Eight top 100 stocks to buy in September

About the author:

Fiona Buchanan
Author name:
By Fiona Buchanan
Job title:
Director of Research, Senior Analyst
Date posted:
05 September 2014, 8:38 AM
Sectors Covered:

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

We have made four changes this month - removing Crown Resorts Ltd (CWN) and Transpacific Industries (TPI) and adding Challenger Limited (CGF) and Origin Energy (ORG).

CWN's share price has performed well since the FY14 result, but the acquisition of a Las Vegas casino site, a Melco share price at 12 month lows and the bidding for the Brisbane Casino redevelopment has us re-considering our position. We like the emerging Asian middle class thematic, but we have removed CWN given the external issues facing it in the near term.

TPI has been removed after it announced a substantial increase in expected landfill remediation costs and weaker than expected earnings in 2H14.

Here are our eight top 100 stocks for September:

Challenger Limited (CGF)

Challenger (CGF) specialises in retirement income products and holds the dominant market share of annuities in Australia.

Reasons to buy Challenger

  • CGF recorded 28% sales growth last financial year and annuities have strong tailwinds - with an ageing population and the potential for positive regulatory reform and policy settings the outlook for sales remains strong over the medium-term.
  • CGF's funds management division is one of the fastest growing managers, growing at +27% in FY14 and with significant existing capacity.
  • CGF successfully raised $250m recently which solidifies its capital base for growth. The stock trades on a relatively undemanding valuation at just under 13x FY15 PE.

We add CGF to our High Conviction picks with a share price target of A$7.76ps.

Origin Energy (ORG)

Origin (ORG) is the leading Australian integrated energy company, with diverse operations across the energy supply chain.

Reasons to buy Origin

  • Recent outlook statements for FY15 and beyond are for stabilisation and growth in the Energy Markets.
  • Expectations of a more clear dividend policy of at least 60% payout post APLNG start-up, and a decision to issue a European hybrid rather than raise equity this year to fund its acquisition of the Poseidon offshore WA gas discovery.
  • A diverse gas portfolio secured ahead of the start-up of the LNG projects on the East Coast, which may benefit margins beyond the LNG start-ups in 2015/2016.

Seek Limited (SEK)

Seek (SEK) is the leading provider of online employment services in Australia, China, Southeast Asia and Latin America and is rapidly expanding into online education.

Reasons to buy Seek

  • The Australian recruitment cycle is at or near to all-time lows in churn rates and recently volumes have begun to rebound.
  • We expect Seek to report further double-digit earnings growth in FY15.
  • Seek's offshore operations will deliver strong growth as the benefits of the Jobstreet acquisition become available. The company is achieving this while simultaneously de-leveraging its balance sheet.

We retain our Add recommendation for SEK with a share price target of A$19.76ps.

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$6.00ps.

CSL Limited (CSL)

CSL is a leading global human blood plasma company which generates approximately US$5.0bn in sales globally.

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.

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$10.02ps.

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 5.6%.

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$8.06ps.

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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