderate fully franked dividend.
HOLD RECOMMENDATIONS
Aristocrat Leisure (ALL)
Although its share price has softened lately, this gaming technology company has sound fundamentals and benefits from a stronger US dollar. Its current price looks good value. Moreover, if it performs like other Australian-based US involved stocks, we should be able to look forward to a good full year result when it reports later this month. The shares closed at $27.21 on November 1. Bapcor (BAP)
This aftermarket auto parts retailer and distributor has proved to be another impressive sharemarket performer. Its recent purchase of Hellaby Holdings in New Zealand is proving to be earnings positive. Its share price performance over recent times is indicative of a bright outlook. SELL RECOMMENDATIONS
Qantas Airways (QAN)
Despite positive results in recent years, Qantas and other airline competitors are now being hit hard by increasing fuel prices. QAN is taking steps to bolster productivity and cut costs. However, in my view, strong profit growth is likely to be constrained by higher fuel prices. CYBG PLC (CYB)
This company, which is the off-cut from the NAB’s banking business in the UK, recently bought Virgin Money. However, in my view, the acquisition hasn’t lived up to expectations in the short time and investors should look elsewhere.
Tony Paterno, Ord Minnett
BUY RECOMMENDATIONS
Super Retail Group (SUL)
SUL’s strong auto business continues to deliver. The company has provided strong three-year revenue, earnings and capital targets across its businesses. Given the significant share price decline, valuation support has emerged based on our earnings estimates. The share price has fallen from a year high of $10.44 on August 21, 2018 to close at $7.35 on November 1.
Cimic Group (CIM)
In our view, the reasons to buy CIM include its exposure to buoyant infrastructure markets, particularly in roads and rail, potential upside from the deployment of its net cash balance and the potential for the group to participate in any industry consolidation. With the stock having pulled back and growth accelerating, particularly in the construction division, we see upside. Shares in this infrastructure and mining services company closed at $47.08 on November 1.
HOLD RECOMMENDATIONS
Hotel Property Investments (HPI)
HPI has conservative valuations and a strong lease covenant to Coles Group. HPI was recently trading on a 6 per cent dividend yield and broadly in line with our net asset value. The stock closed at $3.06 on November 1. The 12-month high was $3.42 on December 27, 2017.
AusNet Services (AST)
AusNet remains one of our preferred regulated utility companies on the basis of good dividend cover and valuation support. However, with the stock trading close to our price target, we retain a hold rating. The shares closed at $1.695 on November 1.
SELL RECOMMENDATIONS
Tassal Group (TGR)
We have a lighten rating on this Atlantic salmon producer. TGR has a strong market position, but, in our view, its market valuation is too high. The company has put growth initiatives in place, but is exposed to an increasing cost base. TGR is boosting its financial leverage, with prawn farms its latest venture.
Domino’s Pizza Enterprises (DMP)
After many years of strong growth, it can become increasingly difficult to grow market share. We’re lacking sufficient confidence that the company can deliver margin expansion targets. As a result, we believe the valuation is no longer attractive. The shares finished at $55.24 on November 1.
>> BACK TO THE NEWSLETTER: Click here to read other articles from this week’s newsletter
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.