Banks Boom

Sun Herald

Sunday January 7, 1996

By MARTIN CHULOV

PUT your money on the bank rather than in it this year and prepare for a take-off in resource stocks in the second half of 96.

Leading bank stocks, the ANZ and the National Australia Bank, are tipped by many brokers as the boom stocks in the next six months, with share price growth expected to double returns from bank term deposits.

And if, as is widely forecast, the Reserve Bank cuts official interest rates - which would lead to a cut in deposit rates - the value of shares relative to cash would increase further.

Most brokers say the National is the pick of the major industrials.

Max Cunningham from Macquarie Equities said: "The National should continue to outperform other major industrials in the medium to long term because of its diverse earnings base, sound asset quality and effective cost control."

McIntosh Private client adviser John Anschau said the NAB was still favoured for quality earnings despite the stock's recent surge.

"It has a dividend yield of over 7 per cent and a very cheap priceearnings ratio by industrial standards," another analyst said.

Bain and Co is also forecasting strong asset growth for ANZ from its expanding international operations.

Resource shares like Western Mining, Acacia Resources and Woodside Petroleum are tipped to surge around mid-year as fund managers buy up to hedge against growing world inflation.

Macquarie expects the resource sector to continue to perform more weakly than the All Ordinaries index in the short term.

"But as you move deeper into the calendar year you are going to see some inflationary fears," Mr Cunningham said. "And world economic growth will also spur growth in commodity prices."

Base metals are currently weak, with resource shares falling back about 2pc in recent months. Bain and Co believes this is a seasonal weakness and strong earnings growth in the sector means good buying opportunities.

Other shares to watch include Lend Lease, Tabcorp and pay TV leaders Australis and News Corporation.

Mr Anschau said News Corp was now concentrating more on short-term performance and was undervalued compared to other global media stocks.

Macquarie said both News and Australis were looking at strong earnings growth in the medium term through Australian pay TV, although Australis's growth would hinge on regulatory approval being given to a proposed merger between its Galaxy service and News Corp's Foxtel.

Most economists are forecasting the All Ordinaries index to end the year between 2450 and 2500. The sharemarket has got off to a great start this year with the so-called January effect pushing it 61 points higher in the first four trading days.

The Australian market has risen in January in 12 of the past 15 years. This year the January effect was considered close to a "certainty" because it now appears to operate in a cycle. In 1992 the market rose, only to fall in 1993, rise in 1994 and fall again last year.

Shane Oliver, AMP Investments' chief economist, said the All Ords should continue to grow especially when the market started to focus on companies' 1996-97 profit forecasts, tipped to be much higher than this year's downgraded figures.

Brokers advise "sticking to the basics" when selecting shares.

"Set strategies and brief your broker thoroughly. Stick to the strategy but don't be adverse to taking advice from time to time," Mr Cunningham said.

One of the best measures of a share's value is its price/earnings ratio, arrived at by dividing the cost of a share by the amount it is expected to earn - company profits per share.

"When investing don't be rushed, don't feel the panic or the urge to jump in or out," Mr Cunningham said.

10 OF THE TOP STOCKS FOR 1996

National Australia Bank(NAB)

ANZ Bank (ANZ)

Lend Lease(LLC)

Tabcorp(TAM)

Western Mining(VMC)

News Corp ((NCP)

Burswood Property Trust (BSD)

Boral (BOR)

Australis (ALM)

Village Roadshow ( VRL)