A bear in there

Published in Herald Sun, July 2008 by Katrina Barrymore

Stunned investors have been pulling their money out of the share market at a record rate and keeping it in cash. 

But as the investment adage goes: diversification is the only free lunch you’ll get. 

For all those people who need to spread their investments Your Money asked Dale Gillham for his top ten stocks to buy now. 

So here are 10 stock picks to set your sights on in Australia’s bear market.

With the markets displaying such a large degree of volatility, there continues to be uncertainty. But given the current market conditions, I have selected ten stocks which have the potential to add value.

AGL Energy (AGK)

This is Australia’s largest energy retailer with a significant gas and electricity customer base.

It is currently in the process of selling its large oil and gas assets in Papua New Guinea. The company might experience some short term weakness, but over the coming months the stock is likely to achieve a price target of around $16.50

Billabong (BBG)

This well known Australian company produces surfwear and sports apparel for the surf, skateboard and snowboard markets. Its target market is less likely to change spending habits during the current financial crisis.

Although short term volatility in the share price could result in a retest of the recent low this month at $9.63, significant price support exists around the $10 level, with a medium term target between $13 and $14.

Boral (BLD)

Boral provides construction and building materials to markets in Australia, the United States and Asia.

A risk to this stock’s price is a slowing domestic housing sector, but the company also has exposure to increased heavy construction activity.

Boral has been subjected to constant selling pressure during the past 2 years, and I now see early signs that buyer support may be returning.

I expect this stock to soon present as a good long term hold with a healthy dividend yield. My medium term target is around $7.50

Coca Cola (CCL)

Coke manufactures sells and distributes its Coca Cola products around the Australasian region.

Earnings growth during the next couple of years looks solid, and the company pays a handsome 5 per cent dividend yield.

The stock looks to have been oversold during the past seven months, and I can see early signs that buyer support may be returning.

Following further confirmation of strength in price, I expect this stock to perform well over the next six months. The next price target is around $9.

West Australian Newspapers (WAN)

Media stocks have been punished because of the impact of rising interest rates on advertising revenue, however at current prices this stock is once again beginning to look attractive.

WAN has now broken through significant price resistance at around $9 and must remain above this level for at least the next three weeks to increase the probability of a further rise to between $11 and $12 in the medium term.

Westpac Banking Corporation (WBC)

The expectation in the financial industry is that Westpac will soon takeover St George Bank to form Australia’s largest financial services company.

If successful, the merger would be the biggest in Australian banking history.

Short term volatility is likely to result in a retest of buyer support around $20, however, during the coming months the bank is expected to achieve a price target in the order of $24.

Cochlear (COH)

Cochlear is a world leader in the manufacture and distribution of safe and reliable ear implants for those with impaired hearing.

Strong earnings growth is projected over the next one to two years.

Although the stock has been severely punished over the past six months it is likely to move up from here with short term resistance expected around $50 and a medium term target between $55 and $60.

Computershare (CPU)

Computershare provides technology systems and services associated with its share registry service, and is looking to expand its offer internationally.

It is looking at strong earnings growth over the next year, and seems to be well valued at its current share price.

It has been locked in a sideways move during the past eight months and now looks ready to provide a nice return over the next six months, although the stock may still encounter some volatility in the short term.

Energy Developments (ENE)

Energy Developments is a small but interesting energy business which owns and operates power generation, co-generation and waste-to-energy plants worldwide.

At $0.4 billion market capitalisation, is one of the smallest stocks in my top 10 picks and accordingly may prove to be the most speculative.

I am waiting for a move above $3.45 to confirm direction over the medium term.

Paladin Energy (PDN)

Paladin Energy is a likely takeover target for a number of larger uranium exploration companies, and is one of the few stocks which moved up in price after having lost significant value when the entire market fell away in January 2008.

The price of uranium is now heading up after having fallen dramatically during recent months.

I am waiting for a move above $6.39 to confirm direction over the medium term.