FYI | Jan 31 2007
At FNArena, we’ve closed off the first month of 2007 by picking up a tradition we interrupted during the Christmas and New Year’s break – by publishing the first Australian Super Stock Report for the year. The February edition, in both pdf and xl format, is available now on our website.
According to our latest update, and with assistance from our own Market Sentiment Indicator, I can now report that Spark Infrastructure Group (SKICA) is currently the undisputed highest recommended stock in our universe.
We tend to use the phrase “in the Australian market” when making such statements, which is correct I guess as the 477 stocks in our database are all covered by the major stockbrokers and one independent researcher in the local market – it’s going to be hard for any stock outside these 477 to do better.
What is so special about Spark Infra? Well, taking the average price target in our universe as a guide Spark securities should only rise by some 4.15% from where they are now over the next twelve months. However, the company is also expected to add 14% (13.96% to be precise) in dividend payments on top of this.
Of course, coming first in our ranking doesn’t necessarily mean the stock is also guaranteed to yield the highest return in the year ahead. But we’ve been evaluating this process for a few years now and never –thus far, knock on wood- has the number one in our ranking disappointed.
(Think about it for a while: coming first in our ranking most of the time means all experts who cover the stock give it their highest rating. We require a minimum of four.)
The top ten at the end of January carries a few surprises, I think, such as insurer QBE (QBE) on position number two with only a projected total return of 5%. Are recommendation downgrades about to kick in or can we expect more from the company?
ResMed (RMD), on spot number three, actually has a projected negative return for the year ahead. But all the brokers in our universe who cover these stocks rate them highly, with the exception of Credit Suisse who is currently restricted from having an official investment view on QBE.
News Corp (NWS), on spot number four, only carries one Hold recommendation, from Aspect Huntley. Australia’s two resources heavyweights, BHP Billiton (BHP) and Rio Tinto (RIO) come next and both enjoy two Neutral recommendations against eight Buys. Projected total returns for both are beyond 25%, anything extra in terms of special dividends not included.
It’s probably a sign that two of the largest engineering and equipment companies, Boom Logistics (BOL) and Emeco (EHL), are within the top ranks as well. The large exposure of both companies to the booming mining industry should have benefited their bottom lines, while holding back their share prices. Hmm, no wonder both are being named here and there as prime candidates for a re-rating during the February results season.
Mind you, WorleyParsons (WOR) and Coates Hire (COA) are both inside our Top 40 as well. As are a few ‘nephews’ of Spark Infra such as ConnectEast (CEU), Babcock & Brown Infra (BBI) and Challenger Infra (CIF).
Lots of oil and gas companies are present as well, as are financial service providers, gold producers and property trusts.
FNArena has build up a relatively close relationship with Alan Kohler & Co at Eureka Report over the past six months. When we were asked in December to come up with a top ten shares list for calendar 2007, we simply fell back on our Sentiment Indicator. If my memory is correct, the top ten generated by our indicator in the second week of December only differed by one stock from the top ten list in the December edition of our monthly Australian Super Stock Report.
And so we entered Eureka’s Great Share Race with the following ten stocks: Emeco Holdings, News Corp (NWS), Res¬Med, Rio Tinto, Macquarie Bank (MBL), BHP Billiton, Oil Search (OSH), Boom Logistics, Spark Infrastructure and Domino’s Pizza (DMP).
Earlier today I called Eureka editor James Kirby. He told me they’d publish a first update on the stock picking contest. It turned out the FNArena list was running second. “Thanks to Domino’s Pizza”, Kirby said.
I pointed out the FNArena list did not contain any Telstra (TLS) exposure –unlike most of the other contenders- and neither did we have the pleasure of a takeover offer for any of our stocks.
But then again, it’s more than likely way too early to draw any conclusions at this stage yet. We’re only six weeks into what is supposed to be a twelve month contest.
Anyone a bet our list will beat the S&P/ASX200 index over the period?
And oh yes, the number one in the Eureka contest so far, Trish Power, has Spark on her list as well.
Till next week!
Your happy as always editor,
Rudi Filapek-Vandyck
(as always supported by the Fab Three Greg, Terry and Chris)