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Stock Tips
Broker stock recommendations 2 June – 6 to BUY, 6 to SELL and 6 to HOLD
Anthony Black - June 02, 2008
 SEAN CONLAN
MACQUARIE PRIVATE WEALTH
BUY RECOMMENDATION
Sino Gold Mining (SGX)
With Jinfeng mine ramping up and the White Mountain, Beyinhar and Eastern Dragon projects in the pipeline, we believe SGX has potential to grow into a 500,000 ounce a year gold producer at cash costs around US$300 an ounce. It has a competitive cost and exploration advantage in China.
Leighton Holdings (LEI)
The Airport Link win increases our confidence in the strength of LEI's medium-to-long term earnings outlook. Revenue growth of about 15 per cent a year should deliver, on average, about 20 per cent earnings per share growth during the next three years. Our 12-month share price target for this construction giant is $60.09. On May 30, the share price was trading below $55.
HOLD RECOMMENDATION
QANTAS (QAN)
The airline’s share price in the next 12 months is largely hostage to continuing oil price volatility. Qantas holds an unhedged position and earnings in the 2009 and 2010 financial years are sensitive to oil price movements. Unless crude oil prices fall below US$125 a barrel, QAN will struggle to recover its incremental fuel costs through continuing fare increases.
PMP (PMP)
This print media producer’s balance sheet is well placed to withstand any downturn. Cash flows will get a boost from a favourable tax ruling and reduced capital expenditure requirements. While offering long-term value, PMP may continue to trade at a discount if further evidence of a cyclical downturn unfolds.
SELL RECOMMENDATION
Perpetual (PPT)
This funds manager remains highly susceptible to investment market conditions and relies more on asset growth rather than new business flows to underpin earnings momentum. Furthermore, the challenges associated with the group's growth options continue to test investor patience.
James Hardie Industries (JHX)
A building materials group whose underlying net profit after tax in the 2008 financial year was down 20 per cent on last year. JHX has made some significant headway in penetrating the US market, but the broader macro environment is proving difficult. Accordingly, we still think it is too early to invest in JHX.
 MICHAEL HEFFERNAN
AUSTOCK
BUY RECOMMENDATION
Invocare (IVC)
This funeral services provider has been a particularly strong performer in recent years. Its underlying sharemarket fundamentals are attractive and future growth prospects are favourable. It has been a quiet achiever in a period of severe market turbulence.
Rio Tinto (RIO)
A world class miner with substantial coal, iron ore, uranium and other mineral assets, which continue to be in demand from developed and developing countries. A possible takeover by BHP has galvanised the company, and the 12 per cent stake taken in it by the Chinese company Chinalco puts a simmering flame under Rio’s share price.
HOLD RECOMMENDATION
Telstra (TLS)
With the second T3 instalment now out of the way, Telstra appeals as a safe haven stock in an uncertain sharemarket environment and this should prove rewarding for patient investors. The telecommunications environment, from both a political and regulatory perspective, now seems more favourable to Telstra. A stock to be held by less risk-oriented investors.
Ausenco (AAX)
A specialist engineering and project management business servicing the international resources industry. Its acquisitions of related engineering businesses should assist its profitability, and it’s in the right sector at the right time. However, investors should keep their eye on recent litigation issues concerning overseas mining contracts.
SELL RECOMMENDATION
Babcock & Brown (BNB)
A financial services company that was a stellar sharemarket perfomer until the onset of the US sub-prime meltdown and international credit crisis. Investors savaged BNB’s share price when it emerged that the credit crunch was not a five minute wonder. Until the dust settles, it’s prudent for conservative investors to sit on the sidelines and consider less volatile financial stocks.
AMP (AMP)
A leading Australian life insurance/wealth management business which has been disappointing, considering last year’s boom in superannuation contributions. The higher interest rate environment and a slowdown in the Australian economy are not going to make life any easier for AMP.
 BRENDAN FOGARTY
ALTO CAPITAL
BUY RECOMMENDATION
Transfield Services (TSE)
Provides global services in asset and project management, operations and maintenance. It services a diverse range of industries, including mining, roads, rail, public transport, water, power and defence. Given its reliable earnings stream, it’s difficult to understand the over-reaction to a 6 per cent downgrade in net profit. Our valuation is about $14 a share in the medium term. On May 30, It was trading under $10.
Intrepid Mines (IAU)
This debt-free gold miner should substantially benefit from a stronger gold price due to its limited hedging position. Production is forecast to average about 22,500 ounces a quarter at an average cash cost of between US$400 to US$425 an ounce going forward.
HOLD RECOMMENDATION
Insurance Australia Group (IAG)
With QBE withdrawing its bid for Australia’s biggest general insurer, the short term outlook for Insurance Australia Group looks flat. But with its share price trading near year lows, hold for stable capital growth and a fully franked dividend yield of almost 7 per cent. Another bid for IAG is likely.
Aquila Resources (AQA)
Aquila has positioned itself in the sweet spot of the resources boom, with projects in the hot sectors of coal, iron ore and manganese. But the 400 per cent share price rise during the past 12 months puts it above our buying range, which is closer to $13.
SELL RECOMMENDATION
Linc Energy (LNC)
While you have to admire the company’s efforts in lifting the share price from its yearly low of 36c to bonanza levels around $3, its time to consider taking some profit. Linc Energy is a speculative play and uses two technologies to produce diesel and jet fuels - sought after commodities in today’s expensive energy environment. But its current market valuation above $500 million is high for a new company yet to produce any earnings. As potential earnings remains unknown, sell some, but keep a parcel for future speculative upside.
Cudeco (CDU)
This copper developer enjoyed a great share price run in previous years -from a small penny stock to its current level above $4. While the initial resource potential at its Rocklands project remains attractive, constant delays in releasing the resource upgrade has us believing that the numbers may not be as positive as the market has factored into its lofty share price.
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:
Stock tips: Broker stock recommendations 2 June – 6 to BUY, 6 to SELL and 6 to HOLD
Stock Picks: Stock of the Week – Indophil Resources
Resident Trader: Coal Powered Rocket
Fees on super funds: Is your super fund ripping you off?
Commodities: Cheering silver’s fundamentals
Market reports: Top Ten CFD stocks for the week
Report: Australia a magnet for banker 'refugees'
Commodities: Aussie gold output drops to 19 year low
Companies: Centro gains extension from lenders
Economy: Inflation gauge rising 'at fastest rate'
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