Collected Wisdom

PORTFOLIO POINT: This is an edited summary of Australia's best-known investment newsletters and major daily newspapers. The recommendations offered represent the views published in other publications and may not represent those of Eureka Report.
As we try to remind readers every week, Collected Wisdom features a selection of disparate stock tips from a variety of newsletters; not all of them work out and we certainly don't endorse them. The point is especially salient this week after we watch Babcock & Brown (BNB) fall to new lows a week after one newsletter rated the investment bank as a very strong buy. There you have it: stock picking is an inherently risky game. It can work, however, but only if you consider different sides of the equation, if you read different opinions. This is why we publish Collected Wisdom, to get those dissenting, contrarian and speculative opinions. We may not agree with them, we may scratch our heads, but often a view that at first seems irreconcilable with our own can add new depths to analysis, or shed light on factors we haven't considered. Don't take these tips at face value; don't invest with the herd, and certainly don't blame us for reporting them. Consider an investment from as many angles as you can and remember: if you don't feel you understand it fully you're taking a punt, not making an investment. Not that there's anything wrong with that '¦

The show must go on for others in the finance sector and ANZ Banking Group (ANZ) receives a buy recommendation with one source seeing the bank benefiting from stabilising debt markets. Closing at $19.65 on Friday, ANZ's price/earnings (P/E) multiple is a modest 9.5, which may belie the bank's future earnings potential if expansion into Asia succeeds. The buy recommendation follows on from others featured in the column on March 17, April 14 and April 28, and if the bank doesn't leave its $20–23 trading band soon the recommendations could continue, frustratingly, but at least one analyst sees the stock unlikely to trade further down, with its 6.5% fully franked dividend yield providing a floor under the share price. Seen as a solid blue-chip stock with far more upside than downside potential, ANZ remains the newsletters' favourite and is a buy at current levels.

Smaller banking and insurance group Suncorp-Metway (SUN) is also favoured this week, with another repeated buy recommendation. Like ANZ, it is cheaper now than it was when last featured on May 19, closing at $14.23 on Friday but coming off lows of $11–12 a share in March, Suncorp may be trending upwards again to the high noon of $20–22 a share it traded at between September 2006 and July 2007. Recent confirmation of positive earnings guidance and the present convertible preference share issue support a better rating of the stock, the newsletters say, and in the wake of Westpac's move for St George, the $13.35 billion Suncorp – a product of amalgamation – could become a takeover target itself. Suncorp-Metway is a buy at current levels.

Sentiment is surprisingly cloudy for Woodside Petroleum (WPL), however, as recent production downgrades explain a sell recommendation for the energy giant. Amid a booming sector, with interest in gas, oil and coal seam methane assets sending stocks through the roof, the time may have come to exit and take profits from Woodside's gains over the past two and a half years. The stock has indeed doubled in value from October 2005 to a close of $63 on Friday. Recommended as a hold on May 12, when it closed at just over $59, the stock briefly spiked at $70 since then, but even at current levels is seen as unsustainably high. It may indeed spike again, but at a P/E of now 41.06, Woodside has a long way to fall, too, the newsletters say. It may not be over for the energy boom, but better value may be found elsewhere. Sell Woodside at current prices.

Integrated energy group AGL Energy (AGK) is one such company, with a P/E of 15 on a closing price of $14 on Friday. With a diversified upstream supply and a strong gas and electricity distribution business, AGL is seen as a reliable bet in a sector of hot speculation. With a 25% stake in Queensland Gas Company (QGC), AGL has not been left out of the coal seam gas story, but should that bubble burst thermal coal, renewable energy and natural gas assets will retain value. At current levels AGL is not cheap enough to warrant further buying, one newsletter says, but the stock is worth holding on to with strong growth potential and a fast-expanding renewables portfolio. It may not be as exciting as peers Santos (STO) or Origin Energy (ORG), the newsletters say, but that's a reason to stay in the game. As a relatively well-valued and proven company, AGL Energy is well worth holding on to for the present time.

Investors are also advised to hold on to Lihir Gold (LGL), an unhedged gold producer with its main asset on Lihir Island in Papua New Guinea. Lihir has been something of a newsletter favourite over recent months, featuring in this column seven times since March, as a buy recommendation on six of those occasions. Alas for the stockpickers and their faithful followers, Lihir has declined in value from $4 in March to close at $2.91 on Friday. True believers should not despair, the newsletters say, for now with a merger approved by Equigold (EQI) shareholders, Lihir's directors are buying in. Professor Ross Garnaut, of national climate change review fame, has himself just bought another $35,000 worth of the scrip (see Watching the directors, below). Enthusiastic followers see Lihir rising in coming months, but the more cautious see the combination of the Ivory Coast and PNG as a recipe for danger. Such frontier market sceptics point out that Lihir and Equigold have a massive combined resource potential, and say that if you do at least have shares in Lihir, you may as well keep them and see what happens. Lihir is a hold, but expect the roller coaster ride to continue.

If you prefer your investments to be held in more everyday things, clothing group Pacific Brands (PBG) may be more to your taste. It is at least rated as a very strong buy, given that the stock is now worth just $2, down from over $3 for most of 2007. Fashion is a tough business, but Pacific Brands focuses on the more resilient sectors of underwear, sleepwear, sports and children's clothing and bedding, products that it calls essentials. With a wide variety of brands and an increasingly centralised supply chain, Pacific Brands has greater efficiencies than most of its peers and while consumer spending is softening amid higher petrol prices and mortgage stress in the suburbs, people (well, most people) still wear underpants and sleep in bed linen, so economic impacts are seen as only moderate. With a P/E of only 9.13, such impacts are indeed already priced in and though growth is seen to be moderate, one newsletter expects the share price to bounce back. Recommended as a good stock for yield-seeking investors as well (it has a fully-franked yield above 9%) Pacific Brands is rated as a strong buy at current prices.

The quintessential accompaniment to a pair of Pacific Brands' Hard Yakka overalls would be a six pack of ice-cold beer, probably produced by Foster's Group (FGL). The diversified beverage company is also seen by the newsletters as a perfect accompaniment to a defensive share portfolio. The resignation last week of chief executive Trevor O'Hoy signals a turnaround for the underperforming company and Foster’s has been tipped as the next takeover target in the global beverage industry's current wave of consolidation. With the chief executive gone, its wine division under review, and its directors being blamed for the poor timing of its Southcorp acquisition, the company is certainly in a vulnerable position, the newsletters say (see today's Takeover Diary by Tom Elliott for more). Industry leader InBev, based in Belgium, has just placed a $49 billion cash bid for US brewer Anheuser-Busch, maker of Budweiser, and Heineken and SABMiller are seen by many pundits as being likely predators for Foster’s. One newsletter has even speculated that Coca-Cola Amatil (CCL), which featured as a buy two weeks ago, could have a shot at Foster's attractive beer division. Foster’s closed at $5.46 on Friday. The company is at a crossroads, but under $5.70 Foster’s is recommended as a buy.

Finally ABB Grain (ABB), the former Australian Barley Board (and one of the world's largest suppliers of malt), is rated as a speculative buy by one newsletter, which sees the company as the preferred pick of Australia's grain sector. Strong soft commodity prices and a better-than-expected half earnings result have prompted ABB to lift its profit forecasts for the full financial year, and although its P/E ratio of 65 may alarm value investors, grain volumes are expected to be better this year as the rural economy emerges from drought in many of Australia's grain growing areas. Still, rainfall in the Murray-Darling basin and the effect of rising fertiliser costs add an element of risk, and though ABB has extended its operations to include rural services such as fertiliser and chemical supply, financial services and livestock activities, these recently established businesses could fail to perform. A $170 million share placement will fund a new malthouse to cater for Asia's growing taste for beer, and as an exposure to the burgeoning agricultural sector ABB may be a good place to invest. Settling on Friday at $9.58, ABB is a speculative buy at current levels.

Watching the directors

Week to June 13

• Lihir Gold (LGL) chairman Ross Garnaut indirectly bought 12,000 shares for $34,680 and director Bruce Brook bought 20,000 shares.
• Buying by Anna Buduls, a director of SAI Global (SAI).
• Buying by Stephen Woodham, a director of Centaurus Resources (CUR).
• Telecom Corporation of New Zealand (TEL) director Wayne Boyd buys via dividend re-investment.
• Jeffrey Hogan buys 1,500,000 shares worth $1,100,000 in RCR Tomlinson (RCR).
• Continued buying by the directors of BSA Limited (BSA).
• Continued buying by Ian Sandover, a director of Entek Energy (ETE).
• Buying by a director of GBST Holdings (GBT). This is in addition to a period of heavy buying earlier this calendar year.
• Buying by the directors of Galileo Japan Trust (GJT).
• Buying by Robert Clarke, a director of Hyro Limited (HYO).
• Buying by Denise Criddle, a director of Paladio Group (PDO).
• Continued buying by Terence Streeter of Western Areas NL (WSA). He has just purchased another parcel of $246,000.
• Continued buying by directors of Bell Financial Group (BFG). Colin Bell just purchased $119,000 worth of stock

Previous week

• Continued buying by Andrew Adamovich and Nicholas Waterworth of Ambition Group Limited (AMB).
• Buying by directors of AMP Limited (AMP).
• Brian Scullin, a director of BT Investment Management (BTT), has just bought $300,000 worth of stock.
• Peter Power, a director of Elk Petroleum (ELK), has been buying parcels of shares.
• Buying by three directors of Grange Resources (GRR).
• Buying by Ron Walker, a director of Wam Active Limited (WAA).

nRecent directors' trades worth more than $200,000
Date	Code	Director	Quantity	Price	Total	Action
4/06/08	UCW	John Everett	726,215	0.4	$290,486	BUY
4/06/08	RHL	Michael Millner	501,211	4.49	$2,250,879	BUY
4/06/08	RHL	Michael Millner	501,211	4.49	$2,250,879	BUY
4/06/08	WSA	Terence Streeter	25,000	9.85	$246,250	BUY
2/06/08	BTT	Brian Scullin	87,014	3.444	$299,669	BUY
29/05/08	EBT	Ian James	4,131,518	0.055	$227,233	BUY
28/05/08	GRR	Anthony Bohnenn	145,000	1.585	$229,856	BUY
19/05/08	FXR	Terry Streeter	600,000	0.891	$534,385	BUY
14/05/08	EQN	Craig Williams	120,000	4.899	$587,880	BUY
13/05/08	MFF	Chris Mackay	655,864	0.691	$453,000	BUY
13/05/08	UMS	Phillip Cornish	560,000	0.938	$525,327	BUY
8/05/08	WAL	Edward Stroud	2,240,428	0.134	$299,582	BUY
7/05/08	WTF	GT Wood	100,000	3.81	$381,000	BUY
7/05/08	WSA	Terence Streeter	35,176	9.684	$340,645	BUY

Source: The Inside Trader