Stock picks for 2012

11 July 2011

Now that we’ve had a look back at the year that was with our scorecard for 2011, it’s time to look into the crystal ball to find out whether we can spot a few winners for 2012…

Last financial year we saw mining stocks outperform the rest of the sharemarket. In this new financial year, where might the opportunities be and which stocks could outperform?

Stock to watch: StarPharma (SPL)

The ‘sexiest’ stock of the year is likely to be a company called StarPharma (SPL).

Its key product is VivaGel which is being developed for both the treatment and prevention of sexually transmitted diseases. The product can be coated on a condom and the company already has a development deal in place with SSL international which owns the Durex brand along with other companies.

Opportunities in 2011/12

Mining

FY12 is expected to be another record year for capital expenditure by mining companies. Rio Tinto (RIO) and BHP Billiton (BHP) alone have an expected capex spend of $155 billion over the next five years.

Not only are RIO and BHP planning to expand their operations, there are also huge projects on the cards with companies like:

• Santos
• Oil Search
• Origin Energy and
• Woodside

To name just a few.

For resource companies, these capex plans spell rising costs. But it should mean fantastic news for mining service companies. Mining service companies are those that are usually involved in engineering, design and equipment hire to mining companies.

Here are three mining services companies which should benefit from the huge spending planned by the resources sector:

1. Monadelphous Group (MND)
   This engineering company’s profit has increased over the last eight years and we should see a continued upside this year. That’s because its current customers are are expanding contracts on existing projects. In addition to winning new contracts, its old contacts are also proving useful.
2. Emeco (EHL)
   As a leading earthmoving rental company, EHL has indicated they will speed up growth plans. They announced a spend of $165 million by the end of the new financial year. This should add to higher earnings in FY13 and help to support the demand coming from resource companies in Australia and Canada, the two key markets in which they operate.
3. Decmil (DCG)
   New mining projects need accommodation and that’s where Decmil comes in. This Perth-based company provides services in accommodation villages, civil and non-process infrastructure and targets a contract size of $100 million. Their shares have had an impressive performance. They were up 100% in 2010 and 641% the year before.

Retail: Oroton (ORL)

You’ve heard about Aesop’s tale of the hare and the tortoise where the slow and steady tortoise wins the race?

Oroton ORL is a company which consistently performs. Its return on equity over the last three years has been greater than 70% each year. It has a dividend yield of 6.2%, a strong ability to cover its debt and is expanding in Asia.

While the retail environment is looking subdued, Oroton has seen a low level of markdowns in its business and has recently renewed its licence with Polo Ralph Lauren to exclusively distribute in Australia and New Zealand for another five years.

The next opportunity?

So there are just a few thought starters for you to consider how you’re going to take advantage of market movements in the coming financial year. It’s already looking like another tough year so keep your eyes and ears open to the next opportunity.

Happy trading!

Julia Lee
Equities Analyst
Bell Direct

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