Collected Wisdom

This is an edited summary of Australia's best-known investment newsletters and major daily newspapers. The recommendations offered represent the views published in other publications and may not represent those of Eureka Report.
Many experts are saying it’s bargain time. This week we select the “oversold” specials from the investment newsletters.

Midway through the year Fortescue Metals (FMG) was trading at $12.78, so its slump to $2.68 this month is nothing short of spectacular. Australia’s third-biggest iron ore producer is perhaps one of the best barometers of sentiment: soaring on the back of the commodities boom to make Andrew “Twiggy” Forrest the nation’s richest person; diving when the credit crunch worsened; and jumping 55% to $4.36 the day after the US and European Union announced they would buy stakes in troubled banks.

There is no doubt Fortescue faces some serious challenges: in the midst of a global slowdown, it does not pay dividends, and will undoubtedly feel the pinch of falling metals demand and tightened credit, particularly while seeking to expand its operations to the tune of up to $7 billion. It must also compete with the highly diversified BHP Billiton and Rio Tinto, which are trading at significant discounts.

Nonetheless, stock pickers remain of the view that the Fortescue sell-off is overdone and have set price targets of up to $8. The falling Australian dollar is a bonus, with the company saying last week that the dollar’s fall between July and September had “added significantly” to its bottom line. The addition of former Oxiana chief executive Owen Hegarty to the board is another cause for optimism for those who admire his track record. Investors who bought at the top end are no doubt concerned to see their value diminished, but are advised to sit still because Fortescue remains well positioned to service the still significant Chinese iron ore demand. Investors are advised to buy Fortescue to $8 (currently about $3).

Now to Australia’s second-biggest retailer, Wesfarmers (WES). The WA conglomerate suffered recently on speculation that falling commodity prices would hurt its coal division. The talk about its resources division added to fears that Wesfarmers had paid too much ($19.31 billion) for Coles and would not be able to turn around the supermarket quickly enough.

Wesfarmers, which recently reported 1.3% growth in same-store sales for Coles and 2.6% growth in food and liquor sales in the three months to September, has been repeating to an impatient market the message that it will take five years to really get Coles going. But the company’s $3 billion of debt maturing before the end of next year is simply too much leverage for some stock pickers. Having said that, the stock is trading at a bargain basement price below $20, its long-term prospects are seen as solid, and it has appointed new managers across its major chains to freshen things up. With price targets ranging from $28 to $38, patient investors are advised pick up Wesfarmers on the cheap.

Investment banks have been through a tumultuous period, but Macquarie Group (MQG) still has some fans. One stock picker is impressed by the diversity of Macquarie’s income stream, the quality of its management and success of its international expansion. Interestingly, the publication notes that the so-called “Macquarie model” of asset recycling is dead – but adds that another model will emerge and probably be successful. Setting a profit target of $1.05 billion, the stock is listed as a buy up $34.45, well below its Friday close price of $31.36. Accumulate Macquarie Group at current prices.

Stockland (SGP) chief Matthew Quinn has made good on his comments that the housing developer was “very keen to grow” its retirement business by taking stakes in FKP Property Group and Aevum. Quinn said the retirement village sector had provided “nothing but upside” for the Sydney-based company since buying its first village owner in February 2007.

Listed property trusts have been under the pump, even the strong ones, so Stockland shares have now dropped below $5. Some stock pickers say even at even at Friday’s closing price of $4.81, the acquisitive company is not cheap enough in light of a cut to UK earnings forecasts and recent writedowns and charges of $110 million. Investors are advised to sell out of Stockland at over $4.90 (currently about $4.70).

Last week we featured a recommendation that investors dump Iluka Resources (ILU). This week the sentiment is split on the zircon producer after Iluka upgraded its profit outlook for calendar 2008 from $20 million to $50 million. Strong sales, rising zircon prices and the falling Australian dollar prompted the upgrade, with the company saying it was sure of “robust” demand fundamentals, particularly from China. With the stock closing at $3.83 on Friday, Iluka is way below one price target of $5.30 and another still for $6. Investors are advised to buy Iluka at current prices.

A prediction by Ten Network (TEN) chief executive Grant Blackley that the company’s ratings were deserving of an ongoing revenue share of 30% is not enough to persuade some stock pickers to take a punt on Australia’s third most popular TV channel. (Market leader Seven wants 38%, Nine Network wants 35%.) Of particular concern is the bleeding of Ten’s core audience, people aged between 18 and 49, with new figures showing its share of that target group had dropped about 3 percentage points this year. According to some, the company has been supported by takeover talk of late but its share price is likely to fall over the next 12 months as weaker economic conditions, the tough advertising market and declining viewing numbers bite. Ten, which recently reported a 79% drop in fourth-quarter earnings, has seen its share price tumble throughout the year. With some brokers setting a price target of $1 and thereabouts and the stock trading at $1.23, investors are advised to sell TEN at current prices.

The world’s second-biggest maker of specialised blood-transfusion products, CSL Ltd (CSL), is one company that has gained from the rapid depreciation of the Australian dollar. The Melbourne-based maker of the Gardasil cervical cancer vaccine, which earns more than three-quarters of its sales from Europe and the US, says a 1% drop in the Australian dollar adds $6.9 million to profit. The pharmaceutical and biotechnology group recently exceeded analyst estimated by saying full-year profit would be in upper end of its August forecast of $810–850 million. In August, CSL announced an agreement to buy Talecris Biotherapeutics, a US company that makes and supplies plasma-derived technologies. While the $US3.1 billion deal has yet to be cleared by the US anti-trust regulators, CSL expects the deal will generate synergies of about $US225 million for each of the first three years. One of few companies to rise in price this year, CSL still sits below one stock picker’s target price of $48.10. Its Friday closing price of $35.76 allows plenty of room for investors to pick up CSL.

Watching the directors

Week to October 16

• Findlay Securities (FDY) director Otto Buttula indirectly bought 2.5 million shares in the diversified financial for $300,000 following the exercise of options on October 13. Buttula is best known as the managing director and co-owner of stockbrokers IWL. Buttula also indirectly bought 21,206 shares for $2443 on-market on October 7, and is now believed to have accumulated a stake of more than 20% in Findlay.
• Zimi Meka, a director of mining services firm Ausenco (AAX), bought $250,000 worth of shares this week. This follows a $65,960 purchase by director Greg Moynihan earlier this month.
• Philip James Dubois has sold out of pathology services provider Sonic Healthcare (SHL). He indirectly sold his 25,350 shares for $362,051 on-market on October 6.
• More buying of Nexus Energy (NXS) shares, this time by director Michael Patrick Fowler. He indirectly bought 147,058 shares in the oil and gas explorer for $50,000 on-market on October 13. Director Neil Ferguson also indirectly bought 37,500 shares at 40¢ apiece on October 17.
• Magellan Financial Group Ltd (MFG) director Chris Mackay bought 78,757 shares worth $35,802 on-market on October 9 and 10. He holds 16,909,058 shares.
• Washington H Soul Pattinson and Company (SOL) directors Robert Dobson Millner and Michael John Millner indirectly bought 5000 shares separately.
• Gunns (GNS) directors are directly and indirectly buying shares in the Tasmanian timber group. Director John Gay directly and indirectly bought 226,378 shares for $267,080, taking his direct holding to 8.2 million shares and indirect holding to 10.7 million shares. Directors Robin Gray and Robin Holyman bought almost $24,000 worth of shares, while fellow director Richard Millar indirectly bought 114,405 shares for $134,975.
• Boart Longyear (BLY) director Bruce Brook bought 100,000 shares in the drilling services provider for $65,980 on-market on October 15. He directly holds 145,945 shares and indirectly holds 158,108 shares.
• MacarthurCook Ltd (MCK) director Craig Mathew Dunstan bought 20,000 shares worth $7200 on-market on October 16. He directly and indirectly holds more than 2 million shares.
• Austal Limited (ASB) director J Rothwell bought $505,000 worth of stock.
• Cape Lambert Iron Ore (CFE) directors are buying stock.
• The directors of Incremental Petroleum (IPM) are also stocking up.
• There have been many transactions by Andrew Tsang, a director of Mindax (MDX).
• Three directors of paper manufacturer and distributor PaperlinX (PPX) have bought recently.
• Large buying by Kent Swick of Swick Mining Services (SWK).
• Buying by two directors of VDM Group (VMG).
• The directors of Western Areas NL (WSA) have been buying large parcels of shares

Week to October 9

• The managing director of oil and gas explorer Nexus Energy (NXS), Ian Tchacos, was forced to sell almost 25% of his stake, or 1.5 million shares, last week because of a margin call. Shares in Nexus more than halved last week (closing at 49¢ on Friday) after Japanese group Mitsui & Co dropped plans to buy a stake in the Crux gas liquids project for $US255 million.
• More selling by Computershare Ltd (CPU) founder Chris Morris. This time he sold 125,000 shares, worth $1,166,557, on-market on October 1 and 2. He indirectly holds 53,955,057 shares and has sold $12.5 million worth of CPU shares since August.
• Another long-time Computershare director, Penelope Maclagan, has sold more shares this month, this time 308,188 for $2.87 million between October 1 and 3. She retains 15,364,423 shares, having sold $5.83 million worth of CPU shares since August.
• Fellow Computershare director Robin Scott Rindal, meanwhile, has gone against the grain by buying 185,461 shares, worth $11,822, on October 9, increasing his stake from 4,712,801 shares (4.91%) to 4,898,364 (5.1%).
• BHP Billiton (BHP) chief executive Marius Kloppers indirectly bought 39 plan shares worth $1,374 on-market on October 2, 2008. He indirectly holds 396,683 shares.
• Buru Energy (BRU) director Graham Riley indirectly bought 401,850 shares worth $111,449 on-market between September 30 and October 3, 2008. He indirectly holds 1,457,096 shares and 3,000,000 options.
• Primary Health Care (PRY) director Edmund Bateman directly and indirectly bought 25,000 shares worth $111,144 on-market on October 9, 2008. He holds more than 50 million shares.
• A director of newly listed Queensland Mining Corporation (QMN), Howard V Renshaw, bought 10,550,000 shares worth $451,100 between June 16, 2004 and November 11, 2007, becoming a substantial shareholder holder with 10,550,000 shares (5.87%).
• Continued buying by the directors of Clime Investment Management Limited (CIW).
• Paul Favretto, a director of CO2 Group (COZ), has purchased over $430,000 worth of stock in three transactions over the past month.
• Laurence Freedman, a director of Emeco Holdings (EHL), has just purchased $786,000 worth of stock. This is in addition to parcels purchased by another director, Alec Brennan.
• Two directors have been buying stock in MEO Australia (MEO).
• Large buying (1.8 million) by Allan Tattersfield, a director of Pan Pacific Petroleum NL (PPP).
• Frank Wilson of TFS Corporation (TFC) has been purchasing parcels of shares.
• Excalibur Mining Corporation Ltd (EXM) director Mark Medcraft Jarvis Smith indirectly bought 1 million shares worth $70,000 on-market on October 7.
• Peter Meagher, a director of uranium explorer Extract Resources (EXT), indirectly sold 200,000 of shares worth $218,000 on-market on October 7.
• Directors John Thame, Dennis Bluth and Frank Wolf have bought parcels of shares in Abacus Property Group (ABP).

nDirectors' trades worth more than $200,000
Date	Code	Director	Volume	Price	Value	Action
14/10/08	AAX	Zimi Meka	42,000	0.589	$247,224	BUY
14/10/08	ASB	J Rothwell	250,000	2.02	$505,420	BUY
10/10/08	AXO	Zhang Xiangqing	1,389,247	0.183	$253,834	BUY
10/10/08	SWK	Kent Swick	500,000	0.873	$436,851	BUY
09/10/08	GPM	John Potter	1,216,000	0.234	$284,544	BUY
09/10/08	TFC	Frank Wilson	200,000	1	$200,000	BUY
08/10/08	CFE	Antony Sage	1,000,000	0.413	$413,210	BUY
08/10/08	PPP	Allan Tattersfield	8,527,594	0.21	$1,790,795	BUY
08/10/08	PRY	Edmund Bateman	70,098	4.517	$316,629	BUY
07/10/08	PPX	Thomas Park	300,000	1.535	$460,620	BUY
06/10/08	COZ	Paul Favretto	788,879	0.3	$237,813	BUY
06/10/08	COZ	Paul Favretto	788,879	0.301	$237,813	BUY
06/10/08	SOL	Michael and Robert Millner	55,000	10.82	$594,842	BUY
03/10/08	EHL	Laurence Freedman	1,000,000	0.786	$785,970	BUY
03/10/08	EHL	Laurence Freedman	1,000,000	0.786	$785,970	BUY
25/09/08	AHD	Alan Rydge	275,000	4.65	$1,278,750	BUY
25/09/08	DUI	Anthony Burgess	85,000	3.199	$271,875	BUY
23/09/08	PAG	David Trebeck	175,000	1.416	$247,793	BUY

Source: The Inside Trader