Eight top 100 stocks to buy in July

About the author:

Fiona Buchanan
Author name:
By Fiona Buchanan
Job title:
Director of Research, Senior Analyst
Date posted:
03 July 2014, 1:19 PM
Sectors Covered:

Our high conviction picks are companies we believe will outperform the market based on short to medium-term catalysts.

We have made two changes this month - removing Flight Centre (FLT) and adding Transpacific Industries Group (TPI).

While there is uncertainty over trading conditions (weak consumer spending post budget), it is difficult to see how FLT's share price will outperform. Consequently, we recently moved the stock to a Hold rating.

Here are our eight top 100 stocks for July:

Transpacific Industries Group (TPI)

Transpacific is one of Australia's leading waste management companies, operating a national network of collection, processing and landfill assets.

Reasons to buy Transpacific

  • TPI looks cheap, as indicated by trading multiples that are low relative to peers.
  • With a now under-geared balance sheet, TPI has substantial capacity to fund growth projects and/or undertake capital management initiatives.
  • Value creation from TPI's strategy to reinvest, improve operational effectiveness, grow revenue, vertically integrate and reinstate the dividend.

We retain our Add recommendation for TPI with a share price target of A$1.22ps.

Telstra (TLS)

Telstra is Australia's largest telecommunications company.

Reasons to buy Telstra

  • This is a shorter term tactical call (sector allocation). As we head into a seasonally weak period for equity markets (defensive stocks should outperform).
  • We think TLS is the best positioned telco for the upcoming NBN review and believe the collaborative approach Telstra and the Government may see TLS exit the negotiations (in mid 2014) in a better position than they entered. A recent example was the A$150m FTTN trial site agreement that Telstra and the Government signed in June.
  • Finally as the settlements complete on TLS's recent divestments we think the company will look to undertake smaller Asian-centric acquisitions which will boost growth.

We retain our Add recommendation for TLS with a share price target of A$5.73ps.

CSL Limited (CSL)

CSL is a leading global human blood plasma company which generates approximately US$5.0bn in sales (40% in US, 30% in Europe and 40% in the rest of the world).

Reasons to buy CSL Limited

  • CSL has delivered average eps growth of 21% for the last six years and our forecasts suggest mid teen growth for the next three years.
  • To fund its continued growth CSL spends over 5% (or A$0.5bn) of revenue on R&D, with most promising targets in the Haemophilia space.
  • Although the current share price is higher than our fundamental price target, CSL offers investors with a medium term view attractive capital growth prospects.

We retain our Hold recommendation for CSL with a share price target of A$67.50ps.

Brambles (BXB)

Brambles is a supply-chain logistics company operating in more than 50 countries, primarily through the CHEP and IFCO brands.

Reasons to buy Brambles

  • Long-term international growth opportunities from new products and emerging markets.
  • It is leveraged to an economic recovery in the US and Europe (~80% of earnings). With organic growth forecast in those key markets we expect earnings growth to accelerate from mid-single digit to low double-digit.
  • Its PE multiple (~19x FY15 at present) is marginally above the historical average of 18x, but well below previous peaks of 25x plus and we think BXB is entering a PE re-rating cycle.

We retain our Add recommendation for BXB with a share price target of A$10.32ps.

Stockland Group (SGP)

Stockland Group is Australia's largest developer given its significant landbanks.

Reasons to buy Stockland Group

  • Around a third of earnings are derived from residential development. Given the improving macro environment, we believe SGP is well placed to benefit in the medium term.
  • The balance of the investment portfolio is good quality (office, retain, logistics, retirement), and although medium term rental and office conditions are challenging, the earnings visibility is good given contracted rents. SGP's strategy is to reduce its office exposure over time.
  • SGP offers investors an attractive FY14 distribution yield of 5.9% (vs the sector average of 6.0%).

We retain our Hold recommendation for SGP with a share price target of A$4.06ps.

Transurban Group (TCL)

Transurban Group develops, operates and maintains toll roads in Australia and the USA.

Reasons to buy Transurban Group

  • We expect TCL to generate double-digit EBITDA growth over the next three years driven by traffic growth, CPI/CPI+ toll increases, ongoing cost control and contribution from growth projects.
  • We expect this traffic and earnings growth to translate into double-digit growth in distribution per share.
  • Confidence in this growth outlook can be gained from the management incentive plan, which rewards management for growing free cashflow per share at 12-15% per annum CAGR across FY14-16.

We retain our Add recommendation for TCL with a share price target of A$7.29ps.

Crown (CWN)

Crown provides investors with domestic and overseas gaming leverage.

Reasons to buy Crown

  • We view the concerns over Macau as overstated and believe they will have a very minor impact on the Melco Crown operation (if at all).
  • An improving domestic market with increased VIP visitors could surprise investors at the result.
  • Overall, with dividends expected from Melco Crown, an improving balance sheet and significant growth opportunities we see share price risk to the upside.

We retain our Add recommendation for CWN with a share price target of A$18.19ps.

Sydney Airport (SYD)

Sydney Airport provides infrastructure and aeronautical and commercial operations at Sydney Airport.

Reasons to buy Sydney Airport

  • Low risk exposure to global trends in aviation travel, particularly the potential growth opportunity from Chinese traffic.
  • Strong competitive position, with the airport being an origin destination airport located 8km from the Sydney CBD.
  • Attractive distribution yield with growth in distributions over time.

We retain our Add recommendation for SYD with a share price target to A$4.32ps.

More information

Morgans clients can access detailed reports on all our high conviction stock picks. If you would like more information, please contact your nearest Morgans office.

Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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