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Share Tips
Broker Stock Recommendations 13 October – 6 to BUY, 6 to SELL and 6 to HOLD
Anthony Black - October 13, 2008
 CAMILLA DAVEY
ORD MINNETT
BUY RECOMMENDATIONS
Paladin Energy (PDN)
Paladin Energy is a uranium producer on the acquisition trail for advanced uranium projects. It has uranium projects in Australia and Africa. Paladin announced that uranium reserve estimates at its Langer Heinrich mine have increased 175 per cent since its ore reserve estimate in 2005. The price target on Paladin is $7, but risks include the uranium price, the Australian/US dollar exchange rate and the Queensland Government’s policies towards uranium mining.
ASX Limited (ASX)
Operates Australia’s primary national stock exchange for equities, derivatives and fixed interest securities. It also facilitates capital raisings for unlisted companies. The ASX has released trading statistics for September, and the latest figures show that average daily market volumes were 79.6 per cent higher than in September 2007. Our price target is $40.17. Risks to this price target include a sustained weakness in investment, competition in trade execution and regulatory change.
HOLD RECOMMENDATIONS
Commonwealth Bank (CBA)
CBA has the biggest domestic customer base of the major banks, is the largest issuer of credit cards, the biggest domestic funds manager and the largest provider of home loans. CBA has bought BankWest and reached an agreement to acquire a 33 per cent share in Aussie Home Loans. Our price target is $44.72. The risk to this price target is a further de-rating of the Australian banking sector in the face of rising loan losses.
Toll Holdings (TOL)
Toll is Australia’s biggest fully integrated logistics provider, specialising in express freight transport by road, rail, air and sea. Also, it has a growing international presence. Toll will spend $400 million over five years to redevelop an oil and gas supply base in Singapore. The base will serve more than 200 oil and gas-related companies. Our price target is $7.50. Risks include a slowdown in the domestic economy and fuel costs.
SELL RECOMMENDATIONS
Tabcorp Holdings (TAH)
Tabcorp is Australia's largest leisure and entertainment company, with a core Victorian operations base in gaming and wagering. It has casino assets in NSW and Queensland and the NSW TAB. There is downside risk to earnings forecasts due to the exposure of Tabcorp’s casinos to a slowing low to-middle-income consumer. Additionally, changes to the fee structures for racing Industry payments, flowing from its wagering businesses, add risk to the earnings forecast.
AWB (AWB)
AWB is Australia's national grain marketing organisation and one of the world's larger wheat management and marketing companies. Its core activities are the pooling, marketing, financing and risk management of Australian wheat. AWB is the nation's exclusive bulk wheat exporter. But there are risks to its share price and the main ones include a fluctuating Australian dollar and agricultural commodity prices and earnings volatility from AWB’s proprietary trading businesses.
 BRENDAN FOGARTY
ALTO CAPITAL
BUY RECOMMENDATIONS
Aquila Resources (AQA)
This mid-cap resources company provides long term exposure to coal, a sought after commodity even in today’s volatile energy price environment. Yet-to-be developed iron ore projects provide speculative upside to company growth ambitions. The fall in Aquila’s share price from an all time high of $17.95 to about $3.50 levels on October 10 is a glaring example of the fluctuating volatility inherent in today’s global markets. Aquila is producing profitably, having booked a solid net profit of $97.3 million last financial year. It’s worth buying at these levels for those wanting exposure to coal and iron ore assets.
Transfield Services (TSE)
Yet another example of a long term growth company that has suffered badly in line with the heavy fall on global markets. Those seeking long term growth need to stick to quality stocks with reliable income streams. Transfield Services fits the bill, with long term integrated contracts and reasonably low risk infrastructure projects. It will also benefit from the recent sharp fall in the Australian dollar.
HOLD RECOMMENDATIONS
Commonwealth Bank (CBA)
Those suggesting there’s worse to come in this bear market may well be right. However, history shows that it’s unwise to sell core blue chips in times of a downturn, as they generally rebound strongly. Continue holding major credit banks, the CBA, WBC, NAB and ANZ, for current high dividend yield, and wait for a more favorable global credit environment. Of the big four banks, CBA presents the lowest risk given its strong balance sheet and reasonable growth through acquisition. The BankWest acquisition at current discounted market levels is likely to prove a valuable addition when credit markets stabilise.
QBE Group (QBE)
QBE is the best of our local general insurers, and very competitive on a global scale. Management has proven to deliver the goods over a long period, even in times of an insurance crisis, such as the September 11 collapse. Moreover, investment wise, QBE has erred on the cautious side, with low comparative weightings in equities. Given the recent price jump from about $21 to above $25 on October 10, the stock has risen above my preferred buy range. It’s unwise to chase stocks on the rise in bear markets. Hold and wait for a pullback below $24 to accumulate this quality insurer.
SELL RECOMMENDATIONS
Babcock & Brown (BNB)
It’s always difficult taking a loss any time, but particularly in this market which will rally at some stage. However, if I were a holder of highly geared companies, which may need to refinance large rolling debt in coming months, I would sell. Unfortunately, Babcock & Brown is an example of a high risk, highly geared company, whose future remains very unclear in coming months. Doubt exists as to whether Babcock’s lenders will continue supporting the company’s high debt and falling equity component. Sell and switch to a credit bank. Any of the big four banks present a much better risk profile than the investment banks.
Fortescue Metals Group (FMG)
For those still holding this iron ore producer, consider taking profits, if you haven’t done so already. The dramatic rise from a penny speculative stock to its current $12 billion market capitalisation has been nothing short of a bonanza for early stage investors. Full credit to Andrew Forrest and his team for building this iron ore hopeful into a large cap producer. However, Fortescue faces significant challenges to justify its worth, particularly in an environment where the heat’s off the iron ore sector, and majors like RIO and BHP have fallen to low levels based on historical earnings. For those seeking iron ore exposure with a lower risk profile, you are better off choosing RIO and BHP, rather than the highly expensive, non-dividend paying Fortescue Metals Group.
http://www.altocapital.com.au/
 PETER RUSSELL
INTERSUISSE
BUY RECOMMENDATIONS
BHP Billiton (BHP)
BHP is really attractive at these prices. It has a world-leading suite of low-cost projects and its massive cash generation enables it to pursue growth almost regardless of the global credit problems. With the world, particularly China, needing resources for years, growth may slow, but not stall. The losers will be those failing to produce at low-costs. Don’t give up on resources—Australia’s trump card—but switch into the best.
Toll Holdings (TOL)
Toll is the Australian and New Zealand leader in integrated logistics. It’s strengthening its position and margins though focused management and technology. Already the fourth largest regional contract logistics provider in Asia, it offers leadership plans and capability. With strong finances, it also offers execution certainty which investors need at this time.
HOLD RECOMMENDATIONS
Seek (SEK)
This online job classifieds provider has almost 60 per cent of the Australian and New Zealand markets. Earnings will overcome any economic downturn, with continuing migration from print classifieds to online media. Seek has leveraged its capabilities through key investments in China, Malaysia and Brazil. Both a defensive and high-growth investment—so accumulate.
Service Stream (SSM)
Provides telcos and utilities with outsourced field force management, technical and customer support and asset management. Offers reliable and expanding earnings streams from multi-year contracts with Telstra, Optus, Vodafone and power and water utility companies. Pays a high franked dividend yield, and can be considered a defensive stock with growth—just the characteristics of an opportunity in a rough market.
SELL RECOMMENDATIONS
Aristocrat Leisure (ALL)
Global revenues from making electronic gaming machines and software have been disappointing. US gaming is suffering in the credit crunch. Looming Australian gaming licence changes also hurt. A change of managing director adds uncertainty and volatility to the stock. A typical situation of selling and switching to quality and reliability.
James Hardie Industries NV (JHX)
This international group has a technological advantage in making fibre cement building materials. But much of its activity is in the US where market conditions and profits will be poor for at least two years, with asbestos payments adding its toll. As for many other property related groups, switch to firmer ground.
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:
Global crisis: Was buying that stock a big mistake?
Stocks: Broker Recommendations October 13th – 6 to BUY, 6 to SELL and 6 to HOLD
Market meltdown: When the fear index peaks, brave contrarians start buying up fast
Market Crisis: Fund managers buying conservative stocks
Stocks: Investors flock back to banking stocks
Stocks: Stock of the week - Panoramic Resources
Trading: The top 5 technical indicators to trade commodities
Market Crisis: Time for govt hand in markets
Market Crisis: Crisis plans face acid test in Asia
UK Banking Crisis: UK govt to take control of two big banks
Market Crisis: G20 commits to tackling financial crisis
Global Recession: China confident of economic growth
US Bailout: Bailout conflict of interest claims
Credit Crisis: NAB defends risk assessed on toxic CDOs
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