Mike Holmans August 25, 2009

Investing in Australia

Cricket markets are notoriously volatile and have become even more so in recent times, and investors may be unsure where to put their money. The Holmans Consulting Group (HCG) is therefore pleased to offer this analysis of the Australian market's leading stocks. [Potential investors are reminded that past performance is not necessarily a guide to future returns and should take professional advice before committing any funds.]

Ponting. Hold. The dominant company's batting division is and will remain a world-class performer for the foreseeable future. The management division has posted its third loss in five reporting periods, which clearly gives cause for concern, but there are signs that it will be concentrating more on improving its own performance rather than explaining disappointing results by referring to unfavourable conditions, competitors' business practices or perceived failures of regulation.

Hughes. Short-term sell, long-term buy. Technical defects in the product line have forced a retreat from international markets for retooling. Testing of an updated range in the domestic market should be carefully watched, however, as it is anticipated that this highly innovative entity will prove one of the leading performers over the long term.

Katich. Hold. Since repositioning in the openers sector, Katich has yielded solidly reliable if unspectacular returns which should continue to satisfy the conservative investor.

Watson. Weak hold. Government has long regarded Watto's as a preferred long-term partner, and early results from entry into the openers sector are reasonably promising, but the bowling division has declined from an already weak position to the extent that it should probably be shut down.

Hussey. Sell. There is considerable loyalty to the Mr Cricket brand, and many will be hoping that the strong performance in the last couple of trading sessions signals a return to previous dividend levels. HCG is less optimistic and regards Hussey as extremely vulnerable to takeover, especially if strong domestic competitors emerge.

M Clarke. Strong buy. Long-standing predictions that Clarke will become as important a force as Ponting seem on the verge of fulfilment, and bumper returns are to be expected from this quarter. Especially fine are the products for the spin-facing niche, which for flexibility and agility rival any of those offered by the traditionally-dominant Asian producers.

North. Buy. Well-engineered batting coupled with some very handy spin-bowling accessories should ensure a prosperous medium-term and make the long-term prospects very hopeful.

Haddin. Weak hold. Those with nostalgia for former giants of the keeping industry such as Gilchrist, Healy or Marsh will continue to regard Haddin as yielding very poor dividends. On the bright side, the batting performs somewhat above lowish expectations, but the keeping is of extremely variable quality. An absence of serious competition in the field means that the stock should be retained pending developments.

Johnson. Partial sell. Investors who piled into the Mitch on the back of exceptionally strong performances in the South African market should seek to reduce their exposure. The sling-based technology is inherently unstable and prone to malfunction while offering the potential for very high returns when it operates correctly. It is worth retaining a holding as part of a diverse portfolio, but not as the main focus of investment.

Siddle. Hold/weak buy. Only a recent market entrant, Siddle has already established a reputation for reliability and should provide very steady returns. Optimists may wish to increase their holdings, but HCG sees little potential for further growth and would advise against.

Hauritz. Buy. This stock was badly underrated and deserves more attention. While not offering the earnings potential of a Warne or a MacGill, failure to include this stock can in some circumstances result in catastrophic losses.

Hilfenhaus. Weak sell. This may seem an odd recommendation given that the Hilf was the leading performer in the last reporting period, but similarly swinging trading conditions may not be encountered often enough for him to continue to lead the market.

S Clark. Sell. A loss of oomph in the main power unit has rendered this product line largely ineffective unless the targets are already on the brink of failure. It will be of very limited usefulness going forward and there is little chance of an improvement in the stock price. A more likely option would be the Lee, but it has been absent from the market for some time and future performance is therefore uncertain.

To sum up, batting stocks remain relatively buoyant. Returns may be down compared with the historic market highs of the 1995-2006 boom years, but they remain in the market's upper quartile. However, bowling stocks have fallen significantly, particularly when compared with South African equities, and considerably improved performance will be needed from them if Australian industry is to resume its world-leading position.

Our next report, to be published shortly, will be a survey of the English market.