Collected Wisdom

This week’s roundup of the investment newsletters.
The Speculator

David Haselhurst of The Bulletin has had a magnificent run with his portfolio of junior miners, explorers and other speculative opportunities, turning over 98.9% since the new year. One of his big successes has been with junior mining company Image Resources (IMA). After recommending the stock as early as January at 39¢ on the basis of the proximity of its holdings to rich deposits owned by Iluka (ILU), Haselhurst has been patient. Subsequent drilling programs have revealed significant resources and the appearance of UBS Nominees on the register could be interpreted as the first sign of a takeover offer developing. The stock was trading for 93¢ at the close of trade on September 6. Hold Image Resources at current levels.

One investment that hasn’t worked out so well for Haselhurst is Nuenco (NEO). He got into the stock at 1.8¢ on August 3; since then it has continued its long downward trajectory to 1.6¢ at the close of trade on October 6. A year ago the stock was trading for 4.6¢. Nuenco has delivered some encouraging results from its Californian oil fields and company directors have been actively buying the stock but the share price hasn’t been able to recover. Hold Nuenco at current levels.

South Boulder Mines (STB) is another micro cap mining operation that you should keep on your radar. With holdings that border BHP, Newmont and Niagra, South Boulder mines has been overlooked by investors at this stage. Haselhurst added 22,000 shares at 22¢ each to his portfolio on September 20. Buy South Boulder Mines at current levels.

Rivkin Report

The team at the Rivkin Report has chosen an unlikely time to name Brambles Industries (BIL) as a sell. As the dual listing of the company is being unwound, Brambles’ position in the Australian index is forcing fund managers to adjust their positions. At the same time discrepancies between the price of the stock between the UK and Australia have seen some arbitrage take place, adding further pressure to the demand for the stock on the ASX. The report believes that its value has been fully realised. Sell Brambles Industries at $12.75.

Rivkin recommended Coates Hire (CAO) at $5.80 on September 14; the share price has softened to $5.77 on October 6. The report says that AMP’s announcement that it was reducing its holding in the stock should not be viewed as a reason to get out. Hold Coates Hire at current levels.

Allco Hybrid Investment Trust (AHUG) released its annual report recently, which outlined the provision of $28 million for profit sharing among security holders. This is the equivalent of $2.80 per security on top of the $4.50 semi-annual fully tax-deferred distributions. After closing at $97 on October 6, it still represents a solid yield play. Buy Allco Hybrid Investment up to $98.50.

Huntley’s Your Money Weekly

Billion dollar hospital operator Healthscope Limited (HSP) is Australia’s second-largest hospital operator and last year's acquisitions of Gribbles Pathology and 14 hospitals from Affinity has rapidly accelerated its growth. The problem with this growth is that management is now stretched to capacity. Any kind of disappointment in the future may encourage the attentions of private equity groups, which is not necessarily a bad thing. Trading for $4.78 on October 6, Healthscope Limited is a higher-risk, lower-quality version of Ramsay Healthcare. Accumulate Healthscope Limited to $5.

Nufarm (NUF) has been a constant disappointment to investors despite occupying the number one or two spot in most major pesticide markets. With an earnings-per-share growth outlook of 10–15% and a dividend yield of almost 3.5%, the team at Huntley’s is keeping keep the faith and recommending that you buy Nufarm up to $9.90.

The oil and gas producer Oil Search (OSH) has shed about one-third of its value over the past four months, falling from $4.52 on May 12 to $2.99 on September 20. Most of the company’s value is derived from the substantial gas resources in Papua New Guinea, which are yet to be monetised. Recent diversification into the Middle East via Yemen is addressing this deficiency, but AGL’s doubts about the viability of its PNG resources means that risks are rising. Ancillary developments of a petrochemical plant and related industries offer investors substantial upside, but Oil Search is definitely not for conservative investors. Accumulate Oil Search to $3.40.

Criterion

In attempting to identify the next takeover target, Tim Boreham, of The Australian’s Criterion column, has thrown up Sky City (SKC) as a possibility. Boreham is taking his cues from a number of events, namely the current phase of consolidation in Australia and private equity’s recent $20 billion offer for US gaming giant Harrah’s. Of all the possible gaming targets in Australia, Sky City’s monopoly on gaming in Auckland and casino operations around Australia make it the most attractive. At current prices, Sky City is a speculative buy.

Boreham says another gaming stock worth a punt is EBet (EBT), a developer of networked systems for gaming machine operators which provide player loyalty systems, jackpots and machine management software. A recent decision from US Congress has rendered online gaming in the US off limits for Australian companies but at the same time it has legitimised the services that use eBet’s infrastructure in poker machines. At current prices, eBet is a speculative buy.

The half-billion dollar pharmaceutical company Pharmaxis (PXS) is waiting on a decision from the Swedish authorities that would see its asthma drug Aridol approved for use. This approval will see the drug then fast-tracked for approval and automatically recognised across all EU nations. With a drug for chronic obstructions and pulmonary diseases known as Bronchitol waiting in the wings, its possible that Pharmaxis could be the next CSL or Cochlear. Pharmaxis is a long-term buy.