John Rawicki, Ord Minnett

BUY RECOMMENDATIONS

Brambles (BXB)

Chart: Share price over the year to versus ASX200 (XJO)

Brambles offers significant exposure to the non-discretionary consumer goods market, which has insulated earnings against a challenging backdrop in the US, Australia and western Europe. Brambles is gaining market share in the US via its CHEP pallet brand, and has a growing presence within the emerging markets of Eastern Europe and Asia.

Santos (STO)

Chart: Share price over the year to versus ASX200 (XJO)

We believe Santos stands to benefit from signing a 10-year LNG supply agreement with Origin Energy. This will enable Santos to outsource capital expenditure and de-risk the company’s reliance on its more marginal coal seam gas reserves. We believe only 22 per cent of Santos’ Gladstone LNG project is currently reflected in the share price. We retain a 12-month price target of $18.96. The shares were trading at $12.85 on May 9.   

HOLD RECOMMENDATIONS

Westpac Bank (WBC)

Chart: Share price over the year to versus ASX200 (XJO)

While first half cash profit of $3.2 billion was well received, a falling interest rate environment continues to pressure net interest margins. But for investors seeking income, Westpac offers a top fully franked dividend yield above 7 per cent. The company goes ex-dividend on May 14.

Boart Longyear (BLY)

Chart: Share price over the year to versus ASX200 (XJO)

This drilling services provider is taking advantage of strong global mineral exploration and other drilling markets. The group is also pursuing growth through expanding working capital. We retain our 12-month price target of $4.30. 

SELL RECOMMENDATIONS

Orica (ORI)

Chart: Share price over the year to versus ASX200 (XJO)

It may be time to trim positions in Orica as we expect first half 2012 earnings to be significantly weaker than the previous period. We expect management to announce a decrease in demand for its explosives products and weaker profit margins resulting from adverse weather and labour strikes earlier this year.

JB Hi-Fi (JBH)

Chart: Share price over the year to versus ASX200 (XJO)

We recognise this electronics giant is well managed and gaining market share. But we believe a cautious consumer will continue to weigh on its earnings and share price. Heavy price discounting across its stores will reduce profits. We have reduced our earnings forecasts by 24 per cent for full year 2013.

Mark Lennox, Halifax Investment Services

BUY RECOMMENDATIONS

Ainsworth Game Technology (AGI)

Chart: Share price over the year to versus ASX200 (XJO)

This gaming machine designer and producer successfully completed a $44 million share placement to sophisticated investors at an offer price of $1.47 a share. AGI continues to trade at a premium to the offer price and has been well supported. We expect this to continue.

TPG Telecom (TPM)

Chart: Share price over the year to versus ASX200 (XJO)

A multi media company, TPG recently reported a 65 per cent increase in half year earnings, with EBITDA (earnings before interest, tax, depreciation and amortisation) up 17 per cent and earnings per share up 61 per cent on the previous corresponding period. It has achieved half year earnings growth seven consecutive times. TPG’s near monopoly in the ADSL2+ market continues to drive growth to underlying earnings.

HOLD RECOMMENDATIONS

Duet Group (DUE)

Chart: Share price over the year to versus ASX200 (XJO)

Owns significant energy utility assets in Australia and the US. Duet continues to outperform its benchmark index (S&P/ASX200 industrials accumulation index) in the 2012 first half. With another positive dividend expected in June, it may be time to position defensively for greater income.

Spark Infrastructure Group (SKI)

Chart: Share price over the year to versus ASX200 (XJO)

A fund investing in regulated utility infrastructure in Australia and overseas. It invests in electricity and gas transmission, regulated water and sewerage assets. These asset companies are generating strong cash flows, equivalent to 17.8 cents per Spark security in 2011. This enables Spark to make reasonable shareholder distributions.

SELL RECOMMENDATIONS

Fortescue Metals Group (FMG)

Chart: Share price over the year to versus ASX200 (XJO)

Leading hedge fund manager Jim Chanos has shorted FMG, claiming the stock is “a value trap”. We’re concerned about the company’s rising capital expenditure program, which exceeded $1.5 billion last year and continues to rise. If the iron ore price significantly falls in a weakening global economy, we believe it may present Fortescue with its own set of challenges in servicing debt.

Rio Tinto (RIO)

Chart: Share price over the year to versus ASX200 (XJO)

This global mining giant is involved in every stage of metal and mineral production. Concerns about the housing boom unwinding in China, combined with uncertainty from the carbon and minerals resource rent taxes, means Rio is now a higher risk play.

James Georges, Patersons Securities

BUY RECOMMENDATIONS

Santos (STO)

Chart: Share price over the year to versus ASX200 (XJO)

Santos had been under production pressure due to a lack of exploration in past years and a reliance on declining Cooper Basin assets. Coal seam gas assets acquired under former chief John Ellice-Flint amid LNG developments have allayed fears on this front. Due to recent share price weakness, we upgrade STO from hold to accumulate.

Australian Agricultural Company (AAC)

Chart: Share price over the year to versus ASX200 (XJO)

Australia’s largest cattle manager, with more than 600,000 head of cattle and a land bank of more than 6 million hectares on about 20 properties. Thailand has temporarily suspended importing some types of beef from the US in response to an outbreak of mad cow disease. This may be an advantage to the Australian beef market. This stock has been a serial underperformer, but has built a large footprint in the agricultural sector, which has been improving.

HOLD RECOMMENDATIONS

Bank of Queensland (BOQ)

Chart: Share price over the year to versus ASX200 (XJO)

Continues to pursue interstate expansion through an innovative, owner-managed branch model. The balance sheet is still heavily skewed towards residential mortgages, backed by strong retail deposits. Strategic alliances help increase the product offering, with minimal capital required. Natural disasters in Queensland have been a drag on earnings.

Asciano (AIO)

Chart: Share price over the year to versus ASX200 (XJO)

This ports and rail company enjoys strong market positions, but the competition may get tougher. Demand largely depends on trade levels in Australia and Asia. Management shows promise. But the dividend payout is low as earnings are re-invested to enhance assets.

SELL RECOMMENDATIONS

Aquarius Platinum (AQP)

Chart: Share price over the year to versus ASX200 (XJO)

The company reported a net loss of $US9.4 million for the quarter to March 31, 2012. Production fell 7 per cent quarter-on-quarter. The company cites seasonal absenteeism, stoppages and poor ground conditions among the reasons for the negative impact on South African production. Sell on rallies.   

ResMed (RMD)

Chart: Share price over the year to versus ASX200 (XJO)

ResMed, a medical devices maker for sleep disorders, announced record revenue and income for the quarter ending March 31, 2012. Revenue was $349.1 million, an 11 per cent increase on the previous corresponding period and net income was $64.6 million, an increase of 21 per cent. As a result of a recent share price surge, we would be consider taking a profit, with the view of buying at a later stage.

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