Collected Wisdom

Looking across the tip sheets for this week there is a focus on revisiting stocks and sectors that have gone out of favour. Revisiting and revaluating the factors behind a price slump can shed new light on the individual circumstance of a stock, unlocking hidden value.
The team at Fat Prophets believe that all the fundamentals are in place for the Babcock & Brown Japan Property Trust (BJT) to succeed. The improving economy, a return to an inflationary environment and recovering land prices all paint a rosy picture for the trust '” Fat Prophets recommends you buy Babcock & Brown Japan Property Trust to $1.68. Another Fat Prophets choice, Hutchison Telecommunications (HTA), has clearly been a disappointment. The Fat Prophets team originally went into the stock at 48¢. For the past six months the telco has been in a steady trading range between 24¢ and 28¢. With the 3G spectrum starting to take off, the team can see plenty of upside to its business model as non voice services gain in popularity. While investors will require patience, the team still expects Hutchison to break out of its trading range and head past 34¢ in the medium term.

The focus for exploration and mining company Bolinsi Gold (BSG) has shifted to silver after it identified significant deposits of the precious metal in northern Mexico. After pulling back from a peak of $3 in April to $1.74 in June, it has begun to regroup and head further north. In time, the team expect that further gains are achievable as the possibility of a world-class silver mine becomes tangible.

Over at The Australian, Criterion columnist Tim Boreham has become increasingly bearish. Highly critical of the team at Wattyl (WYL) that allowed not one but two potential buyers to get away, he rates the company as a sell for as long as it remains the smallest and weakest of the paint operations in Australia. At the same time he has avoided the buzz surrounding Australian Mining Investments (AUM), suggesting that the company has a long way to go before it can prove its worth. With the market valuing AMI at $700 million before Wednesday’s trading halt, AMI is a sell/avoid at current prices. Conversely, Boreham likes the yield offered by the Ten Network (TEN) and believes that the further it falls, the better value it offers. Boreham, who took interest in the stock at $2.62, tips it as a buy to $3. If you enjoy risk you may want to look into the online gaming outfit, Global Exchange (GLO). The company has just wrapped up a merger with a competitor that should see increased synergies as well as more earning stability. Global Exchange is a speculative buy at 9¢.

The latest edition of Your Money Weekly covers macro factors affecting global markets. Despite making note of the weakened housing market in the US, Huntley’s believes the market has been too hard on US materials giant Rinker (RIN). After US construction hit record levels in March, consecutive falls April and May saw the market revalue the company. Its fall from $22 to just over $17 puts Rinker back into the newsletter’s target range. Buy to $19.

The purchase of Foodland has positioned Metcash (MTS) as a third force in the Australian grocery market. Its plans to roll out another 113 stores this financial year and its healthy price/earnings multiple of 16.2 bodes well. Your Money Weekly recommends buying Metcash to $4.50. The outlook for coal in the aftermath of last week’s takeover bid for Excel Coal (EXL) is not so positive. The newsletter believes coal is a volatile sector and in light of the rerating of coal stocks that occurred, rates both Excel and Macarthur Coal (MCC) holds at current prices. After taking a look at the prospectus for Emeco Holdings (EMCG), which closes on July 21, the newsletter recommends you do not subscribe. The cyclical nature of the earthmoving equipment industry is not suitable for buy-and-hold investors.

The Rivkin Report takes a different approach to Emeco Holdings (EMCG). They believe that the key element to the ongoing success of the company is the mining super cycle, which shows no sign of waning. Demand for the float should be high and exposure is recommended if you have a high risk tolerance and a short term outlook. The price of Smorgon Steel (SSX) tapered off after BlueScope Steel’s (BSL) profit downgrade, but the report asserts that this is a company problem, not an industry problem. Speculating that the likely final value of the cash and scrip bid for Smorgon will be in the vicinity of $1.81, a profit of about 10% should be achievable over four months. After identifying Macquarie Airports (MAP) as undervalued, the report recommends taking another look. Yield for the coming year has been estimated at about 9% and an eventual recovery in the share price is expected. Hold or buy at current levels.

Online tipster Inside Trader is bullish on ABC Learning Centres (ABS). Trading for $6.83 at the close of trade on Friday, they have identified support for the company at $6.40 and resistance at $7.40. Analysis from the team suggests that ABC Learning is an excellent opportunity over the next three to six months. After trending downward for the least two months, the team also believe that the fundamentals are in place for Iluka Resources (ILU) to break through resistance at $7 and into a new trading range. Buy.