James Georges, Patersons Securities
QBE Insurance (QBE)
A well managed insurance business with a significant global presence and a conservative risk management approach. We note the company’s history of delivering above-average returns over the long term as a real plus for investors. Expect QBE’s acquisition growth strategy to continue delivering attractive returns. We retain a positive long-term view on the stock.
Westpac Bank (WBC)
Westpac is in a strong position to continue driving revenue and earnings growth, despite volatile economic conditions. We expect further earnings growth to be under-pinned by the bank leveraging its brand and distribution strengths, its cost-to-income advantage and improving margin performance.
Toll Holdings (TOL)
This transport logistics giant has sound growth prospects provided trade activity and commerce recover from the lows of 2009. Its disappointing first half-2010 result reveals that market conditions are still relatively weak and margins remain under pressure. We have a neutral short-term view of TOL until we can gain greater insight into margin softness and disappointing sales as reported in the result.
The industrial conglomerate has achieved impressive earnings growth in recent years, driven by strategic acquisitions and strong organic growth. Success can been attributed to its competent management team and astute investment philosophy. Interestingly, Wesfarmers has managed to successfully grow a diversified business over a period that has seen many diversified industrials underperform and rationalise operations. We believe Wesfarmers is successful because of its strict rate of return criteria across every activity, but rate it as a hold because of its recent price rise and relative price-to-earnings multiple.
Qantas Airways (QAN)
The long-term outlook for Qantas and aviation is challenging given its highly cyclical nature. Strategically, industry consolidation and alliances will continue to play a big part. Fortunately, the successful Jetstar business has partially offset weaker Qantas earnings in response to fewer numbers at the front of the plane. We see greater long-term value on a risk/reward basis in other stocks. Sell on rallies.
James Hardie Industries (JHX)
Despite earlier signs the US housing market will improve during 2010, it continues to face several challenges. These include restricted access to credit, a weak employment market and continuing foreclosures overhanging the property market.
Sell on rallies.
Gary Glover, Novus Capital
The share price of this leading petroleum refiner has been punished in the past 12 months and looks oversold at these levels. Earnings remain leveraged to external margins and the AUD/US exchange rate, so any strength in the US market and greenback should be reflected in a stronger Caltex share price. Recent company guidance pointed to improving margins.
National Australia Bank (NAB)
It’s recent half-year report was positive. From a value perspective, its price/earnings ratio and yield appear considerably cheap and we see potential upside in this stock as the other banks have rallied hard recently.
CSL Limited (CSL)
We recently recommended CSL as a buy to thebull.com. au readers. This blood products group reported solid half-year results and the share price responded positively. We have moved to a hold as we see limited upside after such a strong rally. CSL also goes ex-dividend by 35c on March 9.
From a high of $6.97 in November, it’s recently been trading below $6. Hold this major wealth manager and insurer at least until there’s a decision on the Axa Asia Pacific takeover bid. We don’t see too much downside from current levels, and a potential price of $5.50 would be a better entry point.
Suncorp is involved in general insurance, retail and business banking and wealth management. Following the appointment of Patrick Snowball as CEO, the stock rallied strongly in the second half of 2009. The recent half-year results highlighted there’s still plenty of work to do, and this turnaround story will need more time. We believe all the good news is priced in.
This industrial giant, which owns Coles and Bunnings, has recently been trading above $33 a share. Although its half-year report was well received, we feel the stock is fully priced. It may be time to take some profits and look for a cheaper entry point.
Sean Conlan, Macquarie Private Wealth
Asciano Group (AIO)
We retain an out-perform recommendation on this leading transport infrastructure company, with a target price of $2.20. Guidance is conservative, so an improving economy provides earnings upside. The stock should also benefit from its cost reduction program.
Boart Longyear (BLY)
The balance sheet of this drilling services company was strengthened in 2009. We retain an outperform recommendation and a 40c target price. The company remains well leveraged to a strong recovery in the global mining exploration cycle.
Perpetual continues to benefit from improving investment markets, but underlying business momentum appears to be slow. While PPT is showing some traction in its private wealth/corporate trust businesses, these are yet to deliver material shareholder value, in our view.
Flight Centre (FLT)
Our earnings forecasts in relation to the Australian operations are back towards peak levels in response to stronger consumer confidence, a high Australian dollar and discounted fares. The stock has run hard and while we see further potential for earnings upside from offshore operations, it appears factored in at today’s share price levels.
Cabcharge Australia (CAB)
On current multiples, we believe most potential underperformance appears to be priced into the stock. The Australian Competition and Consumer Commission is alleging breaches of the Trade Practices Act 1974. Uncertainty surrounding the outcome may continue to weigh on the stock.
Pacific Brands (PBG)
Its brand strategy is under considerable pressure from customers, consumers and competitors. In tough economic times, price loyalty is greater than brand loyalty. Brand price premiums shrink and, in our view, PBG has few brand leaders with meaningful price premiums over competitor products.
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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