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18 Share Tips - 28 September

18 Share Tips - 28 September

Broker Stock Recommendations - 6 to BUY, 6 to SELL and 6 to HOLD

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By Anthony Black 28.09.2009

Michael Heffernan, Austock

Michael Heffernan, Austock

BUY RECOMMENDATIONS

Cardno (CDD)  

Despite the turbulence of the past year, this engineering and consulting services provider to Australian and US government agencies and infrastructure projects delivered a most impressive 2008/09 profit result, up almost 25 per cent to $34.15 million. It offers strong fundamentals, an attractive dividend yield and is a prime beneficiary of rebounding Australian and US economies.

Super Cheap Auto Group (SUL)

This automotive parts retailer has been an excellent sharemarket performer in recent years. Despite the hostile economic environment during 2008/09, its share price has soared.  Improving economic conditions will add icing to its prospects.

HOLD RECOMMENDATIONS

Telstra (TLS)

This stock has probably been punished too much.  The Federal Government ultimatum may not have a material detrimental effect on Telstra, as it will probably be able to sell its fixed line assets for a reasonable price. It can then move on and benefit from a recovering economy.

ANZ Bank (ANZ)  

The banking sector has recovered particularly strongly in the past six months. The sector is in good shape, and a stronger economy should offset higher interest rates expected during the next 12 months. The ANZ offers a strong balance sheet following a capital raising, exposure to emerging Asian economies and an attractive dividend yield.

SELL RECOMMENDATIONS

Singapore Telecommunications (SGT)  

Companies involved in the telecommunications sector have not fared well in the economic slowdown of the past year. If the outcome for Telstra in the National Broadband Network proves to be more favourable than unfavourable, the short-term prospects for SGT are therefore problematic, particularly as the NBN may pave the way for additional competitors.

Sims Metal Management (SGM)  

Has been a disappointing performer during the past year and is likely to be a late beneficiary of an improving economy.  A more profitable exposure would be to buy major resource stocks rather than hold steel producers.

Sean Conlan, Macquarie Private Wealth

Sean Conlan, Macquarie Private Wealth

BUY RECOMMENDATIONS

AMP (AMP)

AMP is our preferred large-cap wealth manager. It offers sound, low risk leverage to rising markets, which will lift funds under management and fee income. A recovery in investor confidence will boost net inflows. Our price target is $7.80.

Boral (BLD)

Boral remains the most pure play in the building materials space to any recovery in the domestic residential market. We anticipate a challenging 2010, with the first half expected to remain particularly weak in domestic and US operations. However, the prospect of earnings improving in the second half of 2010, together with earnings upgrades and stronger balance sheet metrics, paints a brighter outlook for the stock.

HOLD RECOMMENDATIONS

Toll Holdings (TOL)

This transport logistics giant is poised to continue benefiting from a rebounding Australian and global economy, which is reflected in our earnings upgrades and EV/EBITDA valuation. Our target price is $9.14.

OneSteel (OST)

OneSteel has provided cautious commentary regarding the outlook for its business. While the company is encouraged by recent improvements to its outlook, domestic market conditions in its key segments continue to be challenging, with only a modest improvement in activity levels expected in the short term.

SELL RECOMMENDATIONS

Aristocrat Leisure (ALL)

We don’t have a strong view on whether this poker machine stock will be successful with its new Japanese game. However, we believe the market is assuming success rather than handicapping it. Without the game, Aristocrat’s price/earnings ratio is expected to rise to 25 times. Even with a rebound in the US in 2010, we believe this to be a high multiple – especially if there’s still no game for Japan in 2010.

Iluka Resources (ILU)

We retain our underperform recommendation and $3 price target. While we recognise the potential for longer dated value in the Iluka asset suite, as it transitions to higher value, product rich deposits at Jacinth Ambrosia and Murray Basin, we are cautious about the outlook for the next 12 months.

Steven Hing, Novus Capital

Steven Hing, Novus Capital

BUY RECOMMENDATIONS

Origin Energy (ORG)

Origin is a reasonably defensive stock, poised for a buying opportunity. It’s some way off last year’s $17.50 highs and has more than $5.6 billion in the bank. Origin could benefit from any government electricity sale, providing excellent operational synergies and prospects for further growth.

AGL Energy (AGK)

Another defensive stock at the bottom end of its trading range, and offering good value in a market that threatens to retreat - possibly in October. AGK is trading on historically good multiples, and is offering a fully franked dividend yield around 4 per cent. A healthy stock that’s most likely to gain value if the market declines.

HOLD RECOMMENDATIONS

Telstra (TLS)

Telstra is offering value for the medium term at these levels. Many investors are too consumed in headlines generating an unhealthy fear about Telstra’s medium-to-long term prospects. Telstra is cheap on an earnings basis, at almost 10 times earnings, and still offers a rock solid fully franked dividend yield above 8.5 per cent. Telstra offers a lot of upside, particularly during a shift from cyclical to defensive stocks.

CSL (CSL)

This blood products and vaccine group is a solid hold at these levels, with upside potential. Expect it to climb towards its yearly high around $40. The average broker consensus is $38.14. A downward bias is an Australian dollar buying US88 cents for too long, as CSL’s earnings are mostly US dollars.

SELL RECOMMENDATIONS

David Jones (DJS)

Delivered a better than expected full year profit of $156.5 million, but the stock is still trading on more than 17 times earnings. I believe that’s hard to justify for a discretionary retailer.  It represents a significant premium to the long-term average in what could be a bumpy recovery.

Boral (BLD)

A building materials group exposed to the Australian and US housing markets. A stock to consider  

in a cyclical recovery, but one to avoid when the equity market is stretched on the upside. Trading on 25 times earnings, it’s much too expensive. The yield is 2 per cent. Look elsewhere.  

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.

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