Top stock tips from UBS
by Peter Switzer
One of the great parts of my business life is to get inside the heads of experts and, for hip pocket reasons, I always love it when the person I am talking to is the head of Australian equities giving away the stocks he or she really like.
On my Sky News Business Channel program, SWITZER, I interviewed Simon Shields, who has such a title, at UBS Asset Management.
And while he is the kind of guy who trawls through the great businesses listed on the Australian stock market looking for those with potential, which are underpriced, he also looks to the potential for the underlying economy.
He believes we are already growing at trend pace at a tad over three per cent but thinks we could see economic growth rates of four per cent or even five per cent. He also argues that this period of interest rate rises, after a recession or slowdown, often coincides with two to three years of share price growth and that’s what he expects to happen.
Shields started with the sectors he liked and then went share spotting after that and, interestingly, he thinks the resources sector has been well supported, which means he is looking elsewhere for better value.
He likes industrial cyclical stocks, which have not come back as hard as the blue chips and the resource stocks.
In the transport sector, Shields likes Toll Holdings, which did not have a great reporting season but he links this to the slowdown, which will soon be replaced by an economic resurgence. He argues this company is well placed for an economy with big growth for the economy ahead. The management is highly rated and no debt concerns.
Shields also like Qantas as the company has a big business customer base and as the economy improves, he thinks this will help revenue.
(Mind you I think Virgin’s new boss, John Borghetti, the ex-Qantas second-in-charge, will give Qantas some competition in the business space.)
Shields also like Brambles in the transport space as it will be a beneficiary of the US and local economic recoveries, which will bring a significant inventory rebuild. There’s a new CEO and its nearest rival, IGPS, has had some regulator challenges recently.
On the subject that made some headlines a few years ago — losing a million pallets! — that has been resolved. The pallets have been found, though apparently some were not worth the effort of looking for them.
The next sector was engineering contractors. Here, Shields likes Leighton Holdings. While this company has done well from the Government’s infrastructure spend to help rescue the economy, as business starts to spend he thinks Leighton could outperform the market by 10 to 12 per cent.
In the banking sector, Shields is very bullish on the banks as the market shares for the big banks has improved and their bad debt provisions should ultimately be better than expected, which will help the bottom line. He thinks NAB is the best value of the bigger banks and as it has a good exposure to business customers, it is likely they will do extra well when businesses really start investing again.
In other financials Shields like both AMP and ASX. He thinks the former could be a takeover target but it still has potential anyway, while the threat of another stock exchange, he argues will increase the pie, which will help ASX’s share price.
The full interview of Simon Shields can be viewed on our website and is worth having a look at.
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Published on: Wednesday, April 07, 2010blog comments powered by Disqus