Goldman Sachs Australia broker Richard ‘Coppo’ Coppleson has released a ‘hit-list’ of stocks he thinks are primed to either accelerate or sink before the end of 2013. The research note, which was primarily aimed at fund managers, listed six stocks that have entered deep value territory relative to the rest of the market, and four stocks that have run too far.
BHP Billiton (ASX: BHP): The diversified miner has received almost universal ‘buy’ or ‘outperform’ signals from analysts. With the price of iron ore holding up and successful cost-cutting in its Australian operations, BHP is poised to grow profits and margins in coming months and years.
Cardno (ASX: CDD): The North American construction company offers Australian investors exposure to the US at a time when the Australian dollar is expected to fall, thereby boosting earnings in Australian dollar terms. The company is trading at a price-to-earnings (PE) ratio of 11 versus a sector average of 18.
Leighton (ASX: LEI): Leighton’s share price plunged 15% earlier this month as more details about an ongoing corruption case came to light. The selldown appears to be an opportunity to grab onto the company at a PE ratio of 11 and yield around 5%.
Macquarie Group (ASX: MQG): The momentum is with the financial services giant after it surged over 40% this financial year, and Coppleson expects this trend to continue. Dividend growth of 20% is predicted, putting the dividend yield at around 5%.
Suncorp (ASX: SUN): Suncorp is expected to deliver solid dividend growth and has strong defensive characteristics, which have been lapped up by the market the past 18 months. Having largely matched the index since May, Suncorp’s grossed up dividend yield of 9% and defensive characteristics are expected to push the share price higher in the short term.
Qantas (ASX: QAN): Qantas has had a bad few days. The share price has dropped 11% since Thursday, after announcing that yields over the past six months were lower than expected. However, Coppleson believes that Qantas is not far from a bounce as the average cyclical stock has rallied by 40% in the past 12 months compared to Qantas’ 1%.
GWA Group (ASX: GWA): The fixtures and bathroom products company has rallied 85% this year following a re-rating, however with a PE ratio of 21 the company is now trading at a 35% premium to its five-year average. Coppleson believes this is unsustainable.
Metcash (ASX: MTS): Metcash has fallen 25% since mid-May as the company flagged reduced market share and lower revenue due to increased competition from Woolworths and Coles. The grossed-up dividend yield has provided some support, however the analysts believe there is more downside risk to the dividend than the market believes.
Navitas (ASX: NVT): A high PE ratio of 25 and risks to the education provider’s growth plan is enough to turn Coppleson off this company.
Tabcorp (ASX: TAH): Tabcorp is struggling to deliver decent returns in an increasingly crowded market. The future dividend of the company is under threat as Tabcorp currently cannot compete with rivals.
The stocks listed above are short-term plays designed to give traders an idea of which stocks may outperform in the last two months of 2013. Long-term investors should consider the sustainability of the companies listed, as well the risks involved in each, as the mining, insurance, construction and airline industries have a history of spectacular failures.
More risk-averse, income-seeing investors should discover The Motley Fool’s favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of “The Motley Fool’s Top Dividend Stock for 2013-2014.”
Motley Fool contributor Andrew Mudie owns shares in BHP.