Five Experts, Five Stocks, Five Months

This story features RESMED INC, and other companies. For more info SHARE ANALYSIS: RMD

By Peter Switzer, Switzer Super Report

At a time when newspapers and media outlets are preoccupied with the “$37 billion wiped off the value of shares”, which they love running with, you won’t be surprised to hear or read that I think this is just another buying opportunity.

In fact, nearly all the experts on my show agree with me that stocks are likely to head higher this year. Some think fair value is around 5800 but most think momentum will build after the Yanks raise interest rates, probably in September, and we will take out 6000 before we pop the first bottle of champagne for New Year’s Eve.

Clearly, I’m talking about a Santa Claus rally.

Assuming we’re right, and this still could be a courageous assumption given so much sideways movements lately, what stocks should you buy now to hold at least for the rest of the year? This is a question I often get asked, so I put it to five experts, who think about stocks daily and I asked them for their best stock to buy and hold for the five months left of this year.

They came up with some interesting choices and I’m personally going to buy them, hold them and see how they do over the time in question. So, here they are.

1) Resmed ((RMD))

George Boubouras, chief investment officer at Contango Asset Management, emailed me this on Friday:

A current high conviction large cap stock is ResMed (RMD) following recent price weakness.

Rationale

• Targeting the defensive healthcare cashflows and importantly the non-Australian dollar exposure.
• Recent quarterly report update showed momentum, with US sales growth steadily improving and providing a better platform for margins on a one-year view. I anticipate it will maintain market share.
• Valuations are not as stretched versus its peers compared to earlier this year. While the stock has underperformed the HealthCare Index year-to-date, I see some upside going forward.
• Accumulate in the $7 – $7.50 range. Sell above $9.

2) Eclipx ((ECX))

ST Wong is portfolio manager at Prime Value Asset Management, and is an outside the square thinker, but he has good attention to detail when it comes to value stocks. He likes Eclipx — ECX for the following reasons:

•  A strong market position in ANZ for Fleet Management, an industry where scale drives efficiencies. It holds 10% of the Australian fleet market, with $1.5 billion motor-related lease receivables and 78,000 vehicles.

• A relatively new management team, which is experienced/well regarded and is in a position to reinvigorate the business.

•  Earnings potential to come from: (1) targeting new segments with its core Fleet Leasing product; (2) expanding the CarLoans brand in the consumer space; (3) cross selling commercial equipment finance to existing customers; (4) extracting cost synergies and improving procurement from FleetPlus and CarLoans; and (5) reducing cost to income ratio.

3) iSentia ((ISD))

One of my regular mates from my Switzer program on the Sky News Business Channel is Rudi Fillapek Vandyck, who founded FNArena. Rudi watches the analysts and he likes iSentia — ISD.

This is the old Media Monitors business and he argues has “really sticky customers”. Furthermore, he pointed out that the company is expanding into Asia and there are double-digit growth projections. It’s in the new media space and has the potential to be included in the S&P/ASX 200 index later this year, which attracts buyers on that basis.

Rudi says: “The company is largely unknown amongst investors as it only listed less than 12 months ago.”

I would throw in that Roger Montgomery is also a big supporter of the stock and he said so on Thursday.

4) RedHill Education ((RDH))

Mark Southwell-Keely is a stockbroker who owns Select Equities in Sydney. Mark is smart and careful and I was interested when he put forward education provider RedHill Education, which he says:

• Has strong organic growth driven by existing Sydney campus expansion, new Melbourne campus expansion and a degree offering.
• Is supported by strong tailwinds.
• Has a reasonable valuation; and
• Only relatively limited reliance on government funding. (I like that!)

It is a fairly illiquid stock – so when buying or selling, you may need to be patient.

5) ARB Corporation ((ARB))

My final expert is the founder of Share Wealth Systems — Gary Stone — whose analysis I respect and I know many of my TV followers agree with me.

He likes ARB Corporation. ARB has been described as a “bloke’s business” as ARB Corporation Limited designs, manufactures, distributes, and sells motor vehicle accessories and light metal engineering works in Australia, the United States, Thailand and Europe.

Gary calls it the “the quite achiever”. Why? This is what he says:

It’s one of the few that I would pick as a ‘One stock only portfolio’ stock on the ASX. It is one of only 16 stocks that qualify to be a gold medal stock on our fundamentals list.

It had a two year consolidation period from Mar 2013 to May 2015 when its price had a breakout above the $12.50 – $12.80 resistance zone. It rose to $14.40 then fell to retest that resistance zone. It has passed the test and bounced off that zone.

ARB’s trailing PE Ratio of 23 is above the All Market PE Ratio but being a growth stock, it has continuously had PEs higher than the overall market its whole life.

During unstable market periods, it tends to hold up relatively well against the broader market.

There are some early signs during this week that the Sept/Oct period could be a bit rocky. ARB will hopefully perform relatively better if Sept/Oct gets a bit ugly.

By the way, ARB just pipped Adelaide Brighton — ((ABC)) — for my pick.

So there’s a bonus selection but as all of you know, I always like to over-deliver!

So to recap, my/our five stocks from five experts for five months and possibly longer are:

1. Resmed — RMD
2. Eclipx — ECX
3. iSentia — ISD
4. RedHill Education — RDH
5. ARB Corporation  — ARB

Plus a bonus called Adelaide Brighton — ABC.

 

Peter Switzer is the founder and publisher of the Switzer Super Report, a newsletter and website that offers advice, information and education to help you grow your DIY super.

Content included in this article is not by association the view of FNArena (see our disclaimer).

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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