Stocks to watch
PLATINUM ASSET
MANAGEMENT
Kerr Neilson's fund's management company has underperformed the market for some time now. Over the past two months though, through outstanding performance, the group's funds under management have grown by just under 14 per cent.
Expect this growth to continue with Platinum heavily invested in a rising Japan and a recovering China.
Platinum is valued at about 15 per cent of its funds under management. This is high by any standards. Platinum has the best fee structure in the industry and it has enormous leverage to rising international markets. This stock could easily rise 30 to 40 per cent if recent performance continues.
BELL FINANCIAL
If you believe the market is going to travel higher for the remainder of this year exposure to a listed stockbroker is essential. Bell listed on the ASX when the market was hitting its high in late 2007. The stock traded at $2.30 a share but over the next five years fell back to 40c. In the past two months Bell shares have bounded more than 50 per cent higher to 63c a share. Don't expect a stellar profit for 2012 but the outlook commentary should be bright. The company has enormous leverage to stock market activity, printing a profit of $27 million in 2009, and falling to a loss of $1.8 million in 2012. With a market capitalisation of $163 million and excess cash of around $30 million the group is trading on about five times peak earnings. The shares could easily jump to $1 a share if the market keeps rising.
CAPRAL
Another area that is showing signs of life after a lull is residential property.
Housing starts fell to a decade low of 120,000 during the past year. Most economists are forecasting the market can climb back to about 160,000 dwelling constructions over the next two to three years to meet the undersupply.
Shares in aluminum fabrication group Capral are still languishing with investors scarred by $270 million of accumulated losses in recent years and the prospect of GPG selling its 47 per cent stake.
The company has about $16 million in cash and an enterprise value of $70 million. Capral has enormous excess capacity and if it increased production from 45,000 tonnes to 55,000 tonnes its EBITDA would jump to between $15 and $20 million. This means the stock could easily double.
DEVINE
Sticking with a possible recovery in the housing market, Queensland residential property developer Devine could have a big year. The group's near-term earnings will not impress, however the market will be eagerly awaiting commentary about any improvement in the market, especially in south east Queensland.
The RBA's decision to cut interest rates over the past 14 months has forced investors to look at the property market and since early December, Devine's shares have powered 50 per cent higher. Despite this spike the shares still trade at less than half stated asset backing of $1.98 a share. While the chances of climbing all the way to asset backing the stock could easily go from 91c to about $1.40.
RXP SERVICES
When a central bank starts cutting interest rates the first group to respond are consumers.
Months later, when they see end demand improving, companies start to spend as well. An area that should benefit from this dynamic is technology.
A group that has appeared on the scene over the past two years is RXP. Run by former Telstra operative Ross Fielding, the company has a market capitalisation of $43 million and net cash of more than $5 million. It has forecast earnings before interest and tax of $4.5 million to $6 million in financial year 2013. This should grow strongly in 2014 as a number of acquisitions contribute a full year of profits.
BANK OF QUEENSLAND
The regional bank has had a terrible time in the past 12 months, with escalating bad debts caused by a significant exposure to a moribund Queensland property market. This has seen the stock underperform the financial sector by about 15 per cent.
In more recent times, the need to provide for bad debts has abated and funding costs for the bank are falling. BOQ is trading on a fully franked dividend yield of about 6.3 per cent and the stock is trading at marginally below book value. All this points towards BOQ shares catching up to the pack in 2013.
AUTOMOTIVE HOLDINGS
Car sales have been firing in 2012 because of cheap financing. This scenario is unlikely to change in the next six to nine months. The share price in Perth-based auto dealer Automotive Holdings has been rising in tandem with car sales. The stock is trading on a PE multiple of 12.5 times this year's earnings.
Adding spice to the story is that rival Brisbane-based AP Eagers has bought just under 19 per cent of Automotive Holdings shares.
BHP BILLITON
With virtually every major economic entity stimulating their economies in some form, there is a better than even chance global growth could accelerate this year from the current levels of about 3 per cent. Such a scenario would see interest rates around the globe rise from historically low levels. Interestingly, this is usually a terrific environment for resource stocks that flourish later in the economic cycle.
Frequently Asked Questions about this Article…
The article notes the market has rallied about 22% since early June, which has pushed many formerly cheap opportunities out of reach. As the rally continues, everyday investors need to dig deeper than just seeking high yields — more research is required to find attractive stocks amid rising prices.
Platinum's funds under management grew by just under 14% over the past two months, and the manager is heavily invested in a rising Japan and a recovering China. The company is valued at about 15% of its funds under management, has an industry-leading fee structure and strong leverage to international markets — the article suggests the stock could rise 30–40% if recent performance continues.
Bell is a listed stockbroker with high leverage to market activity. After listing at $2.30 in 2007 and falling to 40c, Bell shares have climbed more than 50% in the past two months to about 63c. The group has a market capitalisation of roughly $163 million, about $30 million of excess cash and has traded at around five times peak earnings — the article says the shares could rise toward $1 if the market keeps advancing.
The article highlights that housing starts fell to a decade low of 120,000 but are forecast to recover toward 160,000 dwellings over the next 2–3 years. For Capral, with about $16 million cash and an enterprise value near $70 million, increasing production from 45,000 to 55,000 tonnes could lift EBITDA to $15–20 million and potentially double the stock. For Devine, shares have risen about 50% since early December and still trade below stated asset backing of $1.98 per share — the article suggests the stock could move from about $0.91 to roughly $1.40 if the housing recovery continues.
RXP, run by former Telstra operative Ross Fielding, had a market capitalisation near $43 million and net cash of more than $5 million at the time of the article. Management forecast EBIT of $4.5–6 million for FY2013, and the business is expected to grow strongly in 2014 as recent acquisitions contribute a full year of profits — making it a tech-services name to monitor as end demand improves after interest rate cuts.
BOQ suffered rising bad debts over the prior 12 months because of exposure to a weak Queensland property market and underperformed the financial sector by about 15%. More recently the need for large bad-debt provisions has eased and funding costs are falling. The stock was trading marginally below book value with a fully franked dividend yield of about 6.3%, factors the article says point to BOQ catching up with peers in 2013.
Automotive Holdings has benefited from strong car sales driven by cheap financing, and its share price has risen alongside that demand. The stock was trading on a price-to-earnings multiple of about 12.5 for the year, and rival group AP Eagers had acquired just under a 19% stake — both signs of sector momentum and corporate interest to watch.
The article suggests widespread stimulus could lift global growth from roughly 3% and eventually push interest rates higher. Historically, stronger global growth and rising rates later in the cycle tend to create a favourable environment for resource stocks, which is why investors might keep an eye on large miners such as BHP Billiton.
Call 1300 880 160
Start a chat
Schedule a call
