MS Predicts Upgrades For Resources, Plus More On Media

This story features SEEK LIMITED, and other companies. For more info SHARE ANALYSIS: SEK

By Rudi Filapek-Vandyck

Hot on the heels of media sector updates by UBS and Deutsche Bank comes a similar exercise by media analysts at Morgan Stanley. As one would expect, MS has a slightly different take on things (see also our story yesterday “Not All Media Stocks Are The Same”).

There appears to be agreement across sector specialists that shares of Fairfax Media ((FXJ)) look structurally undervalued, and Morgan Stanley shares the same view. Otherwise, the analysts like Ten ((TEN)), Seek ((SEK)) and REA Group ((REA)), plus Austereo ((AEO)) for investors seeking dividend yield.

Morgan Stanley has an Underweight rating for APN News & Media ((APN)), Austar ((AUN)), Seven ((SVW)) and West Oz News ((WAN)).

One of the interesting predictions made in the sector update is the fact that job ads will at some point make a significant shift to the internet in Western Australia, with devastating impact on West Oz News.

Also hot on the heels of some of my personal market analyses recently, the commodities desk at Morgan Stanley has issued its own sector update, predicting market momentum is about to shift from pure base metals producers to the Diversifieds.

Why? Morgan Stanley is anticipating a wave of upgrades by analysts, to take place around the end of the current quarter (Q3 ends this month) and which should see resources analysts across the market lift their price forecasts for bulk commodities in the year ahead, iron ore in particular.

A strong Aussie dollar, however, is anticipated to temper much of the additional upside. Regardless, Morgan Stanley reiterates what my analysis revealed already: diversified resources stocks (think BHP Billiton ((BHP)) and Rio Tinto ((RIO)) are currently cheap, cheap, cheap.

In line with predictions made public elsewhere recently (Barclays, Macquarie and others) Morgan Stanley believes copper prices are poised for a strong rally.

The analysts see two factors supporting such prediction:

1) scarcity of supply from mines and seasonal demand lead recovery
2) a short squeeze being played out in markets.

Unlike previous short squeezes on the market, the analysts forecast this time copper prices probably won't pull back after, with the analysts predicting copper might continue to see support for a sustainable price as high as US$4.00/lb.

For those investors who haven't got tired of hearing about the new government and its potential impact on the Australian share market yet, RBS Australia today published its own assessment.

Negative impacts are seen for commodity stocks, due to the prospect for higher tax, for energy and utilities companies, due to the prospect for the introduction of some sort of a carbon tax, for banks, due to the prospect of additional regulation and restrictions, for gaming stocks, due to the prospect of extra restrictive legislation, and for healthcare stocks as the new government is seen as less supportive of private healthcare than the Liberals would be.

Positive impacts are seen for the media sector, due to expected relaxation of rules, for wealth managers, due to the prospect for increased super contributions and for telcos, possibly, as a result of the government's NBN plan.

All in all, the new government is seen as a net-negative for the share market overall.

RBS analysts in Hong Kong see a trading opportunity in Asian steel stocks, predominantly on the back of temporary relief in input costs. Could be a rubb-off effect on Australian steel stocks?

Analysts at UBS are this morning toying with the idea of who might be the next international retailer to put more extra pressure on local retailers in the Australian market. Their guess is the next battleground will be cosmetics, and their preferred candidate to announce next it will be visiting Australian shores is Sephora.

Possible impact? Nothing genuinely scary in terms of real earnings impact for the likes of Myer ((MYR)) and David Jones ((DJS)), argues UBS, but it will probably put a dent in sentiment overall towards these department store owners.

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