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18 Share Tips - 23 October 2011

18 Share Tips - 23 October 2011

By Anthony Black 23.10.2011


Peter Rae, Morningstar

BUY RECOMMENDATIONS

Woolworths (WOW)

CHART 

Chart: Share price over the year to 21/10/2011 versus ASX200 (XJO)

Shares in the supermarket giant haven’t performed well in recent months given investor concerns about a resurgent Coles and a weak consumer outlook. But WOW’s core food and liquor business continues to perform well. While Coles has sales momentum, WOW is still by far the most efficient and profitable operator. Woolworths has an enviable track record, with well above average growth in earnings and dividends per share in the past decade.

Austal (ASB)

CHART 

Chart: Share price over the year to 21/10/2011 versus ASX200 (XJO)

Its Australian shipbuilding operations have been suffering from a soft European ferry market and a high Aussie dollar affecting its competitiveness. But earnings and dividends are set to grow strongly in full year 2012 and 2013 as revenues ramp up from its multi-billion dollar US Navy contracts. The shares look cheap at current prices. On October 20, the company was trading at $2.20. 

HOLD RECOMMENDATIONS

InvoCare (IVC)

CHART 

Chart: Share price over the year to 21/10/2011 versus ASX200 (XJO)

Even in uncertain economic times, this funeral arranger and provider of ancillary services enjoys predictable, high quality and steadily growing earnings supported by a strong industry position and well-known brands, such as White Lady Funerals. Gearing is high, but interest expenses are adequately covered by reliable cash flows. On a full-year 2012 price/earnings ratio of 18 times, the stock isn’t cheap, but it offers a relatively high dividend yield.

WorleyParsons (WOR) 

CHART 

Chart: Share price over the year to 21/10/2011 versus ASX200 (XJO)

Worley provides engineering, procurement and construction management services to a range of industries, but 68 per cent of revenue is generated from its hydrocarbons division. Earnings are recovering on an improving outlook for the global oil and gas sector. And with more than $200 billion in LNG and other petroleum projects underway in Australia, there are significant revenue opportunities available to the group.

SELL RECOMMENDATIONS

Pacific Brands (PBG)

CHART 

Chart: Share price over the year to 21/10/2011 versus ASX200 (XJO)

Despite management action to transform and simplify the business by culling brands and cutting costs, the outlook remains challenging. Consumer confidence is weak and major retailers are increasingly and directly sourcing clothing offshore. In our view, full-year 2012 earnings will suffer from losing Kmart as an underwear customer. Higher cotton, labour and utility costs will hurt margins.

Goodman Fielder (GFF)

CHART 

Chart: Share price over the year to 21/10/2011 versus ASX200 (XJO)

GFF is in a structurally weak industry. Margins are vulnerable to agricultural commodity and fuel price rises, as well as consumer drifting away from higher margin branded products. Also, the supermarket chains have more bargaining power than food manufacturers. Although the share price has fallen significantly and the balance sheet has improved following a capital raising, uncertainty remains ahead of a major strategic review.

Mark Lennox, Think Technically

BUY RECOMMENDATIONS

National Australia Bank (NAB)

CHART 

Chart: Share price over the year to 21/10/2011 versus ASX200 (XJO)

Australian banks appear to have negligible exposure to Greece, Portugal, Italy and Spain. With a price/earnings multiple likely to move up to a more usual range of between 10-to-12 times, we see a potential capital return and a grossed up sustainable dividend yield of between 9 per cent and 12 per cent.

JB Hi-Fi (JBH)

CHART 

Chart: Share price over the year to 21/10/2011 versus ASX200 (XJO)

Trading conditions were challenging in the first quarter with comparable store sales falling 3.5 per cent. But the company believes it’s well positioned to take advantage of the important Christmas period due to its large array of gift giving merchandise. We believe there’s upside into the end of the year.

HOLD RECOMMENDATIONS

Iluka Resources (ILU)

CHART 

Chart: Share price over the year to 21/10/2011 versus ASX200 (XJO)

The company expects its strong position in zircon and mineral sands to remain unaffected by any downturn in China’s growth. Iluka reported a 10 per cent increase in mineral sands production for the September quarter and holds a third of the world’s market share for zircon, which is used in ceramic tiles.

Rio Tinto (RIO)

CHART 

Chart: Share price over the year to 21/10/2011 versus ASX200 (XJO)

Third quarter iron ore and hard coking coal sales in 2011 are up 5 per cent and 14 per cent respectively on the previous corresponding period. It indicates the company is operating at full capacity and the growth program is on track. While volatility in commodity markets is high, company fundamentals appear to be holding up well.

SELL RECOMMENDATIONS

Cochlear (COH)

CHART 

Chart: Share price over the year to 21/10/2011 versus ASX200 (XJO)

This hearing implant firm reported an increase in device failures in line with expectations.  But the company’s reputation is under scrutiny and any further problems could impact future sales. Cochlear also has to contend with Sonova re-entering the US market. 

Macquarie Group (MQG)

CHART 

Chart: Share price over the year to 21/10/2011 versus ASX200 (XJO)

Australia’s premier investment bank is experiencing tough market conditions. Merger and acquisition activity in 2011  is way down on last year. As Macquarie trades near book value, we expect the market to find some stability. But  Macquarie could face continuing headwinds if global negative sentiment surrounding investment banks is sustained for any lengthy period.

Peter Esho, City Index

BUY RECOMMENDATIONS

Dexus Property Group (DXS)

CHART 

Chart: Share price over the year to 21/10/2011 versus ASX200 (XJO)

We think office property is a good place to be at the moment, more so on first class buildings situated in large metropolitan cities. Dexus ticks all the right boxes, with a high quality portfolio of office buildings supplemented by some industrial assets, usually in high growth areas. There are some non-core assets, which the group plans to exit. But for now, the discount to net tangible assets is attractive enough, combined with a solid earnings yield.

Qantas Airways (QAN)

CHART 

Chart: Share price over the year to 21/10/2011 versus ASX200 (XJO)

The business has been hurt by several external factors over the past few years – engines falling from the sky, natural disasters and hefty fuel price rises. Yet the company continues to run at a profit. This is the reality for airlines, which aren’t usually the best businesses to invest in. But at current prices below $2, Qantas is trading at a significant discount to book value (net of debt) to justify a trading opportunity. On October 21, the company was priced at $1.485.

HOLD RECOMMENDATIONS

Commonwealth Property Office Fund (CPA)

CHART 

Chart: Share price over the year to 21/10/2011 versus ASX200 (XJO)

Like Dexus, this stock is a pure play office exposure with Commonwealth Bank its largest tenant. It’s worth holding for a strong yield and upside exposure to an increase in property values in the next few years given the supply constraints in office development.

JB Hi-Fi (JBH)

CHART 

Chart: Share price over the year to 21/10/2011 versus ASX200 (XJO)

Even the best retailers are doing it tough. JB Hi-Fi continues to see negative comparable sales growth, but the market is starting to factor all this in. Eventually, at some point, when sales growth resumes, the business has large operating leverage to capture profits. Not a buy in our view, but worth hanging on to at current prices. If it rallies above $20, we would be a seller. On October 21, the shares were trading at $14.25.

SELL RECOMMENDATIONS

Campbell Brothers (CPB)

CHART 

Chart: Share price over the year to 21/10/2011 versus ASX200 (XJO)

Loved by the market, but we think the $3 billion market capitalisation is over stretched for a laboratory services business, leveraged to resources and energy volumes and generating peak profits below $200 million. CPB is a great business, but the multiple being paid by the market is too high given global uncertainties. Now is a great opportunity to sell into price strength. 

Newcrest Mining (NCM)

CHART 

Chart: Share price over the year to 21/10/2011 versus ASX200 (XJO)

Not only is the market expecting a strong gold price in forecasting Newcrest’s earnings, but also a big rise in production. This is compounded by a price/earnings ratio above 20 times. You wouldn’t want to be holding and wake up to the gold price halving one day. With this risk in mind, there’s other ways to play gold and so Newcrest remains a great selling opportunity at these levels. Even if gold price goes up, other exposures will provide a higher degree of upside. 

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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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