Hot Stock Picks On The Australian Stock Market
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Shares to buy: Smartgroup Corporation Ltd (SIQ)
SmartgroupCorporation Limited engages in the provision of employee benefits and workforce optimization services. We covered SIQ in our April stock picks document. At that time it was trading around $6.50 and we had a price target on it of $7.50. It is now trading around $9. Whilst the stock has performed well, the company remains highly cash-generative with strong returns, and we can’t see any signs of earnings quality deteriorating. There is also evidence of management buying. So, the fundamental story remains strong and we’re confident SIQ can continue to deliver. After popping higher in August, the stock has spent the past few weeks consolidating around the $9 level. We’re comfortable buying towards this $9 level, with targets to $11.
Shares to buy: Boral Limited (BLD)
BLD is trading at a steep 25% discount to the All Industrials ex-financials on FY18 price/earnings estimates, which is significantly below the historical trading range. This is largely attributable to the proposed acquisition of Headwaters, reflecting the size of the transaction and concerns around coal-linked fly ash and regulatory approvals. In our opinion, investor concerns are overstated. The catalysts that could drive a re-rating include regulatory approvals, delivery on FY17 expectations and evidence of synergy execution. On the technical front, since November last year an uptrend has developed, characterised by a series of higher highs and higher lows. We like the recent compression in the shorter-term EMAs (red) and bounce from the longer-term EMAs (green). This suggests those active in the stock are willing to bid up dips and that longer-term momentum is becoming more bullish. We are targeting a move to $6.50.
Shares to buy: Downer EDI Limited (DOW)
Downer's 1H net profit of $78m beat most forecasts and FY17 net profit guidance was raised 7% - to $175M. The strong result suggests that the earnings recovery is well underway for Downer, and gaining momentum. The recent results release saw the stock pop sharply, up to $7.50. The stock has since retraced to close the gap, finding support in the $6.60 region. Yesterday's action saw a buy signal off this support region and that's our opportunity to consider longs. Traders can be buyers around current levels, with targets to $7.50.
Shares to buy: Fortescue Metals Group (FMG)
FMG recently confirmed that it is on track to hit the top end of its iron ore export guidance, and possibly exceed it, whilst at the same time continue to cut costs. The company also took its unit costs below $US13 per tonne for the first time in the December quarter, with an average "C1" cost of $US12.54 per wet metric tonne. Fortescue has now lowered its cost for a 12th consecutive quarter. The company managed to pay down another $US1 billion of debt in the past quarter and said it held $US1.2 billion in cash at the end of December, while net debt stood at $US4 billion. After reporting another strong quarter of shipments and cost cuts, chief executive Nev Power said shareholders could be in line for better returns. "We need to continue diverting most of our cash flow to repaying debt. But we will progressively look to increase returns to shareholders," he told reporters. The company declared a 12 cents per share final dividend in August, exceeding analyst expectations. It will declare its next interim dividend on February 22. These are obviously all positives for a company that continues to deliver on its guidance, cut costs and pay down debt, and we believe that market will continue to reward FMG by bidding up its shares. Technically, the stock is in a fairly well defined uptrend, where momentum is strong but not currently overdone. Targets are towards $8.
Share to buy: Nanosonics (NAN)
December quarter sales were up 41% on the prior quarter, as North American direct sales gained momentum.
The company's move into the US market seems to be paying off, with gross margins improving significantly.
The next driver of share price could be publication of decontamination guidelines in the UK and Scotland favourable to Nanosonic products.
Technically, the stock remains strong and has broken out to fresh all-time highs recently on rising volumes.
Share to buy – Whitehaven Coal (WHC)
Until recently, we've viewed a lack of market confidence as mis-pricing WHC.
Over the journey, the company has maintained an earnings margin average of $13/t but it appears the market has been factoring in the future coal price and giving management little benefit for being able to sustain its margins, despite its track record.
The risk lies with the thermal coal price outlook and whether China continues to retreat from the trade.
Today the company announced record high ROM coal production of 5.7Mt for the March quarter, up 21% compared with the previous corresponding period and 44% YTD.
The company also recorded its highest quarterly saleable coal production of 5.3 Mt for March, up 28% compared to a year earlier, and 48% YTD.
Whitehaven Coal says that it is on track to meet FY2016 guidance for saleable coal to be in the range of 19.5 Mt to 20.1 Mt.
The miner says that costs guidance for the full year FY2016 is now expected to be $57/t.
We think momentum can now build in the stock and are prepared to be buyers..
Share to buy – Computershare (CPU)
Computershare maintained FY16 guidance and provided greater clarity around cost savings and gearing targets at its recent AGM. We see the company responding to market feedback and this suggests a more communicative stance in the months ahead. With a rise in the Fed funds rate around the corner, which would be a positive for CPU, we see further upside on offer with $12.50 a potential target.
Share to Buy – Qantas (QAN)
Qantas reports tomorrow and is on track to chalk up their largest annual profit since 2008. We are expecting a strong result which could push the share price significantly higher. Earlier in the week, Sydney Airport agreed to buy terminal 3 at Sydney Airport off QAN, for $535 million. In return for Sydney Airport buying back the terminal lease, which had been due to expire in 2019, Qantas has received assurances it will have priority access to 12 of 17 gates and 75 per cent of the check-in area and the majority of the baggage claim area in the terminal between 2019 and 2025. That alleviates QANs concerns that Sydney Airport could turn the terminal, used only by Qantas and QantasLink, into a large multi-user facility post-2019. Technically, the QAN chart is showing us everything we would hope to see and if we get a strong set of numbers tomorrow, the uptrend should continue and even accelerate.
Share to buy – Premier Investments
On March 5th our Head of Research Chris Conway appeared on Sky Business and placed a BUY rating on Premier Investments (PMV), citing the company’s optimisation strategy and growth in its Peter Alexander and Smiggle brands as potential highlights ahead of the company reporting. On March 23rd Premier reported, delivering a 9% increase in half-year profit in defiance of harder times being faced its major department store competitorsPremier lifted its net profit to $56.3 million after stronger sales growth from across its key brands such as Smiggle and Peter Alexander. On the day of reporting, Premier closed up an impressive 11.1% [video width="640" height="360" mp4="http://www.australianstockreport.com.au/21jan_share-tips/wp-content/uploads/Premier-Investments.mp4"][/video]
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Nov 2014 - Nov 2016
Our short-term focused Trading Report returned 30.03%, outperforming the ASX/200 Accumulation Index by 23.58%*
DISCLAIMER: *Performance is derived from recommendations provided by Australian Stock Report’s Trading Report, opened on or after date of acquisition in Nov 2014 *Return figures are gross returns and do not take into account fees or brokerage costs. *Returns are calculated based on a $50,000 hypothetical portfolio, risking 2% of the overall portfolio balance ($1,000) as a starting point for each trade. *Due to slippage and gapping, losses can sometimes exceed $1,000 on an individual trade. *Opening and closing prices for trades (and therefore the prices used for determining aggregate profit/loss) will be those published on the Australian Stock Report website and will be determined by the price at which they could realistically be executed in the market at the time the recommendation is published. *ASX 200 Accumulation Index Return is calculated based upon the price of the index at the start of the session on the day the first ASX 200 trade was placed, i.e. 24.11.2015
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