Stockbroker Preferences and Predictions

This story features BOART LONGYEAR GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: BLY

By Rudi Filapek-Vandyck

Market strategists at RBS have made a few changes to their "High Conviction" exposures to various sectors in the Australian share market. Today's update reveals the stockbroker has now replaced Boart Longyear ((BLY)) with Downer EDI ((DOW)) as its most preferred candidate amongst mining service providers and engineers, which effectively means Downer is expected to outperform its peers and Boart Longyear is probably due for a breather.

Among media stocks Crown ((CMJ)) is now preferred as "funding source" after the previous candidate -Ten Network ((TEN)- proved an accurate choice for funding sector exposure through other stocks. In the resources space Energy Resources of Australia ((ERA)) has been removed as "funding" source as uranium prices continue climbing, while in the retail space David Jones ((DJS)) has replaced Harvey Norman ((HVN)) as the stockbroker's least liked exposure.

Also, RBS remains convinced the utilities sector will see ongoing consolidation this year and its preferred candidate -Spark ((SKI))- is seen as a major target/beneficiary.

After analysts at Macquarie and Morgan Stanley published their updated commodity prices forecasts yesterday, today it is the turn for their peers at Citi – with similar results. Price forecasts for about everything, except maybe US natural gas projections, have gone up. Citi's macro forecasts fall in line with views expressed earlier by the likes of RBS and it is that base metals and bulk commodities are likely to outperform precious metals in 2011. Citi does have some reservations about base metals prices in the short term, while the stance on gold is not to everyone's liking (to say the least).

For what it's worth, Citi's most favoured commodities on a six-month view include thermal coal, coking coal, copper, palladium, nickel and aluminium. The list of least preferred exposures consists of platinum, lead, zinc, gold and silver.

Equally important, maybe, is that Citi analysts do not foresee a continuation of the strong upturn for commodities stocks in the final months of calendar 2010. 2011, predict the analysts, will be more of a "grinding higher" experience. Investors are advised to make cash returns, M&A potential, and commodity pricing power their main areas of interest.

Over at Deutsche Bank, analysts have joined about everyone else in the world in turning more positive on crude oil this year and price forecasts for the years ahead have gone up quite substantially.

Elsewhere, analysts at Morgan Stanley have lined up their ten potential surprises for the Australian retail sector this year, forecasting another year of outperformance for food retailers over discretionary peers, department stories will -again- remain unable to grow revenues, Woolworths ((WOW)) will perform better than Wesfarmers ((WES)) and private equity will be net buyers of consumer assets instead of net sellers.

The list also includes predictions such as that Harvey Norman ((HVN)) will issues shares to pay a special dividend, that Treasury Wine Estates (that is the "new" Foster's ((FGL)) will outperform but the beer operations will also prove a better performer than the "old" Foster's share price; market consensus expectations for Woolworths in FY12 will move higher, plus that lease accounting changes will impact on share prices, plus the Productivity Commission will conclude Australian retail is uncompetitive.

Over at UBS, the team of oil specialists have reiterated their preferences for Woodside ((WPL)) and Oil Search ((OSH)) in the sector. Banking analysts at BA-ML have lined up several reasons that could trigger higher earnings and valuations for Australian banks, but they immediately add the odds are not really in favour of any of these catalyst actually happening.

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