Several analysts were selected by the Weekend Oz to nominate their 'best stks for 2017'. First away is Roger and he's sticking with VTG in his top 3 picks:
Blue chips to bonds: experts’ picks for 2017
Clear trends emerged at the tail end of 2016, pointing us towards certain paths when investing our money.
AUSTRALIAN STOCKS
Challenger (CGF)
Challenger dominates the market for annuities — income streams offered with immunity from the volatility of financial markets. David Murray’s financial system inquiry contemplated a mandated proportion of everyone’s super being invested in annuities. Even in the absence of compulsory annuities Challenger is growing dividends by more than 15 per cent per annum. Healthscope (HSO)
When Healthscope announced unusually soft hospital admissions for the September quarter, it triggered a 30 per cent share price rout: this largely reflected institutions that were underweight the banks and resources needing the cash to increase their weighting in BHP and CBA. But the long-term trend for admissions is solid and investors rarely get the chance to buy quality cheap — Healthscope is trading around $2.25.
Healthscope Vita Group (VTG)
Running 103 Telstra stores, Vita is Telstra’s largest licensee. It is managed by arguably one of this country’s best retail merchants and motivational leaders. Frequent renegotiations with Telstra means that investors must rely on the sales culture instituted by founder and CEO Maxine Horne to compensate for any pressure: this is one of the best margin-maximising cultures in Australia. Roger Montgomery is founder and chief investment officer of the Montgomery Fund. Seek (SEK)
Seek is the outright leader in online job ads in Southeast Asia and recently passed its rival 51Job in China. The domestic business is highly profitable and it should be possible to develop similar businesses in larger developing markets. The response to Premium Talent Search, Seek’s answer to LinkedIn, has also been positive. It has an intrinsic valuation of $16. Ardent Leisure (AAD)
Ardent operates leisure and entertainment assets across Australia, New Zealand and the US. The group is reallocating capital from the divested gyms and D’Albora Marinas divisions into the Main Event Entertainment business in the US, which is more profitable and has faster growth. The successful rollout of this business would justify a valuation of $3.50 against a share price of $2.25. Speedcast (SDA)
Speedcast is a global satellite service provider enabling connectivity and communication in remote locations. The firm benefits from rising internet penetration in remote regions. Having recently acquired its largest competitor, Harris Caprock, there is a high level of churn on the share register which has been creating short-term share price weakness. David Walker is senior analyst at StocksInValue.com.au Beach Energy (BPT)
Oil and gas company Beach Energy is highly leveraged to any recovery in the oil price generating an additional $50m in profits if oil prices increase by $US10 per barrel. The company has a strong balance sheet and successfully identified cost savings which recently helped to reduce the cashflow break-even point to $US26 per barrel. Clearview Wealth (CVW)
Clearview Wealth is focused on life insurance and wealth management, with the life division accounting for 85 per cent of earnings. Clearview Wealth is a growth and income play. The dividend has been increased for the past two years and the company has lifted operating revenue for the past five financial years at an average annual rate of 16 per cent. Cooper Energy (COE)
Cooper Energy is an oil and gas exploration and production company with oil assets in the Cooper Basin and gas resources in the Gippsland and Otway Basin. With the final investment decision for the Sole Gas project due in the March 2017 quarter, procurement of project finance is the major catalyst: the project would increase Cooper’s production fourfold to about 1 million barrels a year. Simon Hermann is an analyst at Wise Owl. INTERNATIONAL STOCKS
Tencent (0700 HK)
Chinese internet giant Tencent is attractive due to its size and scale in social networks, web portals, e-commerce, and multiplayer online games. A big growth driver is its mobilechat service WeChat with 765 million users. Haliburton (HAL)
US oil services player Haliburton has scale, flexibility and technology and is well placed for the energy recovery now under way in North America. HAL has been able to maintain its equipment through the downturn, positioning it well as activity recovers.
Halliburton New Relic (NEWR)
Growing revenues at 35 per cent, New Relic operates in the realm of “applications performance management” analysing web and mobile applications in real time, giving insights from the billions of metrics that a firm’s software is producing. NEWR is benefiting from the explosion of big data and the implementation of new programming languages. Clay Carter is a senior research analyst at online broker Macrovue. INCOME STOCKS
Stockland (SGP)
Stockland is a diversified property group with operations that span Australia. SGP owns, manages and develops shopping centres, logistics centres, business parks, office buildings, residential communities and retirement living villages. It has a distribution yield of about 6 per cent. The intrinsic value for Stockland is between $4.50 and $4.60. Automotive Holdings (AHG)
Automotive Holdings is one of the leading automotive retailing companies in Australia with an industry-leading market share of about 7 per cent. The company is well positioned to further consolidate the industry through acquisitions funded by the potential sale of its underperforming refrigerated and cold storage division. AHG trades well below a sum of the parts valuation of about $4.60 and offers an attractive fully franked yield of 6.3 per cent. Elanor Investors (ENN)
Elanor is a preferred income focused stocks for 2017. It invests in tourism, leisure and commercial property assets. At current market prices, ENN trades on a price-earnings ratio of about 12.5 times, a yield of 6.8 per cent (unfranked) and a reasonable discount to intrinsic valuation of $2.40 per security. Damen Kloeckner is an analyst at Clime Asset Management.
SMALL CAPS
IMF Bentham (IMF)
The litigation funding group is misunderstood, it is really a fund manager specialising in picking winning legal cases. Since listing in 2000 it has won 73 per cent of the cases it has backed. The company also has limited global competition. The next key event is likely to be the Wivenhoe Dam case in Queensland. Sundance Energy (SEA)
Sundance is an oil company that specialises in fracking across the US. Just now the share price is not far from where it was in late 2015, at around 20c. Admittedly it almost went out the back door due to rising debt at one stage. But SEA’s debt is under control, it’s a low-cost producer and the oil price is looking stronger.
Sundance Pacific Current (PAC)
Chairman Mike Fitzpatrick watched this group fall by about 30 per cent earlier this year. Fitzpatrick is a former AFL star who also made a mint from selling his infrastructure investment vehicle Hastings Funds Management to Westpac. This track record was not enough to stop the departure of key investors from the company (previously known as Treasury) after its merger of sorts with the US-based Northern Lights. Now PAC has kicked out the old guard and has employed a new management team. Fitzpatrick will be aiming to revive it further. Richard Hemming edits the Under The Radar report. Spirit Telecom (ST1)
Spirit Telecom is a micro-cap providing fibre-based broadband services to commercial and residential customers. It uses its own wireless network and therefore can bypass the NBN. In 2016 it reported $9m of revenue and $1m in earnings before interest and tax and amortisation, and it can maintain EBITDA above 50 per cent. Servcorp (SRV)
One of the world’s leading providers of serviced offices, virtual offices and meeting rooms. Operating in 22 countries and 53 cities the company is well placed to benefit from the trend of a greater percentage of the population becoming self-employed or contractors. Livehire (LVH)
Livehire listed in June and provides a speculative exposure to HR technology. The company makes it more efficient and faster for companies to hire employees, and receives fees based on the number of potential employees in the “talent community”. Over the next two to three years if Livehire can emerge as a leading provider of HR services, then a takeover would be likely. Simon Dumaresq is an independent equities analyst. MANAGED FUNDS
Henderson Global Natural Resources Fund
It is likely that shares may trade sideways in 2017 but with continued sector rotation: on that basis global resources will continue their recent return to favour and should provide outperformance. Diversified resource company earnings appear to have bottomed. DNR Capital Australian Equities High Conviction Portfolio
DNR Capital runs a fund that concentrates on quality companies which should outperform because sustainable earnings can be reinvested to drive sustainable returns over time. We should see outperformance in Australian shares with this fund. Cooper Investors Global Equity Fund
Cooper Investors has invested in global equities for over a decade with hedged and unhedged funds experiencing strong long-term outperformance using its “Observation Not Prediction” philosophy. The fund looks for companies with compelling value propositions that are simple to articulate and measure. Will Hamilton is an independent wealth manager. ETFs
Vanguard Australian Shares
There are many ASX-focused ETFs to choose from, but the Vanguard Australian Shares index stands out because it is benchmarked against the S&P/ASX 300. By investing in a broad index, investors not only get exposure to our biggest blue-chips but also to a good spread of mid-cap and small-cap stocks. IShares S&P 500
Australian interest in US markets remains elevated as Wall Street has gone from strength to strength this year and investors wanting a piece of the action have lots of choices. The iShares S&P 500 ETF, with around $2 billion of funds under management, is a good access point to the world’s largest companies and has achieved solid returns. BetaShares Dividend Harvester
The “hunt for yield” remains a key theme as interest rates remain low by historical standards. The BetaShares Australian Dividend Harvester remains one of the most popular ETFs because it provides investors with exposure to large-cap Australian shares and franked dividend income, which is paid out monthly. Tony Kaye is editor of Eureka Report. FIXED INCOME
Term deposits
Bank term deposits remain a good relative value investment. Government-guaranteed to $250,000 with a range of maturity dates available and your capital is returned to you. But, let them roll over at your peril. Shop around and negotiate with your bank to match the returns shown elsewhere. Notice saver accounts
The banks need a certain amount of liquidity to meet regulatory requirements. That’s why we are seeing a move to new notice saver accounts. By agreeing to a notice period of say 31, 60 or 90 days to access your money, the banks pay you a higher rate of return. AMP is paying the cash rate plus 0.70 per cent and also pays the advertised rate until maturity. Some providers drop rates once you give notice to withdraw. High-yield bonds
If you are a yield seeker looking for diversification these higher risk investments pay share-like returns of 6 to 8 per cent. A suggestion is to invest the minimum $10,000 per bond across multiple companies to diversify and spread risk. High yield has been a stand-out performer, whereas Australian high yield is still developing. Elizabeth Moran is a director of education and research at FIIG Fixed Income Specialists.
