bargains for the picking

Bargains for the picking
By Anthony Black
April 24, 2005
From: Sunday Herald Sun
THE sharemarket's fall from favour has opened the door for bargain hunters, analysts say.

Investors should look to buy profitable companies that have been oversold or are under-valued, they say.
More than $56 billion has been stripped off the value of shares in the past month.

Spooking investors are higher interest rates on the horizon of a slowing economy, marginally weaker commodity prices and negative sentiment about the outlook for the US economy.

The All Ordinaries Index was up 20.9 points on Friday finishing at 4009.6 points.

Advertisement:
But that is down 246.2 points, or 5.8 per cent, from its March 21 peak of 4255.8.

Sharemarket analyst Michael Heffernan, of F.W. Holst, said The Reject Shop and JB Hi-Fi offered investors good value as they were 24.4 and 20.7 per cent respectively off year highs.

"The Reject Shop is somewhat recession-proof because of what they sell; cheap products," he said.

"And JB Hi-Fi's proven business model could withstand a slower economy. You would just about need a recession before consumers stopped buying plasma TVs and home theatre components. The economy might come off a bit, but I don't see a recession on the horizon.

"The economy is still in good shape, with relatively low inflation and interest rates. Employment numbers remain strong."

Mr Heffernan said global mining giant BHP Billiton offered value at $2.45 off its year high of $19.50.

"BHP Billiton almost has its profits locked in for the next year," he said.

"What I like about BHP Billiton, JB H-Fi and The Reject Shop is they are strong businesses backed by solid sharemarket fundamentals. Their share prices have been shaved, so they offer good value.

"The sharemarket always overshoots; on the way up, and down. It is an inherent characteristic of the market.

"So when the market starts falling, some good stocks are oversold and that provides an opportunity."

Sharemarket analyst Mike Kendall, of Goldman Sachs JBWere, likes the value in BHP Billiton, too.

"Twenty-five per cent of BHP's earnings are derived from petroleum," he said. "High oil prices will be with us at least until the end of the year.

"A lot of commodities that BHP digs out of the ground, such as iron ore and copper, are sold on a 12 month contract basis.

So they have locked in a good profit stream."

Mr Kendall said gold producer Newcrest Mining looked cheap when compared with US peers

"Newcrest's Telfer gold mine is world class," he said. "The outlook for gold is strong on the back of a weaker US dollar."

Mr Kendall said recent market volatility would continue, and investors could not expect big price increases in the short term.

"The market will rise and fall until there is more certainty about global and domestic growth and the future direction of inflation and interest rates," he said.

"But recent share price falls do provide investors with an opportunity to pick up a bargain. Investors who buy companies with strong balance sheets should be rewarded over the longer term.

A strong balance sheet has low borrowings and good cash flows."

Mr Kendall said Coca-Cola Amatil was a good buy.

"While the SPC acquisition may take some time to digest, the soft-drink bottler has the ready-made infrastructure to penetrate the Australian and Asian markets with healthy fruit and juice products," he said.

"And it's almost a $1 a share off its year high."