Collected Wisdom

This week’s roundup of the investment newsletters.
Criterion

Tim Boreham, who pens the Criterion column for The Australian, says that he wouldn’t bother hanging around for months waiting for the Flight Centre (FLT) scheme of arrangement to come to fruition. He’d much rather cash out and forgo the 2.6% premium between the current market and offer price. Sell at $16.85.

Avexa (AVX) develops experimental HIV treatments and needed good results from its 2B trials before moving on to human trials. The company had its AGM last week, where there was more good news about the trials. Separately, there are rumours that biotechnology stock Biota has run the ruler over the $44 million micro cap. Avexa is a speculative buy at 22.5¢.

Investors who have stuck with Pacific Brands (PBG) since its April 2004 listing have certainly had an exciting ride as it soared to $3.45 in the first six months of trading on November 17 to a low of $2.06 on June 15 just four months ago. With the biggest retail season of year just around the corner, the stock should offer investors solid returns in the short to medium term. Buy Pacific Brands at $2.59.

Rivkin Report

The team at the Rivkin Report seized the opportunity presented by Pacific Brands’ (PBG) record low in June 2006, recommending that investors buy the stock at $2.10. It closed on Friday at $2.64, representing a 25% increase over four months. Trading at a price/earnings multiple of 11.8 with a fully franked yield of 6.3%, the team believes that the company is cheap and has further upside. Hold Pacific Brands at current levels.

The $4 billion cash injection into Publishing & Broadcasting (PBL) is going to come at a price '” namely the strong cash flow generators that have served the company so well. The funds are most likely to be used to finance expansion in Macau but it is difficult to estimate what kind of returns this will produce. Those looking to take profits should do so soon because the stock is likely to enter a period of short-term weakness. Sell Publishing & Broadcasting at $19.50.

Investors who followed the newsletter into Just Group (JST) in April 2005 will be very pleased with themselves. After Rivkin recommended you buy in at $2.65 on April 7, 2005, the stock has gone from strength to strength. On Friday October 27, 2006, it was trading for $3.93, representing a 48% increase or an increase 32% annualised. The team have faith in company’s succession planning that has seen Howard McDonald replaced by former CFO Jason Murray and a former executive at Country Road fill in the vacant finance role. Hold Just Group at current levels.

Huntley’s Your Money Weekly

With petrol prices declining and employment levels remaining high, the prospects for Harvey Norman (HNV) look strong. The company is investing heavily in its brand during a period of retail weakness and is well positioned to take advantage of any uplift in discretionary spending. Huntley’s expects Harvey Norman to continue to deliver double-digit growth from its domestic operations. It’s exposure to offshore markets also offers investors a considerable degree of both risk and reward. Accumulate Harvey Norman to $4.

Orica’s (ORI) reliance on the mining industry is both its selling point and its main detraction. A producer of explosives and ancillary products for mining companies, its complicated dividend structure is not suitable to yield seekers. Key performance drivers over the medium term include its share buyback program, acquisitions and its long-term management of the resource super cycle. Accumulate below $24.80.

The analysts at Huntley’s dislike Lihir Gold (LHG) with its history of disappointing investors. The company’s fixed costs are high, which leaves some room for cost cutting programs in the future but Lihir remains a trading play and is not investment grade exposure to the precious metal. With its operations in PNG, sovereign risk is also a concern. Reduce your holding in Lihir Gold.

Fat Prophets

Ever the gold bugs, the team at Fat Prophets have identified the BlackRock Merrill Lynch International Gold Fund, with its diversified holdings throughout the world, as a good opportunity to gain exposure to the gold market. Although the price of gold has pulled back to $US560 an ounce, the team believe that it will go above $US1000 over the long term. One of the reasons for this is because they believe that the US Federal Reserve has mismanaged the economy in the fallout from the tech and housing bubbles. They believe gold is “an anchor on reckless government spending and inflationary policies”. Apply for units in BlackRock Merrill Lynch International Gold Fund.

Global Mining Investments (GMI) is a mining investment company with large holdings in BHP Billiton, Rio Tinto and CRVD. The price/earnings multiples of these companies are all extraordinarily low. That’s because the market expects commodity prices to slide in the future as it is commonly believed that 2006 was the top of the resources cycle. As the economy regains momentum the newsletter believes GMI can retest its May high of $1.49 in time. Buy Global Mining Investments at $1.33. (To see our recent interview with Evy Hambro of Global Mining Investment, click here.)

Hutchison Telecommunications (HTA) has been a real disappointment to investors who followed Fat Prophets into the telco at 48¢ in 2004. As the first builder of a 3G network in Australia, Hutchison (24.5¢) has enjoyed some advantages over its rivals. The reduced cost and additional functionality of 3G services offer telcos the opportunity to lift profits through non-voice data services, approximately 10.2% of Hutchison’s average revenue per user is from these services, which is currently the industry benchmark. Hutchison is not exactly a prime takeover target, but the industry is in a period of consolidation and a decent partnership will unlock value in the stock. The slowing in the stock’s decline has been encouraging. Hold Hutchison Telecommunications at current levels.