Hot share tips for the new year

Table: The All Ords at the end of 2000

Macquarie Bank’s Greg Matthews 3100

Ord Minnett’s David Cassidy 3200

BT Funds Management’s Michael Coop 3300

JB Were’s Justin Arter 3400

Deutsche Asset Management’s Andrew Fay 3450

Equity pundits expect the All Ords to end this year firmer, but only if a burst in the US technology bubble or a stronger-than-expected inflation rate doesn’t darken the picture.

Table: The All Ords at the end of 2000

Macquarie Bank’s Greg Matthews 3100

Ord Minnett’s David Cassidy 3200

BT Funds Management’s Michael Coop 3300

JB Were’s Justin Arter 3400

Deutsche Asset Management’s Andrew Fay 3450

Equity pundits expect the All Ords to end this year firmer, but only if a burst in the US technology bubble or a stronger-than-expected inflation rate doesn’t darken the picture.

Tech stocks have already opened 2000 on a sour note, taking a world-wide batter-ing in the year’s first week of trade.

There are also concerns that a higher-than-expected inflation rate could fuel rises in interest rates, slowing economic growth and dampening company profits.

Interest rates are generally forecast to rise by 50 basis points in the first half of this year. However, Macquarie Bank’s Greg Matthews says: “This increase has been more or less discounted by the market, but if rates rise by more than this, it will be negative for the market.”

That said, most share experts are still looking forward to a happy New Year col-oured by a generally vibrant economy in a low inflation environment.

“The synchronised global story in 2000 is good for Australia,” says Ord Minnett equity strategist David Cassidy. But he adds: “The negative spin off may be what this might mean for interest rates.”

Among the positives on the equity Aussie horizon are the Asian recovery and tax changes.

According to Deutsche Asset Management’s head of equities Andrew Fay, the in-troduction of the GST could have a positive effect on the equities market “in much the same way as negative gearing had on the property market”.

Michael Coop, the Australian equity strategist at BT Funds Management, adds that structural tax reform will not only reduce the tax paid by listed companies but will also act as a powerful incentive for households and corporations to buy Australian shares.

“Capital Gains Tax (CGT) changes mean that households will invest in more growth assets than before, particularly where there is a higher return from capital gain than income,” he says.

Coops says the cut in corporate tax and CGT means that companies will have more incentive to buy back their own shares

“While some companies may pay out special dividends to take advantage of excess franking credits, we could well see more share buy backs as the preferred way to distribute excess capital to shareholders," he says

Coop notes another result of reform, rollover relief, will make it easier to buy com-panies using scrip instead of cash, a development that should accelerate merger and acquisition activity.

Come what may, a number of pundits believe that the name of the game this year could be stock and sector picking.

“The value investor is certainly due for a run. It has been a growth market and value could make a come back in 2000,” Cassidy says.

Now that Y2K fears are out of the way, one of the sectors favoured by a number of stockbrokers is insurance.

“The insurance companies have not been terrific performers over the past year but the sector is interest rate sensitive,” says Justin Arter, head of research at JB Were.

He picks AMP and Colonial while Deutsche Asset Management’s head of equities Andrew Fay is keen on QBE and HIH. Cassidy favours National Mutual.

Despite some short-term concerns about rising interest rates, banks are also on the top of some brokers’ lists.

“The sector has had a flat year and I think that it could come back in favour in 2000,” Cassidy says.

In this sector, both Arter and Fay like National Australia Bank and Macquarie Bank.

Fay is also keen on healthcare and biotechnology companies. “These are good businesses that have not yet been fully appreciated,” he says, picking the likes of CSL, Biota, FH Faulding and the smaller Primary Health Care.

Ari Uliel, an investment adviser and fund manager with William Noall, ex-pects value and cyclical stocks to be back in favour this year. Here are his top 5 long-term stock picks.

1. Telstra

This, the mother of all Australian Internet stocks, could outperform all the other telcos despite intensified market competition. Usage of its services will be fuelled by the growing domestic economy.

2. Coles Myer

Its share price may have reached a turning point and out of all the larger retailers, it is best placed to benefit from economic growth. It is working on comfortable mar-gins.

3. Reckon

The market has not yet fully appreciated its products and services, including the Quicken.com software. Its share price looks set to rise from a technical point of view.

4. WSM Limited.

Formerly in minerals, this small company owns 95 per cent of CommSecure, which is involved in Internet security. The other 5 per cent is held by a Newscorp subsidiary. CommSecure already has contracts with Westpac, Sydney City Coun-cil, Ozemail and the University of Sydney. Others should follow. Internet security is expected to be the big growth area before e-commerce becomes really viable.

5. FH Faulding

The pharmaceutical and biomedical industry will grow on the back of domestic and international economic growth. This company hasn’t performed as well as its rivals in the sector.

Lowest PE ratios*

Company PE (times)

GPG 1.94

Macq Infra 3.78

Orogen 3.93

Caltex 8.97

Austrim 9.06

PMP Comm 9.25

Foodland 9.76

United Energy 9.87

Brierley 10.03

Macquarie Office 10.40

*Table lists lowest price to earnings ratio for Top 150 ASX listed stocks at close of trade on January 7.

Highest dividend yield*

Company yield (per cent)

PMP Comm 9.76

United Energy 8.90

Bat Aust 8.68

Hills Motorway 8.44

HIH Insurance 8.33

Caltex 8.20

Mayne Nickless 7.94

Macquarie Infra 7.52

Ten Network 7.46

Pac Dunlop 6.80

*Table lists highest dividend yield for Top 150 ASX listed stocks, excluding property trusts, at close of trade on January 7.