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Share Tips
Broker Stock Recommendations 27 October – 6 to BUY, 6 to SELL and 6 to HOLD
Anthony Black - October 27, 2008
 Richard Batt
SHADFORTHS
BUY RECOMMENDATIONS
QBE Insurance Group (QBE)
QBE is a specialist in the global general insurance and reinsurance industry, with a strong track record of recurring earnings. The company has extensive risk management and diversification through spreading exposures via product and geography. A strategy of organic growth and astute acquisitions should deliver above average growth in earnings and dividends going forward.
Toll Holdings (TOL)
TOL is one of Australasia’s leading integrated transport and logistics providers. The recent in specie dividend of Virgin Blue shares to existing shareholders and a strong balance sheet means TOL is well positioned to manage the current weak economic conditions. The company’s strong performing core operations and balance sheet will continue to support future developments and provide growth potential for investors.
HOLD RECOMMENDATIONS
Leighton Holdings (LEI)
Leighton is Australia's largest engineering services contractor, with major infrastructure, mining and construction businesses. The work in hand continues to grow and, with a sound balance sheet, the company recently paid a dividend that was fully franked for the first time since September 2004. It’s suitable for longer term investors comfortable with exposure to construction sector.
ANZ Banking Group (ANZ)
ANZ’s full year result on Thursday was in line with expectations. The underlying business is performing well. The deterioration in global credit markets, a weak New Zealand economy and a softening Australian economy will impair earnings in the 2008/09 full year. The key factor that will differentiate ANZ from its peers in the long term is its strategic expansion into Asia. If ANZ achieves its goal to become one of Australasia’s leading banks, long term investors will profit.
SELL RECOMMENDATIONS
Telecom Corporation of New Zealand (TEL)
TEL announced that it will roll out 3G services across New Zealand. The rollout will come at a cost and, based on the substantial business transformation, earnings will decline and dividends are expected to be cut. TEL would normally be classified as a defensive investment in these troubled times, but with a likely cut in dividends, there are better opportunities elsewhere.
Macquarie Infrastructure Group (MIG)
The group’s 2008 September quarter traffic statistics were subdued across the portfolio. This is mostly a result of the continuing weak global economic conditions. Although MIG indicates that the portfolio continues to deliver solid revenue growth, the weak economic conditions are likely to impact future distributions.
 Peter Rudd
CARROL, PIKE & PIERCY
BUY RECOMMENDATIONS
BHP Billiton (BHP)
The world’s biggest miner has been hit hard over the past few months due to weaker aluminium, copper, nickel and petroleum prices. Earnings from iron ore, coking coal and steaming coal are contracted until March 2009. These commodities are still needed by growing economies, such as China. BHP represents a good buying opportunity at these levels. It was trading below $25 on October 24.
Rio Tinto (RIO)
Also impacted by lower metal prices, particularly aluminium and copper, RIO’s share price tumble is overdone. The stock is now offering the best value in years, particularly when it sells non-core interests to reduce debt. It’s poised to benefit when Chinese-lead growth resumes. It was trading at $66 levels on October 24.
HOLD RECOMMENDATIONS
CSL (CSL)
A recent profit upgrade at its annual general meeting indicates how well the international plasma and vaccine producer is travelling. It’s benefiting from expanding market share, a weaker Australian dollar (overseas revenues higher) and an inaugural contribution from Talecris, acquired in August 2008 for US$3 billion.
SP Ausnet (SPN)
SPN offers regulated income, locked in until 2011, from ownership of Victoria’s high voltage power lines. It also benefits from electricity distribution in eastern Victoria and gas distribution in central and western Victoria.
SELL RECOMMENDATIONS
Austar United Communications (AUN)
Projected revenue to fall as the regional and rural satellite-delivered subscription television markets are eroded by internet streaming, iPod and other electronic services on demand. Population drift to major cities and the ongoing impact of drought are other factors to consider.
Telstra (TLS)
November 26 is the deadline for submissions to build the fibre-to-the-node network. This alone puts pressure on Telstra to successfully lobby Canberra before a decision is handed down in April 2009. A major stock overhang may exist from the Future Fund’s $8.2 billion holding to be sold from November 20.
 Sean Conlan
MACQUARIE PRIVATE WEALTH
BUY RECOMMENDATIONS
Woolworths (WOW)
Woolworths has a great business model, unique market position and favourable industry dynamics. With a self-funding business model, covering capital expenditure and dividends, it’s a stock for this market.
AMP (AMP)
Notwithstanding short-term sentiment headwinds facing all wealth managers, AMP remains our preferred exposure, reflecting its relatively low risk profile. This profile is mostly under-pinned by a domestic super focus, where system assets are preserved until retirement age. Compulsory contributions will continue to grow regardless of equity market volatility.
HOLD RECOMMENDATIONS
National Australia Bank (NAB
The bank’s full year cash net profit after tax was not easily achieved. But $3.77 billion of cash NPAT was accompanied by a considerably improved capital position. NAB's 22 per cent exposure to the New Zealand and the United Kingdom banking markets will continue to weigh on valuations, resulting in a marginal discount to more domestically focused peers.
Boral (BLD)
We retain a neutral recommendation and a $6 a share price target. While the short term earnings outlook is soft, we believe the company’s share price should be supported by a continuing flow of interest rate cuts from the Reserve Bank.
SELL RECOMMENDATIONS
Pacific Brands (PBG)
While the dividend yield may be attractive to some investors, we are concerned about the risk to capital. We do not believe PBG is a defensive company, and therefore expect a sales slowdown combined with cost pressures to drive an earnings decline in full-year 2009 and 2010.
Goodman Fielder (GFF)
GFF looks set to face another difficult year in full-year 2009. Downside risks to management's forecast of flat profits remain. However, the second half of 2009 should provide some comfort as GFF finally emerges from the shadows of high commodity inflation.
Anthony Black is a long-standing journalist, having worked in newspapers for more than 20 years. He was the Sunday Herald Sun’s finance editor for eight years and his reports were published in News Limited papers across Australia.
More articles from this edition of CompareShares:
Trader profile: Up 300%, but down $70,000 in a night
Stocks: Broker Recommendations October 27th – 6 to BUY, 6 to SELL and 6 to HOLD
Trading: Why you should understand support and resistance levels
Stocks: Stock of the week - Mermaid Marine
Gold: Why are traders selling gold so aggressively in the face of the worst financial panic in decades?
CFDs: Top five CFD stocks for the week
Markets: Financial markets brace for crucial week
Forex: RBA confirms Aussie dollar intervention
Companies: Packer resigns from PBL boards
Rates: Aussie cuts variable interest rate 50 basis points
Global Crisis: China can weather crisis: central bank
Oil: Iran says OPEC likely to cut more output
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