Collected Wisdom

A couple of stocks that investors might reconsider are Great Southern Plantations (GTP) and Great Southern Plantation Trees 2 (GTPGA). With the Minister for Revenue, Peter Dutton, sounding the death knell for the tax deduction status of non-forestry agricultural products and therefore one of the more compelling reasons for investing in such programs, Great Southern Plantations dropped like a stone last week '” 13% in a single session.
Meanwhile, its sister stock, Great Southern Plantation Trees 2, fell only 0.5% on the same day. It trades for about $100 and is tiny by comparison. This outfit is focused on returning shareholders fully franked dividends of about $3.20 twice a year. With a healthy balance sheet and valuable assets in the form of 240,000 hectares of land, this stock is a modest dividend play for investors seeking income. Buy Great Southern Plantation Trees 2 for the dividend.

Since the exit of shareholder Rio Tinto, the management team at Lihir Gold (LHG) have been able to ramp up its production significantly. It produced 651,000 ounces of gold in 2006, and lifted net profit from $US9.8 million to $US53.4 million. The increase in production has not been without difficulty because Lihir is now mining more gold than it can process, admittedly not such a bad problem. The company has just signed off on some research that aims to find out how to best remove the bottleneck, which is just as well because gold production for the coming year is forecast to rise from 650,000 to 800,000 ounces. Buy Lihir Gold at current levels.

Falling zinc prices, mysterious smelter explosions and cyclone activity have all conspired over the past couple of weeks to give the Zinifex (ZFX) stock price quite a belting. After hitting a high of $19.08 on January 2 the stock has fallen hard and was languishing at $15.43 at the close of trade on February 9, a fall of about 19% over six weeks. But there is good news (and better weather) on the way. The price of zinc is expected to recover soon as Chinese traders stop dumping zinc on overseas markets when they come to the end of their stockpiles. Buy Zinifex at current prices.

Realestate.com.au (REA) has been a market leader in Australian real estate classifieds for some time. Its strategy has successfully attracted huge numbers of both agents and property seekers. Part of the reason for this has been its infinitely scaleable technology. Majority shareholder News Corporation has been quick to harness this and roll it out in other countries including New Zealand, Italy, France, Germany and the UK. This particular strategy might just be the company’s undoing, particularly where its competitors are just as established in their own market as Realestate.com.au is here. At the same time, the cash burn involved in establishing these operations is unlikely to help lower its stratospheric price/earnings multiple of 86. Reduce your holding in Realestate.com.au.

One newsletter has quite serious reservations about the bid for Qantas (QAN). The bidding consortium will gear the airline up with about $13 billion in debt but supports spending an additional $10 billion in order to raise its capacity. Through Jetstar, the company will expand into new markets internationally and cut costs aggressively in the same way as European budget carriers Easyjet and Ryanair. The consortium is yet to reveal how it plans to get around the Qantas Sale Act, which stipulates that only 25% of the airline can be foreign owned. Fluctuations in the oil price will have a huge impact on its profitability. Sell Qantas at current levels.

Looking at the two listed Allco companies, one commentator prefers Allco Finance Group (AFG) over Allco Equity Partners (AEP). The reason for this is the spread of earnings, while Allco Equity Partners will end up with about 26% of Qantas for an investment just shy of $1 billion, Allco Finance Group will hold only 8% of the airline and will generate income through aircraft leasing and other financial services. In time its forecast of 20% earnings growth may be eclipsed. Buy Allco Finance Group at current levels.

Boral Limited (BLD) has come some way off its May 10, 2006, high of $9.91 as residential construction has stalled both in Australia and in the United States. But interestingly, for the housing materials manufacturer, the stock price has been steadily recovering since August 28, 2006, where it hit $6.61. With many industry experts predicting a slow recovery the optimism surrounding the stock seems misplaced. Many flagship products have endured price rises and the threat of market share erosion from cheaper foreign imports remains. Reduce your holding in Boral Limited at current levels.

Shareholders in Queensland Cotton (QCH) would be very disappointed at the performance of the stock over the past 12 months. On February 10, 2006, the stock was trading for $3.90 before softening considerably to $3.33 on February 9, 2007, a fall of about 15%. Last year, the Australian cotton industry produced less than half the average annual crop. For speculators, the current drought may still present some opportunities to buy agricultural stocks on the cheap. There have been rumours that the majority shareholder, the US investment bank Louis Dreyfus, is going to make a bid for the company but don’t hold your breath. The recovery of the Australian cotton recovery is not about to happen any time soon. Sell Queensland Cotton at current levels.

Investors partial to tips of a more speculative nature should take a look at Admerex (ADL). A software company that provides applications for collections and receivables departments, it was listed through the back door of a failed tech company in 2003. Led by former Qantas number cruncher Kim Goodall, there was serious split in the boardroom, which resulted in a purge of talent in 2005. Trading for 9.7¢ on February 9, one analyst predicts a potential value of between 13.9¢ and 18.2¢ a share, based on average price/earnings multiples applied to technology stocks. Acquire Admerex at current levels.

(This is an edited summary of Australia's best-known investment newsletters. The recommendations offered represent the views published in other publications and may not represent the editorial views of Eureka Report.)