1/17/12: Doubly Aggressive

By David Dittman • January 17, 2012

We’ve added two more stocks to the Australian Edge Portfolio Aggressive Holdings in the January issue.

Rio Tinto Ltd (ASX: RIO, NYSE: RIO) has grown earnings at a double-digit rate over the past five years and raised its dividend an average of 5.7 percent. Yet the stock is basically flat over that same time frame, following a 28.6 percent decline in US dollar terms in 2011.

One of the world’s biggest miners is poised for a share-market recovery this year, even as it continues to hum along operationally.

Oil Search Ltd (ASX: OSH, OTC: OISHF, ADR: OISHY) is a pure-play on liquefied natural gas (LNG) demand in emerging Asia. A major project with Super Oil ExxonMobil (NYSE: XOM) and Australian giant Santos Ltd (ASX: STO, OTC: STOSF) will provide the foundation for sustainable dividend growth.

Oil Search boasts a net cash position and a strong balance sheet, solid armor as questions are starting to pup up about the ability of companies to bring major LNG projects in on time and on budget in and around Australia. And there are also questions about whether there be enough demand for all this LNG.

Oil Search has compelling answers.

Stock Talk

Comments

Comments Guidelines

Richard McCoy

02/01/12 ‐ 2:27pm ET February 1, 2012 at 2:27pm ET

This and Canadian Edge are excellent. I appreciate your caution and conservative, careful approach.

One hears anecdotes to the effect that there may be a housing bubble in Australia. However, I also gather that loan to value ratios are lower in Australia than elsewhere, which would help. How do you assess this as a possible risk factor for ANZ?

Thanks!

David Dittman

02/04/12 ‐ 7:51am ET February 4, 2012 at 7:51am ET

Hi Mr. McCoy,
Thank you for reading, and thank you for the compliments. ANZ just issued a covered bond in Europe that was rated Aaa by Moody’s. The average loan-to-value ratio of the mortgages comprising this particular pool of USD1.25 billion was 67.4%. Data collected by Australian Finance Group around mid-2011 suggest Australians generally responded with caution to the GFC, as the average ltv fell to 64.2% nationally. Consumer credit growth slowed to the single-digits from a long-term average–about 34 years–of 14 percent.
Australia continues to enjoy relative structural advantages that will help it cope with any external threats, including a sound federal government balance sheet and a normal monetary policy. Our view is that we’ll experience in 2012 something like we experienced in 2011 macro-wise.
Thanks again for reading.
Best,
David

Robin

02/07/12 ‐ 12:08pm ET February 7, 2012 at 12:08pm ET

I am a happy Canadian Edge subscriber and now Australian Edge.
I just worry about buying right now with the OZ Dollar so high,a drop back tp parwith USD could wipe out Dividend returns.Do you recommend waiting a while.

02/07/12 ‐ 12:17pm ET February 7, 2012 at 12:17pm ET

Hi Robin,

Thanks for subscribing to AE, and I’m glad you find it measures up to CE. As with our approach in Canada, our buy-up-to targets are based on value, specifically the ability to sustain and grow a dividend. We’ll adjust buy targets as financial and operating results warrant. We are unrepentant long-term buy-and-holders, but we don’t want to pay too much for any company, no matter how solid. The great thing–making some lemonade–about all this volatility (acknowledging that we have, for the moment, found a nice, “risk-on” rally space) is that when people get scared opportunities to establish positions in high-quality companies open up.

We recommend following our buy-up-to targets, and, as you anticipate, that could involve waiting until our favorites come back to us.

Thanks again for reading AE and CE.

Best regards,

David

Add New Comments

You must be logged in to post to Stock Talk OR create an account