The analysts at sell side broker Bell Potter have been doing their research to come up with 12 favoured stock picks for clients to buy in 2018.
Sell side brokers take fees every time a client trades through them and as such are happy to publicise recommended stock picks.
Sell side brokers have also traditionally passed on research to buy side asset managers in order to carry favour with them and as form of soft commission that involves no direct cash payments. However, traditionally the passing on of research has come with an expectation that the asset managers may send some lucrative institutional brokerage business a broker’s way in the future.
The recording of the commission paying processes between asset managers and sell side brokers is an integral part of new reforms introduced across Europe recently under the MiFid II regulatory directive.
Buy-side asset managers (who generally run institutional money) will also run substantial in-house research desks and keep a recommended research list for example, but will tend to keep research close to their chests in an attempt to beat the market. Sometimes though it may be passed on to high-net-worth clients, or others, for example.
Buy-side asset managers also do not conduct any capital markets advisory work such as capital raisings or IPOs. Whereas this work is another lucrative source of income for a sell-side player that commonly earns capital markets services fees from companies they cover under their research teams.
As such sell-side research should be taken with a pinch of salt sometimes, while the constant revision of “price targets” and “ratings” is partly just to get clients or the wider investing public to trade.
But there’s no doubt there are some excellent analysts on the sell side and high-quality research. Therefore some of it is worth paying attention to.
So let’s take a look at Bell Potter’s favourite picks for 2018.
Macquarie Group Ltd (ASX: MQG) – Bell Potter has a $108 “price target” on the investment bank and I’d have to agree it looks decent value today given the outlook.
National Australia Bank Ltd (ASX: NAB) – Bell Potter has a $34.20″ price target” on the bank and “buy” rating.
Suncorp Group Ltd (ASX: SUN) – the broker has a $15 “price target’ on the insurer and “buy” rating.
BT Investment Management Ltd (ASX: BTT) – the broker has a $15.20 “price target” on the fund manager and “buy” rating.
Janus Henderson Group (ASX: JHG) – Bell Potter has an A$63 “price target” on the international debt, fixed income, and equities manager.
Challenger Financial Group Ltd (ASX: CGF) – the broker has a A$15.75 “price target” on the annuities manager.
Afterpay Touch Group Ltd (ASX: AFY) – the broker has a $7.30 “price target” on the buy now, pay later, consumer credit provider.
Onevue Holdings Ltd (ASX: OVH) – Bell Potter has a $1.10 “price target” on the superannuation platform administrator.
Praemium Ltd (ASX: PPS) – Bell Potter also likes this superannuation platform and investment funds administrator and has a $1 price target on the stock.
MFF Capital Investments Ltd (ASX: MFF) is the former Magellan Flagship Fund which Bell Potter likes thanks to its market-beating track record investing in international equities.
Perpetual Equity Investment Company (ASX: PIC) is liked thanks to its market-beating track record investing in Australian and international equities.
PM Capital Asian Opportunities Fund Ltd (ASX: PAC) is liked thanks to its market-beating track record investing in high-growth Asian equities.
SYNLAIT FPO NZX (ASX: SM1) or Synlait Milk is liked partly due to its role as a supplier to the a2 Milk Company.
a2 Milk Company Ltd (ASX: A2M) is liked in its own right thanks to its opportunity to grow sales of its a2-only-protein infant formula and supermarket milk products overseas.
Nufarm Limited (ASX: NUF) is the agricultural product supplier tipped to do well, with shares changing hands for $8.42 today.
Citadel Group Ltd (ASX: CGL) is a widely-fancied software business and Bell Potter has a bullish $7.50 “price target” on a business selling for $6.38 today.
Technology One Limited (ASX: TNE) is one of the market’s strongest and most established technology and software services business. The broker has a $6.20 “price target” on the stock.
Appen Ltd (ASX: APX) is the digital language translator that has been on a tear over 2017. Bell Potter thinks it’s still good value and has a $9 “price target”.
I think some of the best recommendations above include Technology One, Macquarie and Challenger based on current valuations, although all of them are potentially worth further investigation for investors.
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The Motley Fool Australia owns shares of and has recommended Challenger Limited. The Motley Fool Australia owns shares of A2 Milk, Appen Ltd, Citadel Group Ltd, and National Australia Bank Limited. The Motley Fool Australia has recommended Onevue Holdings Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.