Stock tips are collated from different analysts around Australia. The aim is to have a variety of aggressive traders and conservative investors.
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Australian Stock Report
Head of Research & Trading
Oil Search Ltd (OSH) as a "short/sell" trade
Editor's Note: Read this tutorial to learn about "shorting".
Oil Search recently reported, logging a loss of $US39.4 million for the year through to December, sharply lower than last year's $US353m.
The company said its “core” profit, before significant items, was down 25% to $US360m.
Revenue slipped 2% to $US1.59 billion, despite the company’s average realised oil price essentially cutting in half to $US51 a barrel and the group’s LNG price dropping 32% to $US9.4 per million British thermal unit.
Oil Search will pay a final US4c per share dividend, bringing the year’s total distribution to US10c, down 30% on the prior year’s US14c payout.
The market reacted poorly to the numbers, sending OSH sharply lower after an early pop.
That pop closed the recent gap lower from December, with the buying momentum ultimately failing and creating a bearish engulfing candle.
This is a very bearish signal and one that we would be happy to sell into.
The downside target for the OSH is $6.
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Equity Analyst & Client Advisor
Gold Road Resources Ltd (GOR)
Target: $0.75 Stop: $0.30
Gold Road Resources Ltd (GOR) is an Australian minerals company focused on gold exploration in Western Australia. Its primary asset is the Gruyere Project near Laverton, WA, where the Pre-Feasibility Study (PFS) has determined a Maiden Ore Reserve totalling 81.1million tonnes (Mt) grading 1.24 g/t for 3.2million oz of gold. Gruyere is part of a regional exploration license holding covering 5000km2.
With the Pre-Feasibility Study complete and ore reserves determined, Gold Road is now targeting completion of the Feasibility Study (FS) and project execution. The PFS indicates a financially viable project generating in excess of A$1billion in free cash-flow over a 12 year project life. The Gruyere project has potential to attract interest from established miners.
Gold Road is reliant on external capital and requires further funding to develop a mining operation in the Yarmana district. There is no guarantee that the bankable feasibility study or future mining operations can replicate or achieve the parameters outlined in the PFS, nor that gold prices won’t continue to trend lower in the long-term.
Gold Road offers speculative exposure to the domestic gold mining industry. We are attracted to the magnitude of its land package in the Yarmana region, existing reserves at Gruyere, and track record of low discovery costs. Funding requirements and the volatile gold price are principal risks. Following completion of the PFS and Maiden Ore Reserves declare, we expect takeover interest to build up and reiterate our ‘spec buy’ recommendation.
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Telstra Corporation Ltd (TLS)
Telstra Corporation (TLS) clearly remains out of favour with investors with the stock falling ~9% so far this month.
This weakness likely coincides with the market's recent overall improved confidence because TLS is often perceived to be a relatively "safe haven" and, hence, generally outperforms in times of significant market weakness.
Nevertheless, investors should always stand back and look at the bigger picture where TLS has been a poor performer since early 2015, enduring an almost 25% correction, compared to the markets 21.5%.
Specifically, when we look at its main Telco rivals Vocus (+115%) and TPG Telecom (+88%) share price performance since the start of 2014, TLS's +0.6% can only be described as simply awful.
Professional investors have enjoyed the rallies in VOC and TPM whereas not necessarily so for the retail investors who chase the yield of TLS; but is this a "trade crowded" trade and will TLS be ready to play some catch up?
TLS has just announced a $2.09bn first half profit, declaring a 15.5c fully franked dividend but, notably, an increase in revenue was offset by rising operating expenses.
Market Matters is not infatuated by TLS as a company with their profit margins for mobile, data and IP businesses looking to be under pressure. Nevertheless, they do have clear stability with cash on the balance sheet.
If TLS falls to ~$5 (5% lower) in coming weeks, ideally before its 15.5c fully franked dividend on the 1st of March, it represents good risk / reward buying.
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