Eight top 100 stocks to buy in June

About the author:

Author name:

By Fiona Buchanan

Job title:

Co-Head of Research, Senior Analyst

Date posted:

03 June 2014, 11:29 AM

Sectors Covered:

Property, AREITS

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

This month we add CSL Limited (CSL) and we remove Suncorp (SUN) and Oil Search (OSH).

Suncorp remains a core portfolio holding and offers yield investors the potential for special dividends over the next two to three years. However, after strong performance and a tougher growth outlook for General insurance, we believe share price appreciation could be muted from here.

We have removed Oil Search following its exceptional share price performance. We still consider OSH to be a strong long term investment, however the stock looks fair value around current levels.

Here are our eight top 100 stocks for June:

Telstra (TLS)

Telstra is Australia's largest telecommunications company.

Reasons to buy Telstra

• This is a shorter term tactical call (sector allocation). We expect defensive stocks to outperform as we come through what is traditionally a weaker period for equity markets.
• We think TLS is the best positioned telco for the upcoming NBN review and believe the collaborative approach Telstra and the Government have may see TLS exit the negotiations (in mid 2014) in a better position than they entered.
• As the settlements complete on TLS's recent divestments we think the company will look to undertake smaller Asian-centric acquisitions which will help its growth profile.

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 (~20x 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 huge 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 6.4% (vs the sector average of 6.0%).
• We note SGP recently acquired a 20.0% stake in Australand (ALZ). We don't expect to see any meaningful synergies to eventuate in the near term, with management indicating the transaction will be broadly neutral to EPS.

We retain our Hold recommendation for SGP with a revised share price target of A$4.06ps (previously $3.60).

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 revised share price target of A$7.29ps.

Crown (CWN)

Crown offers investors exposure to the burgeoning Chinese middle-class via it's 34% holding in Melco Crown, a casino in Macau. CWN are focussed on expanding its domestic market share, and we believe they are well placed to deliver strong growth on future planned projects.

Reasons to buy Crown

• As expected, Melco Crown recently instated a dividend policy. CWN will begin to receive significant quarterly dividends that will reinforce their balance sheet and fund expansions.
• Although domestic trading has been tepid in the most recent period, we expect this will recover in time with a pick up in the broader Australian economy.

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

Flight Centre (FLT)

Flight Centre is one of the world's largest travel agency groups.

Reasons to buy Flight Centre

• FLT's interim FY14 result was better than expected. Given the 1H14 trends, we wouldn't be surprised to see FLT upgrade guidance in the 4Q14.
• The diversity and strength of its business model allows it to deliver strong profit growth year in, year out.

We retain our Add recommendation for FLT with a share price target to A$56.55ps.

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.