How You Can Turbocharge Your Share Portfolio

Sun Herald

Sunday November 27, 2005

Renee Barnes

If your investments need a fuel injection, Renee Barnes has the good oil on six stocks to rev up your returns.

DOES your investment portfolio need a tune-up? After the bumpy ride the Australian sharemarket has taken over the past few months you may be feeling jittery about its performance. But despite the 4.1 per cent drop in the ASX200 index in October, Lincoln Indicators reports that 31.7 per cent, or 494, of ASX-listed companies are producing a positive return. So what are the stocks that can turbocharge your portfolio? Check out six stocks the experts are tipping for growth over the next five years.

1 BHP BILLITON

This metals and mining giant has been a leader in the resources boom, which has helped propel the Australian sharemarket to record levels. And its breathtaking progress doesn't look likely to end in the near future.

CommSec chief equities economist Craig James says BHP is a good stock for those looking for growth, with the ferocious Chinese and Indian appetite for resources not expected to end in the next three to five years.

The softening Aussie dollar also helps the major exporters such as BHP, with CommSec predicting it will hover between the 70-75 cent range against the US dollar next year compared with the 73-78 cent range for most of this year.

James says the best encouragement for globally focused businesses is the continued health of the world economy. Not only are economies such as the US and China recording solid growth, but there are also positive signs for Japan and the major European economies.

"Mining companies are in seventh heaven, currently benefiting from the triple-whammy effect of a softer Australian dollar, lofty metal prices and global economic strength," James says.

CommSec's valuation for BHP is about $28, well above the levels it was trading at last week.

2 WHK GROUP

Previously known as Investor Group, WHK Group is the fifth-largest accounting firm in Australia.

Merrill Lynch senior portfolio manager Matthew Ryland says this small-cap stock provides potential for growth through a strong acquisition strategy in the fragmented accounting market.

He says companies acquired by WHK Group three years ago now have twice the margin of recently acquired businesses.

"This is a huge profit driver and is simply a result of the efficiency gains in compliance and technology achieved through the network," Ryland says.

The company is also growing in the potentially lucrative loans broking market for small businesses. "Just like there was for mortgages, there is a rapidly emerging market for small business lending brokers and WHK should see increased revenue through this extra service."

WHK is also rolling out financial planning services to all of its firms, providing further room for revenue growth.

"There are excellent growth opportunities in the financial planning market and WHK is well positioned to take advantage of this through its large and growing accounting firm network."

3 MACQUARIE BANK

Macquarie Bank is Australia's most successful investment bank and is ideal for growth investors, Aspect Huntley's research director Peter Warnes says.

The future growth of Macquarie will be propelled by international activities, he says.

"While the bank has and will continue to perform strongly in Australia, it will be the duplication of the business model in the significantly larger international markets that will underpin above-average earnings growth in the future."

Roughly half the income of Macquarie's investment banking, equity markets and funds management groups already comes from offshore operations.

Warnes says Macquarie's strength lies in the diversity of its income stream, courtesy of growing specialist funds under management.

He says management is astute and ever ready to take full advantage of market situations and longer-term growth opportunities, making Macquarie Bank an ideal option for growth oriented investors.

4 TRANSURBAN

Deutsche head of investment research Tom Murphy says this owner, operator and developer of electronic toll roads and intelligent transport systems not only offers growth potential, but is also attractively priced at the moment. Murphy says the stock's slump in October was the result of investor overreaction to interest rate concerns.

"What a lot of investors must not be aware of is that tolls on Transurban roads are inflation-linked, which provides a good shield against any interest rate rise," Murphy notes.

He says about 80 per cent of the company's debt is hedged for the next 10 years, which further removes it from any interest rate fears.

Growth potential is offered through expansion of its road networks, particularly in the eastern states of the US, where it is bidding for several projects.

"As with most infrastructure stocks, particularly roads, Transurban also provides a fairly good dividend income," Murphy says.

5 NEWS CORP

This may seem a strange choice given the market's current dislike for the stock, but the Rivkin Report's Nigel Littlewood says the factors relating to News Corp's slump are not earnings-related.

He says the stock is down 70 per cent from its highs of 2000 if you disregard its restructuring, making it "compelling value".

"This is a company with strong earnings and a history of strong performances," Littlewood says. "The media industry is evolving with internet and satellite TV, but this is a company that has consistently evolved and adapted to new technology."

News Corp's move to the US and its failure to consult shareholders over a takeover defence measure have helped build a negative sentiment for the stock. Littlewood also believes far too much attention has been paid to Liberty Media's 18 per cent share of the company's voting stock.

6 FKP PROPERTY GROUP

We are constantly bombarded with headlines heralding the impact of our ageing population. For ABN Amro Morgan head of research Sophie Mitchell this provides an excellent opportunity for investors.

FKP Property group is Australia's largest retirement village operator and has been building significant retirement village holdings over the past 15 years.

"The company has set a target that by 2008, 50 per cent of profits will be from recurring revenue such as the retirement villages and property funds management," Mitchell says. "That's compared with the current level of about 35 per cent, which shows the extraordinary growth expected in the sector."

The company is also expected to retain a strong base of residential, commercial and industrial property development income, which has growth potential.

LEARN HOW TO PICK A GROWTH STOCK

FINDING good stocks that have the potential for a growth spurt is no easy task. Even the experts struggle a lot of the time. But there are some common characteristics that you can look out for.

Make sure the industry in which the stock operates has an underlying current in its favour, Merrill Lynch senior portfolio manager Matthew Ryland says.

For example, the financial services industry is operating in an environment where there is a demand for people to make the most of their savings and investments. Or in the aged-care sector there is an impending increase in demand.

Next, Ryland suggests identifying growth drivers outside those within the industry.

These could be opportunities to increase productivity through mergers or restructures. Other factors could be the opportunity to provide new services or products, or to expand markets geographically.

Finally, Ryland says it is vital that you examine the quality of management.

"Growth industries tend to attract a lot of capital, but the difference will be the management," he says. "Good management will effectively use the capital to enhance growth."