Stocks To Own, And Some To Abandon

This story features PRL GLOBAL LIMITED, and other companies. For more info SHARE ANALYSIS: PRG

By Rudi Filapek-Vandyck

Emerging companies specialists at Goldman Sachs (used to be GSJB Were) have updated their selection of preferred stocks after their Model Portfolio outperformed the market in July. Gone are Mitchell Communication ((MCU)) and Programmed Maintenance ((PRG)) and Austbrokers ((AUB)), Norfolk Group ((NFK)) and Iress ((IRE)) have been welcomed instead.

The inclusion of Iress in particular deserves some extra attention as the company has been named here and there as likely to post a positive surprise at the upcoming results release. Also, I have been pointing out the shares were trading well above their consensus price target earlier this year, after which a sizeable retreat took place.

Even after a positive performance in July, the share price of Iress is still some 3.5% below the present consensus price target. But then, we still have to see what the positive surprise exactly will be, don't we?

Other stocks on the stockbroker's Model Portfolio are Bradken ((BKN)), Breville Group ((BRG)), BT Investment ((BTT)), Equinox ((EQN)), Flexigroup ((FXL)), Henderson Group ((HGG)), Kathmandu ((KMD)), Kingsgate ((KCN)), Macarthur Coal ((MCC)), Mount Gibson ((MGX)), The Mac Services ((MSL)), Oroton Group ((ORL)), PanAust ((PNA)), Ramsay Health Care ((RHC)), Reckon ((RKN)), Sedgman ((SDM)), Ten Network ((TEN)) and WHK Group ((WHG)).

Elsewhere, but still at the same brokerage, the market strategist updated the Conviction List, which even performed better than the Emerging Companies Model Portfolio over July. The update saw the removal of Pacific Brands ((PBG)) as Goldmans still rates the stock as a Buy, but other retail stocks such as David Jones ((DJS)), JB Hi-Fi ((JBH)) and Myer ((MYR)) are more preferred due to their greater leverage to a predicted uptick in domestic consumption.

Over at Morgan Stanley, market strategists have now come to the view that equity markets are likely to remain range-bound and volatile, but that a strong rally will likely take off in the final quarter for the year.

The best way to play this theme is via increased risk say the analysts. Stocks with perceived higher risks (cyclicals) are cheaper on FY11 forecasts so they should run up harder, is the underlying philosophy.

The strategists have lined up four key themes for the next few months:

1. Buy resources, and other late cycle sectors
2. Buy select contrarian over-sold stocks
3. Buy mid-cycle value
4. Buy quality

MS Strategists have lined up 15 candidates that fit inside these four themes: AGL Energy ((AGK)), Asciano Group ((AIO)), Billabong ((BBG)), Campbell Brothers ((CPB)), Equinox Minerals, Fairfax Media ((FXJ)), Harvey Norman ((HVN)), Mineral Resources ((MIN)), National Australia Bank ((NAB)), Oil Search ((OSH)), OZ Minerals ((OZL)), Santos ((STO)), Wesfarmers ((WES)), WorleyParsons ((WOR)) and Woodside Petroleum ((WPL)).

Maybe time to have another look at Macquarie's Marquee Ideas.

Macquarie strategists have remained undeterred in keeping the Australian Stock Exchange ((ASX)) and Brambles ((BXB)) as Underperformers with Conviction, while Rio Tinto ((RIO)), News Corp ((NWS)) and Boart Longyear ((BLY)) have been retained as Outperformers with Conviction.

Macquarie also remains of the view that switching out of ANZ Bank ((ANZ)) into CommBank ((CBA)) or Westpac ((WBC)) will prove a profitable strategy.

Click to view our Glossary of Financial Terms