December Short-term Trading recommendations 2016

2016 // TOP STOCK PICKS

Each month, we pick 3 stocks to highlight as great prospects for short-term performance.When selecting stocks for short-term trading, it’s about timing in the market, rather than time in the market. Knowing when to buy and taking action can bring great returns for those who are willing to balance the potential for growth, with elevated levels of risk.

When making these recommendations, our methodology focuses on technical analysis, while also taking into account fundamental research of each company, a review of current market conditions, long-term market themes and upcoming events.

This comprehensive approach has brought great success for our clients - an investor following our recommendations in FY 2015/16 would have achieved a 12.25%* return, outperforming the ASX/200 by 9.69%.

OUR CURRENT RECOMMENDATIONS ARE:

If you have any questions about these stock recommendations, or if you’d like to discuss how they could help you achieve your investment objectives, please give our Advisory team a call on 1300 720 292.

Chris Conway * The return figures are gross returns and do not take into account fees or brokerage costs. The actual after tax returns will differ from the stated returns herein. Past performance is no indication of future performance.

ASR may provide short-term recommendations that conflict with longer-term recommendations from the company, due to the different analytical methods employed and the differing timeframes involved.

BUY: MACQUARIE GROUP (MQG)

Australia’s premier investment bank remains well placed to take advantage of current global monetary policies settings, at least in the near term.

BUY: CODAN LIMITED (CDA)

Strong financials and a clear pathway for growth will be the drivers for Codan over the next 12 months.

BUY: FLIGHT CENTRE (FLT)

Flight Centre is struggling with the shift from bricks and mortar retail to online, where the company’s presence remains substandard.

LLB, BEc, GradDipAppFin, Dip TA(ATAA), CFTe(IFTA)

Head of Research and Trading

Chris Conway has acquired more than 10 years of experience as a financial analyst and a wealth of accredited learning. Chris believes in combining fundamental and technical analysis in order to select the best short-to-medium-term trading recommendations for Australian Stock Report members.

This combination has seen Chris develop a proven track record and be recognised as one of the best stock pickers in the country in 2015 and 2016. He was honoured to finish in third place in 2015 and second place in 2016, in the Stock Picker of the Year Award, as judged by the Australian Stockbrokers Foundation.

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BUY: MACQUARIE GROUP (MQG)

Macquarie Group is Australia’s largest and most respected investment bank, as well as a global financial services provider with offices in 28 countries.

The company’s expertise covers advisory and capital markets, trading and hedging, funds management, asset finance, financing, research and retail financial services.

Macquarie’s diversity of operations, combined with a strong capital position and robust risk management framework, has contributed to a near 50-year record of unbroken profitability.

Why we like it

MQG’s first half profit came in slightly ahead of expectations whilst full year guidance was maintained. The bank continues to execute well and has levers that it can pull to drive growth.

Whilst some might be concerned about the prospect of rising global rates and removal of stimulus by central banks, we expect this to be a gradual process that won’t upend markets – at least in the near term.

That provides MQG the opportunity to continue to do what it is currently doing – making money at an alarming rate. In May this year the company delivered its largest ever profit, reporting a 29 per cent jump in earnings to $2.06 billion in the 12 months to March 31. The figure surpassed a $1.8bn profit in 2008 and came despite volatile market conditions impacting client risk appetite.

Since bottoming out near $65 in June, MQG has risen sharply to currently be trading north of $85. There was a sharp selloff in November, but it was short-lived and the stock quickly recovered. More recently, the stock has punched through the $85 resistance level and there is now clear air and sufficient momentum for the stock to rally, we believe, into the mid-$90’s.

Price target $95.00

TECHNICAL ANALYSIS

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BUY: CODAN LIMITED (CDA)

Codan provides robust and leading-edge technology solutions that solve customers' communications, safety, security and productivity problems in the harshest environments on earth.

The company’s global customers include aid and humanitarian organisations, mining companies, security and military groups, government departments, major corporates as well as individual consumers and artisanal miners.

Why we like it

Codan recently provided very strong profit guidance, exceeding estimates. The company expects underlying NPAT for FY17 to be $30-32m, which is up 42%+ on the pcp. The upgrade has been driven by a strong performance across each division but particularly Metal Detection and specifically the high margin GPZ7000. 1H17 NPAT is expected to be $20-22m, which compares to FY16 NPAT of $21.1m and only implies 2H17 NPAT of $8-12m. This is conservative, in our view, and there is risk to the upside. CDA remains debt free and given the levels of profitability, the company will most likely be in a net cash position of $15-20m as at 31 December.

CDA is in a strong uptrend. Since reporting results in November, the price action has created an ascending triangle. We believe that the stock will breakout of this triangle to the upside and that the momentum will eventually carry the price beyond $2.

Price target $2.30

TECHNICAL ANALYSIS

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SELL: FLIGHT CENTRE LIMITED (FLT)

After starting with one shop in the early 1980s, Flight Centre Travel Group (FCTG) has enjoyed remarkable growth to become a $1.8 billion business consisting of more than 40 brands. One of the world’s largest travel agency groups, it has company-owned operations in 14 countries and a corporate travel management network that spans more than 90 countries. It employs more than 19,000 people globally and has a total of 2800 businesses.

Why don't we like it

We believe Flight Centre is set for a disappointing FY17, and the company’s recent downgraded guidance provides early confirmation. Even after the downgrade, we still think second half hopes implicit in the guidance are unrealistic. FLT will continue to suffer from the structural shift to online from bricks & mortar, and by its own admission it is offering a substandard online service. Whilst attempts are being made to address the online offering – through the launch of a new app – could all be too little, too late.

Flight Centre has experienced a wild ride in recent months, but ultimately the trend has been lower. We anticipate this trend to continue, particularly once the $30 support level gives way. The most prudent way to take advantage of further weakness could prove to be waiting for such a break lower to occur and then selling into the momentum.

Price target $25.00

TECHNICAL ANALYSIS

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