Last week, Telstra Corporation Ltd's (ASX: TLS) management surprised the market with a black swan event which caught investors off guard – a cut to its "reliable" 15.5 cent semi-annual dividend.

Although CEO Andy Penn tried to soften the blow by paying out one final 15.5 cent dividend this half, investors were less than impressed by the fact that even after the payment of anticipated special dividends, the telco's total forecast dividends for the 2018 financial year will be around 22 cents per share.

Whilst the move to cut its dividend is a natural outcome of increasing competition from new players Amaysim Australia Ltd (ASX: AYS), TPG Telecom Ltd (ASX: TPM) and Kogan.com Ltd (ASX: KGN), and a maturing industry profile, investors were nonetheless left reeling as Telstra's share price shed almost 11% (and counting) in the space of three days followings its 2017 full-year results.

Accordingly, although Friday's closing share price of $3.90 represents a robust 5.6% forecast yield (if maintained), I think investors looking for reliable income are better off looking elsewhere.

Wesfarmers Ltd (ASX: WES) is one stock which comes to mind. Here's why.

Why Wesfarmers?

As I wrote here earlier this year, Wesfarmers is a resilient conglomerate business comprising industrial, retail and financial services divisions.

Whilst the bulk of attention is generally on its largest business unit – Coles supermarkets – the West Australian behemoth has many other divisions which insulate it from a severe downturn in any sector. Its 2017 full-year results is a testament to that fact.

2017 results

Last Thursday, Wesfarmers handed down its 2017 full-year results to reveal underlying profit growth of 28% to $2.87 billion. Earnings per share swelled to $2.54, driven by a turnaround in Wesfarmers' resources businesses.

Wesfarmers' key retail divisions Kmart, Bunnings and Officeworks demonstrated continued earnings improvement, despite weakness in its Coles division. Nevertheless, a sharp rebound to earnings in Wesfarmers' resource business (led by a strong rally in coal prices) allowed management to hike up Wesfarmers' final dividend to $1.20 per share.

This represents a massive 26% increase on prior year, placing the company on a solid 5.2% trailing yield at its most recent price of $42.50.

Accordingly, given the prospects of capital growth to Wesfarmers' share price, especially if its Coles business regains momentum against Woolworths Limited (ASX: WOW) and Metcash Limited (ASX: MTS), I think Wesfamers is a more compelling investment over the likes of other so-called yield stocks today.

Foolish takeaway

Admittedly, Wesfarmers' share price is subject to its own risks.

A slowdown in mining, or worse-than-expected retail disruption from Amazon could wreak havoc on each of Wesfarmers' business units and send its dividend the way of Telstra's. However, given Wesfarmers' existing industry position as a leader in many of its business categories (like Bunnings, Kmart and Officeworks), and the recent strong results from its non-retail division, I remain optimistic on management's ability to navigate challenging environments and, at the very least, maintain its dividend yield.

As such, investors looking for safe and secure income should consider looking at Wesfarmers as their next investment!

The post Does Wesfarmers Ltd's 5.2% trailing yield make it a buy? appeared first on The Motley Fool Australia.

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On Thursday, leading cement and lime manufacturer Adelaide Brighton Ltd (ASX: ABC) released its 2017 half-year results. The integrated producer of cement, lime, clinker and other construction products reported softer-than-expected earnings after one-off costs and quality issues dragged profits lower.

However, Adelaide Brighton's share price rallied higher following the announcement with the market focusing on a bigger thematic at play.

Here's what happened.

Adelaide Brighton's results

To recap, Adelaide Brighton revealed statutory net profit after tax (NPAT) fell 10.9% to $68.7 million for the half. After removing one-off rationalisation and transaction costs of $5.8 million, underlying NPAT came in at $74.5 million – down 4% on the prior corresponding period.

Pleasingly, revenue grew 4.7% to $718.4 million, supported by Adelaide Brighton's recent acquisition of Central in Victoria. Excluding the incremental revenue from this acquisition, Adelaide Brighton's pre-existing operations revenue grew 1.3%, buoyed by robust demand in New South Wales, Victoria, Queensland and South Australia.

So what?

Despite a poor set of headline numbers (in my opinion), the market seemingly cheered the results by driving Adelaide Brighton's share price over 3% higher during intraday trade to trade near all-time highs.

The underlying cause of this bounce appears to be optimism around the company's 2017 full year and forecast FY18 results after CEO Martin Brydon said "full year . . . sales volumes of cement and clinker [are expected] to be higher than in 2016".

This comment was based on the fact that Adelaide Brighton had a strong finish to its first half of 2017, with the backdrop of a very strong Sydney and Melbourne construction market providing all indications of solid momentum going forward into 2018.

What should you do now?

If Adelaide Brighton's optimism is anything to go by, it's safe to say that stocks exposed to construction activity like Fletcher Building Limited (Australia) (ASX: FBU) , CSR Ltd (ASX: CSR) and Boral Limited (ASX: BLD) are in for a treat if the existing residential and commercial construction boom on the east coast of Australia continues.

However, whilst a positive economic backdrop is one thing, the price of a stock is another. In this regard, whilst both Fletcher Building and CSR trade at a price-earnings ratio well below that of Adelaide Brighton's forecast 25x (based on Thursday's results), I believe Boral's share price is beginning to look slightly expensive.

About Boral

Boral's most recent closing price of $6.89 places it on a trailing price-earnings of about 23x.

Whilst this figure does not take into account incremental earnings (or future growth prospects) flowing from Boral's Headwaters Inc acquisition completed in May this year, the higher price means Boral's share price carries more downside risk (compared to peers CSR and Fletcher Building) in the event there is a slowdown in Australian construction.

Whilst the Headwaters acquisition provides some insulation from Australia by diversifying earnings through America, it also carries implementation and geographic risks which should be factored in. This is something we will only know in due course.

Foolish takeaway

Admittedly, the price-earnings ratio isn't the only thing investors should look at when deciding whether to buy or sell a stock. Factors like industry fundamentals, the economic backdrop, and a company's potential are all also relevant.

Accordingly, though Boral's share price remains slightly expensive in my opinion, I recommend investors wait for Boral to release its full-year results later this month for an update on the integration of its Headwaters acquisition before deciding to buy or sell the stock.

The post Time to sell your Boral Limited shares after Adelaide Brighton Ltd's results? appeared first on The Motley Fool Australia.

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On Monday, leading investment bank Citibank estimated that 16% of the S&P/ASX 200 Index (ASX: XJO) has reported this earnings season, with approximately 92% of companies meeting or beating expectations.

Although the scorecard of Australian stocks is impressive, one thing most Australian investors miss out on every earnings seasons is the benefit of international diversification from foreign markets like America and Europe.

Whilst industry leaders like CSL Limited (ASX: CSL), Brambles Limited (ASX: BXB) and QBE Insurance Group Ltd (ASX: QBE) can insulate somewhat against home-bias (through their respective foreign operations), for true diversification, I think investors need to look further than Australian stocks.

In this regard, I believe exchange traded funds (ETFs) like the BETANASDAQ ETF UNITS (ASX: NDQ) ("NASDAQ 100 ETF") and Van FTSE Europ Shs (ASX: VEQ) ("FTSE Europe ETF") are a good starting place.

NASDAQ 100 ETF

The NASDAQ 100 ETF is an ETF administered by the Royal Bank of Canada (RBC). The purpose of the fund is to solely track the NASDAQ-100 Index by passively holding the index-weight of companies that make up the NASDAQ 100.

The very nature of ETFs means the fund is never expected to outperform the underlying index it tracks. However, given the pedigree of companies like Apple Inc, Microsoft Corp, Amazon.com Inc, Facebook Inc and Alphabet Inc (aka Google) that comprise the top 100 stocks on the NASDAQ, it's safe to say that the NASDAQ 100 ETF gives investors an underlying interest in the technology leaders of today.

Whilst the cost of this privilege is 0.48% in management fees paid to RBC (per annum), I believe this is inconsequential given the likelihood of these technology behemoths growing as the world evolves to new forms of technology.

Accordingly, although the NASDAQ-100 Index trades near record highs today, I believe it plays host to the companies that are the leaders of tomorrow, and thus has a bright future ahead of it.

FTSE Europe ETF

The FTSE Europe ETF is identical to the NASDAQ 100 ETF in that it passively tracks an international index. However, the key difference of this ETF is that it is managed by Vanguard Investments Australia, the subsidiary of the one of the largest money managers in the world, and it focuses solely on European stocks.

Investing in the FTSE Europe ETF provides diversification to some of Europe's biggest companies like Nestle SA, Royal Dutch Shell plc and Novartis AG for a slightly smaller management fee of 0.35% per annum.

The ETF additionally provides investors a quarterly distribution stream averaging 2.88% per annum and gives exposure to Europe, which many pundits believe presents a contrarian trade opportunity at current prices.

Accordingly, whilst the effects of Brexit and EU turmoil may wreak havoc on individual shares over the next few years, those with faith in the prospects of European economies in the long-term could do well by purchasing this ETF at current prices.

Foolish takeaway

Admittedly, neither ETF is going to give you gangbusters growth. However, as part of a balanced portfolio comprising of core, growth and speculative stocks, I believe these ETFs can provide solid diversification to your core portfolio holdings by allowing investment in sectors (and countries) that have previously been missing from your portfolio.

The post How to get exposure to the NASDAQ and European shares on the ASX appeared first on The Motley Fool Australia.

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On Monday, discretionary retail heavyweight JB Hi Fi Limited (ASX: JBH) reported better-than-expected earnings which saw underlying profits at Australia's leading home entertainment retailer swell a whopping 36.5% for the year.

Even with this robust performance, JB Hi-Fi's share price surprisingly slumped over 4% during Monday trade as investors seemingly expected better from the company following its acquisition of The Good Guys in November last year.

Whilst JB Hi Fi's share price travails are cause for inquiry itself, one key theme to come out of its results is that the retail sector appears to be holding up well, despite the imminent arrival of 'big bad' Amazon.

Accordingly, I thought it was worth dusting-off my retail watch list to see if any beaten-down stocks have the potential to surprise this earnings seasons.

RCG Corporation Ltd (ASX: RCG) and Retail Food Group Limited (ASX: RFG) are two stocks which immediately come to mind. Here's why.

RCG Corporation

The RCG Corporation share price has endured a tumultuous 12 months after two profit downgrades in the space of three months saw its share price ravaged earlier this year.

RCG's fortunes went from bad to worse after a spate of profit downgrades by retail peers MYER Holdings Ltd (ASX: MYR) and Adairs Ltd (ASX: ADH) soured sentiment in the discretionary retail sector leaving investors fearful that the arrival of eCommerce giant Amazon will wipe out Australian retail.

Although I beg to differ about Amazon's full-impact on the retail sector, RCG's share price appears to have been caught up in the cross-fire, currently down over 55% since August last year.

Whilst part of this fall is directly attributable to reduced profit expectations, I believe the current share price involves an element of over-selling, given the company remains on track to post double-digit earnings growth if its most recent earnings (EBITDA) guidance of $74 million to $80 million is maintained.

Therefore, with management slated to report full-year results on 28 August, I believe RCG is one stock investors should keep an eye on for upside surprise.

Retail Food Group

Like RCG, Retail Food Group's share price has faced its own demise, currently down over 30% since the start of this year. The cause of Retail Food Group's share price attrition is a killer one-two combination of a UBS report outlining the impact of changes to accounting standards on Retail Food Group and a recent downgrade of full-year profit by management.

Whilst the accounting issues are systematic across the sector (and remain to play out), management's profit downgrade in June has some relevance to Retail Food Group's share price decline. However, I believe the fall has been overdone.

The crux of management's trading update was that weak trading at its franchisee stores will result in a slower profit growth rate of 15% year-on-year (compared to a forecast growth rate of 20%). The company also expects to incur a one-off non-cash write-down of $22 million as a result of irrecoverable marketing spend.

Though this announcement should not be taken lightly, management's track-record of increasing earnings and pursuing successful acquisitions (or joint-ventures) makes this stock one to watch in August.

Foolish takeaway

Admittedly, Amazon's arrival to Australia will mean greater competition across the discretionary retail sector. Whilst this is a benefit for consumers, retailers will need to pull out all the stops to churn out sales and profit growth moving forward.

As evident from JB Hi-Fi's results, this growth may come at the expense of margins. However, I believe that both RCG and Retail Food Group are capable of mimicking JB Hi-Fi's success given their strong brands and existing retail channels.

Therefore, I think the current RCG and Retail Food Group share prices have potential to provide solid upside over the long-term.

The post RCG Corporation Ltd & Retail Food Group Limited: Should you buy at this share price? appeared first on The Motley Fool Australia.

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On Wednesday morning, infant formula maker Bubs Australia Ltd (ASX: BUB) updated the market with an investor presentation outlining its growth strategy for the years ahead.

The presentation follows Bubs signing a landmark distribution agreement with China-focused Brilite Nutritionals and two partnership agreements with Chinese e-commerce platform Netease Kaola and leading healthcare services provider HealthOne late last month.

Accordingly, with Bubs' share price up over 33% since last week, I thought it was time to take a closer look at its long-term potential. Here's what I found.

About Bubs

Bubs listed on the ASX at the start of the year following a reverse takeover of the Infant Food Holding Company by Hillcrest Litigation Services Group. The backdoor listing led to the IPO of Bubs (as we know it today) for 10 cents per share.

Since listing, Bubs' share price has skyrocketed 470% higher (based on Tuesday's close of 47 cents) as a slew of upbeat results, positive distribution partnerships, and Chinese expansion plans buoy the maker of Australia's first organic infant formula brand.

However, with its shares trading on a price of approximately 21x sales revenue (based on its market capitalisation of  $97.4 million and full-year sales of $4.7 million), I believe Bubs' execution has to be impeccable for its share price to continue moving higher.

Growth plan

Wednesday's investor presentation demonstrates management is well-attuned to this expectation.

Like peers A2 Milk Company Ltd (ASX: A2M) and Bellamy's Australia Ltd (ASX: BAL) have already done, Bubs is pushing forward with aggressive expansion into the high-growth Chinese infant formula market by targeting specific segments of the market.

Based on AC Nielsen statistics, Bubs' management reported that sales in China's mother and baby stores and B2C eCommerce channels represents a lion's share of 68% of total sales of infant milk formula in China (by value).

Accordingly, with Bubs recently inking two ground breaking agreements to provide mother and baby store distribution (through Brilite Nutritionals) and strengthen its eCommerce offerings (through Netease Kaola), I believe Bubs remains poised to achieve greatness in the Chinese market. This is positive for its share price.

Should you buy?

Although Bubs' share price could soar higher from current levels if management delivers on its strategy, the key risk for investors is the requirement of regulatory approval for sales in mainland China from the Chinese Food & Drug Administration (CFDA).

Broadly, from 1 January 2018, sales of all infant formula in China will be permitted only if the formula has received approval from the CFDA. This requires the formula to be unique/distinctly different to existing formulations.

Whilst Bubs is in the process of obtaining the requisite registrations, failure of this key hurdle could see its share price tumble lower.

Foolish takeaway

Bubs remains a speculative stock which has the potential to provide 10-fold returns if management is successful on its execution strategy. However, like any high-reward stock, the risk is equally as large with its share price subject to falls if management misses its mark.

The post Can Bubs Australia Ltd replicate A2 Milk Company Ltd's success in China? appeared first on The Motley Fool Australia.

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The Select Harvests Limited (ASX: SHV) share price got crunched over 13% on Thursday after the almond producer provided a disappointing trading update to the market. Although Select Harvests' share price staged a modest recovery during Friday trade, Thursday's fall takes Select Harvests' share price decline to over 35% for the year.

Despite this, I believe the investment thesis for Select Harvests remains intact, making this pullback an opportune time to consider buying. Here's why.

About Select Harvests

Select Harvests is one of Australia's largest almond producers, owning orchards across various states in Australia.

It is a vertically integrated business which grows, harvests, processes and distributes almonds for sale under various private label and company owned brands both domestically and overseas.

Earnings update

On Thursday, Select Harvests' management provided an earnings update for the 2017 full-year.

Following the company's annual hulling and shelling program, it was revealed that the 2017 crop yielded 14,100 metric tonnes of almonds. This was above the company's earlier (downgraded) estimate of 13,500 – 14,000 metric tonnes for the year.

Pleasingly, the company announced it has commitments for 72% (or approximately 10,152 metric tonnes) of harvested almonds at A$7.91/kg. However, the final 28% of crop remains to be sold. As such, whilst management expects to yield an average pool price of A$7.40 – A$7.50/kg on the final crop, full-year revenue is likely to be substantially lower than prior year in placing headline revenue pressures on the bottom line.

Adding to Select Harvests' share price woes is the fact that management also flagged higher costs in its earnings update. Due to adverse currency movements, higher orchard lease costs, increased electricity and gas prices and one-off acquisition costs, management believes full-year net profit after tax will be between A$7.5 million to A$8.5 million.

This is a whopping 75% to 73% lower than full-year 2016 statutory NPAT.

Growth story

Whilst the full-year NPAT forecast is disappointing, the silver lining for Select Harvests is that its growth story remains on track.

The company is in the process of cutting costs and improving productivity so that it can prosper when almond prices recover. Furthermore, management has clearly laid out plans to enable the company to increase production over the years to come and ride the tailwinds of a booming food export industry.

This makes me think Select Harvests has a bright future ahead of it.

Foolish takeaway

In the same way that miners Fortescue Metals Group Limited (ASX: FMG), Rio Tinto Limited (ASX: RIO) and BHP Billiton Limited (ASX: BHP) are reliant on the price of their minerals, Select Harvests' fortunes are captive to the market price of its underlying commodity – almonds.

For this very reason, Select Harvests' share price will be subject to volatility from time-to-time, as price fluctuations in the price of almonds and seasonal factors affects profitability.

Whilst this may deter some investors, those that are brave enough to weather the storm could see Select Harvests become a bountiful investment over the long-term.

The post Is it time to buy Select Harvests Limited shares? appeared first on The Motley Fool Australia.

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BWX Ltd (ASX: BWX) burst onto the scene in late 2015 after its founding shareholders sold-down their stake in the vertically integrated body, hair, and skincare company via an initial public offering on the ASX.

The company, which listed at a market capitalisation of approximately $139 million (based on the issue price of $1.50 per share), has grown from strength-to-strength to become a whopping $490 million juggernaut taking the organic skincare industry by storm.

With management recently completing BWX's acquisition of United States-based Mineral Fusion, I thought it was worth taking a closer look at the owner of Australia's leading organic skincare brand.

About BWX

Investors may be forgiven for never having heard of BWX before.

BWX is a holding company that distributes skin, hair, and body care brands into various pharmacies like Australian Pharmaceutical Industries Ltd (ASX: API) owned Priceline stores.

BWX's brand portfolio consists of DermaSkin, Uspa, Edward Beale, Renew Skincare, and Sukin – the number one organic skincare brand in Australia and BWX's largest revenue generator.

Financial health

In its first-half of 2017, BWX reported that revenues from Sukin increased 59.4% (compared to the prior corresponding period) in accounting for almost 83% of total group sales. This allowed the company to report net profit after tax growth of 30.2% to $8.2 million and increased gross margins of 65.1%.

Impressively, BWX ended the first-half with no debt and cash on hand of approximately $0.2 million. A solid result all-round.

Mineral Fusion acquisition

To date, BWX has been predominantly focused on Australia, with approximately 81.3% of group revenues being derived in Australia (as at 31 December 2016). However, BWX's recent acquisition of the number one selling natural cosmetics brand in America – Mineral Fusion – is likely to change this fact quickly.

Mineral Fusion is currently the leading natural cosmetics brand in America with forecast 2017 sales of approximately US$24 million and forecast full-year standalone earnings (EBITDA) in the range of US$3 to US$4 million.

Based on these forecasets, though the US$38.4 million (plus potential earn out of US$4.6 million) purchase price seems steep for this business, management's rationale to acquire the brand makes strategic sense in my opinion. This is because BWX will utilise Mineral Fusion's distribution network in the United States to penetrate the market with its leading Sukin brand. It is also likely to bring the Mineral Fusion brand to Australia and expand its local natural skincare portfolio. This should materially grow earnings over the medium-term.

Foolish takeaway

Although the Mineral Fusion acquisition and expansion poses its own risks, given both brands' success in their respective markets and the growing demand for natural skincare products globally, the strategy should reap rewards for shareholders over the long-term.

Nevertheless, whilst I am optimistic about the long-term future of BWX, I believe the current share price of $5.30 (at Wednesday's close) leaves little room for error. Accordingly, I think its one stock to add to your watch list for now and buy on any pullback.

The post Is Sukin manufacturer BWX Ltd a buy at this share price? appeared first on The Motley Fool Australia.

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IBISworld statistics state that Australia's supermarket retail industry is a $105.3 billion behemoth dominated by four major players – Woolworths Limited (ASX: WOW) (~33% market share), Wesfarmers Ltd (ASX: WES) owned Coles (~29% market share), Aldi (~9% market share) and Metcash Limited (ASX: MTS) (~7% market share).

This high level of concentration means all incumbents are forced to keep pace with ongoing competitive pressures (and private label expansion) from the dominant quartet. The result to date has been a benefit to all consumers, at the expense of shareholders, as margins (and profitability) are reduced across the price-sensitive sector.

With American online giant Amazon poised to enter the local market later this year, it's no surprise that shareholders of Woolworths, Wesfarmers and Metcash are seemingly nervous at the havoc Amazon could cause on current operations.

I, however, believe this threat is overdone at the current time.

Amazon's threat

Let me make one thing clear. The threat posed to Australia's supermarket industry by Amazon is real. Having grown to a market capitalisation that would dwarf the cumulative market value of Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB). Amazon has shown how it can disrupt an entire industry after virtually decimating U.S. retailers that have been slow to adapt.

The $472 billion e-commerce giant's strategy has proven time-and-time again that long-term sustainability trumps short-term margins any day of the week. This means Australian supermarkets will need to dig-deep to avoid becoming collateral to the Amazon-express train that's about to come through Australia.

However, there is one saving grace for the likes of Woolworths, Wesfarmers and Metcash. Time.

Amazon's challenge

Entering a new market is no easy feat, given strategies that work in one country may not work in another straight away. Costco's relative failure in Australia is a prime example of that.

Whilst Amazon is still in the process of setting-up shop, it's evident that each of Woolworths, Wesfamers and Metcash have not been standing still. Each chain has used this time to invest millions of dollars in pricing and loyalty programs in order to reward customers for shopping at their respective supermarkets and build positive consumer attitudes towards its stores.

This pre-emptive strike towards the imminent threat of Amazon demonstrates a willingness to change from the supermarketing giants – something which may be new to Amazon.

Accordingly, I'm willing to wager that neither Woolworths, Wesfarmers nor Metcash is going down without a fight.

Foolish takeaway

Although the supermarket industry is unlikely to deliver blockbuster profit growth given its mature nature, I firmly believe the threat posed by Amazon is presently overdone with each supermarket chain likely to have already formulated strategies to combat Amazon (and the others).

Metcash's results announced in late June prove that industry competition is nothing new to these retailers, after the owner of IGA stores posted an upbeat set of numbers for the full year. With its share price rallying over 15% since reporting, I believe it's fairly priced given the industry environment.

However, I'll be watching the results of Woolworths and Wesfarmers this earnings season to see if either stock is undervalued based on the market's perpetual fear around Amazon's arrival to Australia.

The post Is Amazon really a threat to retail shares like Woolworths Limited? appeared first on The Motley Fool Australia.

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On Thursday, consumer, industrial and automotive products conglomerate GUD Holdings Limited (ASX: GUD) handed down a disappointing set of full-year results, sending its share price over 3% lower for the day.

The ex-owner of prolific consumer and industrial brands Sunbeam and Dexion announced that its recent divestment of these two business units contributed a $58.9 million net loss and dragged overall profits lower. This was despite resurgence across its automotive brands Ryco and Wesfill.

Whilst this result is clearly a one-off, I believe GUD's long-term success remains tepid given its existing businesses (ex-automotive) appear to be struggling in the current economic climate. Accordingly, with GUD's share price up a handy 36% since this time last year, I think it's worth taking another look at the stock to see if investors should take profits today.

Here's what I found.

Full-year results

In my opinion, GUD's full-year results were far from "good".

The company posted a full-year statutory loss of $7.3 million after tax, despite reporting that underlying revenue and profit from continuing operations increased 4% and 2% for the year, respectively.

The key driver for the improvement in underlying results was a standout performance in its automotive division, which saw earnings (EBIT) grow 10% year-on-year to $73.6 million, due to a combination of organic and acquisitive growth.

However, the disappointing fact was that GUD's other two staple divisions – Davey (water) and Oates (retail) – both went materially backwards during the year. As a result, underlying EBIT remained flat across the group.

Growth intact

Despite the results, management believes GUD's growth prospects remain intact. CEO Johnathan Ling commented that weak demand in the Australian water market, poor consumer sentiment, and adverse currency movements were the underlying cause of weakness in its Davey and Oates division, with both expected to rebound when conditions recover.

Although the resulting decline of 5% and 3% of sales revenue for the Davey and Oates divisions (respectively) remains substantial, management is convinced that 2017 was a year of transition with 2018 set to record growth across all business units.

I, for one, am not as sure.

Future prospects

Admittedly, GUD's automotive division is firing on all cylinders with the company having plenty of headroom to eke out organic growth from its new acquisitions. This is a positive for its share price.

However, I believe its other businesses remain in off form given their inability to capitalise on the housing boom to date. This is a worrying sign.

Foolish takeaway

Whilst it's arguable that Davey's niche market may see its fortunes turn through management's initiatives for product innovation, I don't believe Oates' fortunes are as binary in light of the competitive retail environment.

Given the arrival of Amazon is set to increase competition in all-things retail, and sector heavyweights Woolworths Limited (ASX: WOW) and Wesfarmers Ltd (ASX: WES) continue to grow their own in-house offerings, I believe the Oates cleaning brand could remain under pressure and continue to be a drag on group earnings.

Accordingly, I would prefer to stay away from GUD and seek exposure to the rampant automotive industry by pursuing stocks like Bapcor Ltd (ASX: BAP) and Automotive Holdings Group Ltd (ASX: AHG) instead.

The post Is it time to buy GUD Holdings Limited shares? appeared first on The Motley Fool Australia.

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The price of crude oil officially fell into a bear market this week – defined as a fall of more than 20% in a period of six months – after non-OPEC countries Nigeria and Libya showed signs of increased output which added to the supply glut.

The Santos Ltd (ASX: STO) share price plumbed fresh 52-week lows on Wednesday after the price of crude oil crashed to the low US$40's (a barrel) mark. Although fellow oil and gas majors on the S&P/ASX 200 Index (ASX: XJO), Oil Search Limited (ASX: OSH), Woodside Petroleum Limited (ASX: WPL) and Origin Energy Ltd (ASX: ORG) all stumbled lower over the course of the week, none of the latter trio came close to breaching their 52-week lows like Santos.

Accordingly, I thought it wise to revisit Santos as an investment proposition.

Santos' sentiment

Unfortunately for Santos shareholders, momentum just isn't going Santos' way at the moment.

The once all mighty South Australian oil and gas producer's shares have lost 78.5% of their value in the space of three years as the worst oil slump ever bites Santos' bottom line.

Despite management conducting numerous asset sales and multiple capital raisings to rationalise and strengthen Santos' core business, it appears the company just can't catch a break as the dwindling price of crude oil sinks Santos' profits faster than management can cut costs.

Based on Thursday's close of $2.95, it appears the market has all but written off Santos' future prospects by pricing-in earnings attrition to perpetuity.

I, for one, don't think Santos' fortunes are as bad as the market suggests.

Is this the bottom?

As announced in its 2016 full-year results, Santos' cost efficiency programs has meant that Santos is able to generate free cash flow whenever crude oil prices are above US$36.50/barrel.

Although Thursday's prevailing crude oil price of just over US$42/barrel leaves little headroom for Santos' free cash flow generation, I believe the end of plummeting crude oil prices is nigh. This is because ructions and ruminations amongst OPEC members suggests the oil cartel is likely to impose deeper production cuts if the oil sell-off worsens. (After all, most OPEC nation's economies are reliant on higher oil prices).

If this eventuates, I believe the oil price should stabilise over the short-term and bottom out.

Long term view

Obviously Santos' share price isn't going to miraculously recover to its 2013 all-time high of $13.76 based on deeper production cuts by OPEC. However, I do believe investors that take a long-term view of Santos' prospects are likely to be handsomely rewarded years from now.

This is because management is currently taking the hard-road by continuing cost reductions, cutting dividends and paying down debt to ensure Santos' balance sheet remains in robust shape to capitalise on rising oil prices, if and when they occur.

Foolish takeaway

Given oil is an essential ingredient for production and has finite resources, the long-term trend of crude oil prices should almost certainly be up.

Indeed, economic influences like stagnant global growth, geopolitical conflict and deflationary pressures can result in oil prices going backwards at times. However, by the very fact that oil is a commodity (aka a limited resource) means its price will almost invariably be higher 10 to 20 years from now.

Whilst 10 to 20 years may be a very long timeframe for some investors, savvy investors should always remember that long-term investment is about picking stocks which have sound growth prospects, strong business fundamentals and are simply down on their luck today.

In my mind, Santos fits that bill perfectly based on current prices.

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The S&P/ASX 200 Consumer Discretionary Index (ASX: CDJ) took another hit on Wednesday after index participant Retail Food Group Limited (ASX: RFG) announced an unexpected profit downgrade for its 2017 financial year which saw its share price slump over 10% for the day.

Retail Food Group's trading update follows a raft of retailers like Adairs Ltd (ASX: ADH), Automotive Holdings Group Ltd (ASX: AHG), RCG Corporation Ltd (ASX: RCG) and Myer Holdings Ltd (ASX: MYR) who have announced profit downgrades in recent times, making investors nervous about the entire industry's prospects.

Accordingly, with weak sentiment towards sector driving most retail stocks lower, I thought it was worth revisiting the sector to see if there were any bargain buys today. This is what I found.

Automotive Holdings Group

AHG is one of the retail stocks which issued a profit downgrade in recent times, after management cited a slowdown in consumer sentiment as the cause of weaker than expected sales.

Nevertheless, although AHG's share price has increased over 5% since I wrote about it here, I still believe its trailing price-earnings of about 12.3x represents solid value for the underlying business.

Myer

Myer's share price has been battered over 35% this year as Australia's oldest department store battles it out in a competitive retail environment and braces for the impending arrival of Amazon to Australia. Whilst the risks posed by Amazon are very real for Myer, I believe the current share price of 86 cents (based on Wednesday's close) values the company as though it's already lost the battle against the online behemoth.

Although Myer's earnings will be affected by Amazon's arrival, I'm willing to take a punt that Myer won't go down without a fight.  Accordingly, if Myer can maintain sales (or even better, grow earnings), I believe it is priced as a bargain today.

Premier Investments Limited (ASX: PMV)

Despite the entire retail sector struggling, Solomon Lew's Premier Investments is yet to issue a profit downgrade for the 2017 financial year as its international expansion in the Smiggle and Peter Alexander brands drive group earnings higher. Even so, Premier Investments' share price has tumbled over 12% this year, as its shares are caught in the indiscriminate sell-off that's affected all retail stocks.

Whilst Premier Investments' business is not immune to weak consumer sentiment or the threat of Amazon, I believe its success to-date is a by-product of the right product mix (at the right time) and a highly proactive and experienced management team.

In my mind, this combination makes for a killer one-two punch to fight earnings attrition and should see the share price recover over the medium-term, if and when investor optimism returns towards the sector.

Foolish takeaway

Although each of AHG, Myer and Premier Investments are captive to macroeconomic forces like low wage growth, weak consumer sentiment and low inflation, I believe all three are well-poised to weather the current storm that's clouding all retail stocks injudiciously. Whilst Amazon remains a real risk for the entire retail sector, I believe all the downside from the American giant's arrival has been priced-in to most Australia retail stocks.

This makes each of them worth a closer look in my books.

The post Is it time to go bargain hunting in the retail sector? appeared first on The Motley Fool Australia.

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The Adairs Ltd (ASX: ADH) share price slumped to all-time lows on Wednesday as investors lose faith in Australia's leading manchester retailer.

Following two profit downgrades this year, Adairs' closing price of 0.58 cents on Wednesday represents a staggering 76% decline from its issue price of $2.40 in June last year. Accordingly, with the stock trading at a hefty discount from just over a year ago, I thought it was time to take a closer look.

Here's what I found.

About Adairs

Adairs began operations in 1981 as a speciality retailer of home furnishings comprising bedroom manchester, bathroom linen and kitchen homewares products. The group operates through five distinct retail formats in Adairs, Adairs Homemaker, Adairs Kids, Urban Home Republic and an online retail platform under its namesake brand.

All told, the group forms Australia's leading vertically integrated retailer of specialty home products with a footprint of over 130 stores across Australia.

In June 2016, Adairs listed on the ASX at $2.40 per share after private equity firm Catalyst Investment Manager and existing investors sold down their stake in the business. Although Adairs' share price climbed in the months following its listing, unfortunately for existing investors, it's all been downhill since November last year.

Company fundamentals

Despite two recent profit downgrades, I'll be the first to admit that Adairs' shares look very enticing on a fundamental basis at current prices.

In its second revised profit downgrade reported as part of Adairs' half-year results in February, management expects Adairs' full-year sales to be in the range of $255 – $265 million. Whilst this reflects a like-for-like sales decline of up to 3%, management believes that its first-half profit margin of 59.3% can be maintained for the full-year. This is a sign of good cost control given stagnant consumer sentiment.

Although net profit after tax is expected to be materially lower on prior year figures as a result of lower same-store-sales, management's intention to open new stores and growth in Adairs' online platform should offset some decline to earnings by organically growing total sales (in absolute terms).

Accordingly, based on Wednesday's close of 0.58 cents, Adairs' shares currently trade on a forecast price-earnings of 4.5x to 5.3x (if revised guidance is maintained). This makes them very cheap in my opinion, especially when compared to sector peers Temple & Webster Group Ltd (ASX: TPW) and Myer Holdings Ltd (ASX: MYR).

Growth prospects

Nevertheless, I believe that's where the good news ends for Adairs.

Although the company currently trades on a trailing fully-franked yield of 12%, I do not believe management will be able to maintain its current dividend payout going forward.

This is because Adairs is likely to be heavily impacted by the arrival of Amazon to Australia, given most of its products can be bought online without the need to visit a store. Accordingly, I'd expect sales growth and profit margins to decline over the medium-term as Amazon (and other retailers) fight it out to win market-share in the low-cost, high-margin sector of homewares retailing.

Furthermore, given Adairs' current strategy to combat sales decline is to open new stores and re-invest in product expansion, I believe this exercise is likely to have an adverse impact on its debt levels. This could limit free cash flow in future periods, meaning the dividend may be at risk of being scrapped altogether if these initiatives don't yield immediate returns.

As such, even at the discounted share price, I think investors buying Adairs today are stepping on to a sinking ship.

Foolish takeaway

My analysis of Adairs could turn out to be completely wrong and customers may, in fact, continue to purchase Adairs' products in-store instead of online. If this happens, Adairs' shares look screamingly cheap.

However, given the risks involved with its business model and the fact that fellow retail stocks like Automotive Holdings Group Ltd (ASX: AHG) and Retail Food Group Limited (ASX: RFG) offer similar value propositions without as much risk, albeit at slightly more expensive multiples, I'd prefer to buy the latter over Adairs' shares.

The post Why you should avoid Adairs Ltd shares appeared first on The Motley Fool Australia.

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The Wesfarmers Ltd (ASX: WES) share price slumped over 4% during the course of the week and is down a hefty 9% since a month ago.

Whilst a 9% drop in share price over a month would be considered normal for "growth" blue-chips like BHP Billiton Limited (ASX: BHP), Woodside Petroleum Limited (ASX: WPL) and Rio Tinto Limited (ASX: RIO), the fact that Wesfarmers – a consumer staples business – has slumped raises serious eyebrows. This is especially the case when fellow competitor Woolworths Limited's (ASX: WOW) share price has paced the S&P/ASX 200 Index (ASX: XJO) over the same period.

In my view, this underperformance warrants closer inspection.

Wesfarmers' businesses

Let me make one thing clear – unlike Woolworths (which is predominantly dominated by its flagship Woolworths supermarket business) Wesfarmers is an industrial, retail and financial services conglomerate.

Whilst most will associate Wesfarmers as the owner of Coles supermarkets, the Perth-based conglomerate also owns consumer staple brands Vintage Cellars, FirstChoice Liquor, Bi-Lo and Liquorland. In addition, its retail division houses the mighty Bunnings Warehouse and Officeworks businesses alongside Target and discount department store leader Kmart.

Finally, it's industrial division plays host to a number of chemical, resources and mining business like Wesfarmers Curragh, Wesfarmers Chemicals and Kleenheat (to name a few).

The point of this is that Wesfarmers isn't just a supermarket giant. It therefore has more to lose from Amazon's arrival when compared to Woolworths.

Diversification

Although the benefits of diversification means any single aspect of the group should be insulated from the other, unfortunately for Wesfarmers, the group appears to be caught in a perfect storm of weak consumer sentiment, an ongoing price war with Woolworths, stagnant commodity prices and the threat of American retail powerhouse – Amazon, Inc. – destroying its market leading position at Bunnings, Kmart and Officeworks.

Although weak commodity prices will continue to plague Wesfarmers, Amazon also isn't immune from weak consumer sentiment and thus I regard these as cyclical risks rather than fundamental flaws in Wesfarmers' business. Therefore, if and when, these trends reverse, Wesfarmers should regain momentum and do well.

A buying opportunity?

Admittedly, the arrival of Amazon is likely to affect Wesfarmers just as much as any other business, given the company's three (of four) star performers in Bunnings, Kmart and Officeworks sell homogenous goods that a prior conscious customer would be happy to buy online.

Further, the ongoing price war with Woolworths (and management's resolve to reinvest in cheaper prices) is not going to help profit margins at Coles – the business which revived Wesfarmers' fortunes in the early 2010's. Accordingly, it's clear to see why the company is losing investor confidence.

Nevertheless, I think Wesfarmers' current share price presents a good buying opportunity for investors willing to take a long-term view of the group.

Foolish takeaway

What investors needs to remember is that any entrant into an established market is always going to face teething issues because that company will need to break consumer traditions and ingrain new habits. Whilst Apple is one success story of this (by releasing natural iterations of its devices to create new products like the iPad), I believe the gap for Amazon is too large to bridge.

In my mind, for Amazon to succeed, it will need to lure tradies away from their daily sausage sizzle at Bunnings or Australian customers away from the ability to touch and feel fresh homegrown fruit and vegetables at Coles to have a serious impact on Wesfarmers' overall business.

Whilst businesses like Kmart, Target and Officeworks will be impacted by Amazon, I still feel the "Australian way" is to buy and support local businesses, thus Amazon's threat to these businesses may also be overdone.

Accordingly, if I'm right, I believe Wesfarmers' current share price represents solid long-term value.

The post Why you shouldn't sell your Wesfarmers Ltd shares just yet appeared first on The Motley Fool Australia.

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The Automotive Holdings Group Ltd (ASX: AHG) share price has experienced a tumultuous 12 months after hitting all-time highs of $5 per share last August, to now trade near multi-year lows (based on Monday's close of $3.02).

The latest plunge in share price of Australia's largest listed automotive retailer comes after management updated the market with a profit downgrade, just one day after listed peer AP Eagers Ltd (ASX: APE) did the same thing.

AHG's shares were crunched over 10% on the day of the downgrade and are currently down over 15% from a month ago.

Accordingly, with AHG's share price appearing to finally find a floor, I think it's time to take a closer look.

Industry slowdown

The underlying cause of AHG's and AP Eagers' profit downgrade was the fact that the car retailing industry is experiencing a cyclical blip in demand. Based on IBISworld estimates, the circa $64 billion Australian automotive retail industry is slated to decline 0.5% annually from 2017 through to 2022.

The key driver behind this slowdown is a projected decrease to real household discretionary income as house prices soar, interest rates rise, and income growth stagnates. This makes it harder for consumers to splash out on discretionary purchases like new cars.

Whilst these demand-side economics are partially expected to be offset by newer technology (making cars cheaper), the uptick in oil prices and corresponding fall in the Australian dollar have made motor vehicles slightly more expensive than they were a mere two years ago. This accounts for the overall slowdown in the industry as consumers defer purchasing new cars ahead of other obligations.

Silver lining

Obviously a slowing industry can make for a bad investment if organic growth prospects are muted.

Ordinarily, this would be the case for AHG given the declining growth rates in the industry. However, in my opinion, the silver lining lies in the current structure of the automotive retail landscape in Australia.

According to IBISworld data, the Australian motor vehicle dealers industry is fragmented with the largest player – AHG – holding a mere 7.1% market share. Peers AP Eagers and lesser-known operators Sutton Motors and Patterson Cheney hold approximately 4.9%, 1.8%, and 1% respectively.

The fact that the top four players of the car industry collectively command less than 15% market share is in stark contrast to the big 4 banking oligopoly of Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA), National Australia Banking Group Ltd (ASX: NAB) and Westpac Banking Corporation (ASX: WBC), which collectively accounts for a whopping 70% of Australia's banking industry. Accordingly, this makes the industry primed for consolidation.

In my opinion, AHG is best placed to capitalise on its market-leading position in the sector.

Balance sheet

Although management's recent trading update implies a slowdown to AHG's record growth rate and a decline to profitability for the current year, the fact of the matter is that the entire industry is feeling the pain. This means distressed asset sales could come onto the market if the trend worsens.

Given AHG's secondary refrigerated logistics business remains in robust shape, I believe AHG is best placed to weather any short-term downtrend and flex its balance sheet muscle to build a stranglehold across Australia's retail automotive market if/when required.

Foolish takeaway

Whilst profit downgrades are often cause for concern, I believe AHG's current track record and acquisitive growth prospects should make for a smooth ride from here on out.

Although the company may continue to be hit by weak consumer sentiment, the fact that it trades on a trailing price-earnings of 12x and offers a fully-franked yield of 7.33% (if dividends are maintained) makes a compelling investment case in my opinion.

The post Why I think the Automotive Holdings Group Ltd share price is a buy today appeared first on The Motley Fool Australia.

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The S&P/ASX 200 Index (ASX:XJO) is a perennial underperformer in June for a whole host of reasons (tax and non-tax), with history suggesting that a drop in May is likely to lead to further falls in June.

This seasonal underperformance trend has become even more pronounced in recent times with the index falling an average 4.2% in June based on five out of the last seven years. Accordingly, with all signs pointing to further falls in the index, I thought it wise to dust off the shopping list and add these seven stocks to your watch list for June.

Commonwealth Bank of Australia (ASX: CBA)

CBA's share price slumped almost 10% in May as the Federal Government's newly announced bank levy and growing concerns over Australia's housing market weigh on Australia's largest lender. Nevertheless, with the bank due to announce full-year results in early August and still commanding healthy return on equity rates, any further pull-back in June could be a good time to pick up some more shares.

Wesfarmers Ltd (ASX: WES)

Wesfarmers shares got crunched on Thursday after Morgan Stanley said Amazon's arrival could lead to Wesfarmers losing $400 million in earnings by 2026, due to the conglomerate's reliance on discount department stores Kmart and Target. Whilst the story remains to play out, I believe Wesfarmers' diversified operations warrant closer attention if its share price falls further.

Healthscope Ltd (ASX: HSO)

Private hospital operator Healthscope rebounded 6% on Thursday following a continuous 10 days of declines (out of 11). Whilst the recent pull-back is still unexplained, a key risk for the private hospital industry is its heavy reliance on private health insurers like NIB Holdings Limited (ASX: NHF) and Medibank Private Ltd (ASX: MPL) continuing to pay growing benefits to service providers like Healthscope. Even so, I believe the industry tailwinds within the healthcare sector should see the company perform well over the long-term, making a drop below $2 a good time to buy.

Automotive Holdings Group Ltd (ASX: AHG)

Unlike other retail stocks, the arrival of Amazon is unlikely to cannibalise sales at Australia's largest automotive retailer, given customers will still need to visit dealerships to buy cars. However, AHG appears to be dogged by weak consumer sentiment, amidst nascent economic growth. Accordingly, whilst its problems are systematic, I believe the company is trading at cyclical lows and could rebound higher in the medium-term if, and when, consumer spending recovers.

Select Harvests Limited (ASX: SHV)

Select Harvests' share price plummeted after the almond producer downgraded earnings guidance following a weaker-than-expected crop yield. Whilst the result is disappointing for shareholders, Select Harvests' strategy for long-term growth and reinvestment remains intact, making any further pull-back in share price a good time to get exposure to this food stock.

Myer Holdings Ltd (ASX: MYR)

Myer's shares have slumped following the voluntary administration of Topshop Australia (in which Myer holds a 20% stake). Whilst this has been compounded by Myer's own battles against Amazon and a softening retail environment, given potential for competitors like Premier Investments Limited (ASX: PMV) to make a takeover tilt at Myer, I believe any further decline to share price makes for an opportune entry point as a speculative investment.

RCG Corporation Ltd (ASX: RCG)

Whilst the arrival of Amazon is likely to impact footwear retailer RCG the most (out of this list), RCG's current price-earnings of just under 9x and trailing fully-franked yield of 10% appears too cheap to ignore. Accordingly, any further pull-back in share price demands closer attention as RCG appears to be a genuine high-risk, high-reward, investment proposition at the present time.

Foolish takeaway

Whilst it's no guarantee that either of these stocks will continue to fall over June, I believe any pull-back during June should be seen as an opportunity to buy any of these companies given their long-term value potential.

The post 7 "cheap" ASX shares to watch in June appeared first on The Motley Fool Australia.

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On Monday, the Healthscope Ltd (ASX: HSO) share price plumbed all-time lows as Australia's second-largest private hospital operator behind Ramsay Health Care Limited (ASX: RHC) notched its 10^th straight day of falls.

Whilst part of the fall may be attributed to leading investment bank Credit Suisse downgrading the hospital operator to 'underperform' (and placing a $2.05 12-month price target on the stock), the fact that Healthscope's share price is down over 13% since the start of the year warrants some closer attention in my opinion.

This is what I found.

Share price history

Healthscope's shareholders have had a rollercoaster ride over the last two years.

The company listed on the ASX in August 2014 at $2.10 a share and enjoyed a stellar first two years as a listed company.

Since listing to September 2016, Healthscope's shares surged a whopping 40% to trade at $3.09 per share as growing profits and favourable tailwinds lifted its share price higher. However, in mid-October 2016, Healthscope's shares came crashing down after management revealed a shock profit downgrade due to slowing volume growth in its flagship hospitals division.

Healthscope's shares have traded sideways for the better part of six months since the downgrade, despite the company reporting better-than-expected half-year results. In my opinion, this makes the recent pullback in share price an opportune time to revisit the investment thesis for this company.

Company fundamentals

I'll be the first to admit that apart from last week's broker downgrade, I struggle to find a valid reason for Healthscope's recent pullback in share price.

For the half-year ended 31 December 2016, Healthscope reported statutory net profit after tax was down 7% to $90.5 million, despite group revenue and operating earnings (EBITDA) being up 3.9% and 5.1% respectively.

Whilst the drop to headline NPAT was disappointing, most of this downside was expected given management's prior downgrade announcement in October.

Nevertheless, the key reason for Healthscope's profit downgrade (weak volume growth in its hospitals division) still managed to surprise on the upside, with the hospitals division delivering EBITDA growth of 2.2% despite mixed volumes.

Growth potential

Although Healthscope's half-year results were down on prior year figures, Healthscope remains well positioned to grow earnings organically.

With construction of its Northern Beaches Hospital in New South Wales remaining ahead of schedule, and the company reporting above-average volume growth at its newly opened facilities in each of Gold Coast Private, Knox Private and National Capital Private hospitals, I believe Healthscope should be able to leverage Australia's ageing population well into the future.

Foolish takeaway

Based on Monday's closing price of $2.00, Healthscope's shares trade on a trailing price-earnings of just under 20x and an unfranked, growing, yield of 3.7%.

In my view, I believe this presents an excellent risk-reward opportunity for long-term investors looking to gain exposure to a defensive industry.

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As I wrote here earlier this month, retail stocks are in a world of pain as the imminent arrival of Amazon and weak consumer sentiment wreaks havoc on the industry's bottom-line.

The pain is being felt across all retail sub-sectors given the likes of OrotonGroup Limited (ASX: ORL), RCG Corporation Ltd (ASX: RCG), Coca-Cola Amatil Ltd (ASX: CCL), Automotive Holdings Group Ltd (ASX: AHG) and AP Eagers Ltd (ASX: APE) have all issued profit downgrades in recent times. This is despite all these companies trading in different and varying retailing sub-sectors, indicating that the negative consumer sentiment is taking a toll on the entire industry.

Whilst most media headlines will have you believe its all doom-and-gloom on the retail front, I believe there remain some bright lights in the industry. None more so than Myer Holdings Ltd (ASX: MYR).

Why Myer?

Like most retail stocks, Myer's shares have been punished during the mass exodus of investors from the retail sector.

Its shares are down 36% since the start of the year, after slumping over 6% during trade on Thursday, as UK-based fashion chain Topshop (a company in which Myer has a 20% stake) revealed its Australian operations entered into voluntary administration.

Although part of Myer's year-to-date sell-off can be attributed to a drop in same-store-sales for the third quarter (amongst other things), I believe Thursday's closing price of 87.5 cents per share presents excellent value for the century old department store.

Here's why.

A new breed of retail

I'll be the first to admit that Myer is no longer the department store it was five years ago. However, it has caught up with the times through large-scale investment in its online website and an increased focus on customer service to win customers back to its stores.

New management has also started closing underperforming stores and discontinuing old stock lines so that the company remains agile and able to adapt to retail conditions quickly.

So far, this strategy is working well, with the company reporting net profit (NPAT) growth for the first time in years following its first-half of 2017 trade. Although total sales and same-store-sales have dropped slightly for the financial year to date, management's resolve to report NPAT and earnings (EBITDA) growth for the full-year has seen the company reiterate and maintain guidance. This is something that very few other retailers have managed to do.

Takeover target

Whilst I'm aware that management could swiftly retreat on its guidance for NPAT and EBITDA growth, the crucial reason why I'm optimistic on Myer's prospects is because of its potential as a takeover target.

As Australia's oldest department store owner, Myer has amassed a lucrative property portfolio in key sites across Australia. In fact, in its half-year results, Myer reported its net tangible assets backing was 28 cents per share – most of which was property related.

Accordingly, I'd imagine any further downside to its share price could bring bidders like substantial shareholder Premier Investments Limited (ASX: PMV) and private equity firms out of the woodwork to make a tilt at the company.

Foolish takeaway

Of course a takeover offer may never ensue for Myer leaving the stock to trade sideways for an extended period of time. Even worse is the scenario where Myer's management announces an unexpected profit downgrade, which pushes the stock to junk territory and makes its shares worth far less than they are today.

However, putting these risks to one side, I believe Myer's resurgent management, reiterated earnings guidance, prospects of a potential takeover and its discounted share price is reason enough to take a punt on the stock today.

The post Why I like Myer Holdings Ltd at this share price appeared first on The Motley Fool Australia.

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The SEEK Limited (ASX: SEK) share price continues to trade near all-time highs following the release of upbeat quarterly results from its China-focused subsidiary Zhaopin Ltd on Tuesday.

Zhaopin's trading update follows a strong six months of trade for SEEK, whose share price has surged a formidable 17.5% since the start of the year. With SEEK's shares currently trading on a trailing price-earnings of 37.6x (based on Tuesday's close of  $17.44), I thought it was time to re-consider whether Australia's leading job-classifieds company deserves your hard earned investing dollars.

Here is what I found.

Zhaopin update

On Tuesday, SEEK subsidiary Zhaopin provided a third-quarter trading update based on its unaudited financial results.

For the quarter ended 31 March 2017, Zhaopin reported revenue and earnings (EBITDA) growth of 30% and 5% respectively, demonstrating the company's continued expansion into the Chinese market.

Zhaopin's growth in quarterly earnings comes on the back of its 23% half-year revenue growth, indicating that SEEK's bid to make Zhaopin China's leading jobs portal is coming to fruition. Whilst the incremental increase to EBITDA comes at the expense of profit growth, given it is a direct result of increased marketing and sales expenditure, the pleasing silver-lining is that management's growth strategy around Zhaopin is starting to pay dividends as more users visit its website.

Growth potential

As REA Group Ltd (ASX: REA) and CarSales.Com Ltd (ASX: CAR) have shown over the years, the first-mover advantage is critical in becoming a market leader for classifieds advertisement. With SEEK's Australian and New Zealand operations continuing to perform well in the mature market, SEEK's international expansion is the key driver for future profit growth.

Whilst management's commentary around its half-year results indicate this expansion is on track, with SEEK already owning the leading job-classifieds site in Latin America, in my mind, conquering Zhaopin's target market – China – is key.

Therefore, despite the current profit contribution from Zhaopin likely to underperform its headline EBITDA and revenue growth rates (given the relatively high level of expenditure), management's clear vision to ensure Zhaopin penetrates the Chinese market and becomes a market-leader in the region is good-news for long-term shareholders.

Accordingly, I don't think the growth story for SEEK is done just yet.

Foolish takeaway

Despite Australia's knack for entrepreneurial innovation, the S&P/ASX 200 Index (ASX: XJO) has slim pickings in the way of up and coming technology stocks.

Although the likes of Aconex Ltd (ASX: ACX), WiseTech Global Ltd (ASX: WTC) and Computershare Limited (ASX: CPU) offers some choice as market-leaders in their respective fields, I believe none of them carry the same growth potential as SEEK.

Given SEEK's stranglehold over Australia's job-classifieds market, and its international division growing at the rate of knots, I believe the company has a bright future ahead of it.

This being said, at its current valuation, SEEK's share price demands perfect execution on its growth strategy meaning it poses downside risk if management fails to deliver. Accordingly, whilst the stock is definitely one to own, I recommend investors wait for a pull-back to below $16 per share before buying.

The post Is SEEK Limited the best tech stock on the ASX? appeared first on The Motley Fool Australia.

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For those readers that followed my advice and bought Sirtex Medical Limited (ASX: SRX) shares mid-last year, I'm sorry. As you'd no doubt be aware, Sirtex has continued to disappoint with its share price slumping last Thursday following another disappointing round of trial results.

Whilst I'd ordinarily brush this off if the underlying operations of the company were growing, the latest round of trial results suggest this company is going nowhere anytime soon.

Accordingly, I think it's time to sell.

Sirtex's shareholders arguably have a love-hate relationship with the company.

Back when I first recommended buying the stock in June last year, Sirtex was trading at then 52-week lows of $26.73, as investors feared a slowdown in dose sales growth would hamper profitability at the biotechnology company.

Nevertheless, shortly after my initial recommendation, the stock surged to $34.80 – a gain of 30% – as the company surprised investors after reporting higher-than-expected dose sales growth.

At the time, Sirtex's shares were flying and on track to join the ranks of CSL Limited (ASX: CSL) and Cochlear Limited (ASX: COH) as another one of Australia's biotechnology success stories. However, in late December last year, the company shocked the market with an unexpected trading update which sent Sirtex's share price tumbling.

Back then, many like myself, believed the company's downside was limited given its highly-anticipated trial results due for release this year. However, enough is enough.

Sirtex's share price has continued to languish with the latest FOXFIRE and SARAH trial results demonstrating there's little hope for the company to grow dose sales growth rapidly.

To date, management has been resting its laurels (and Sirtex's success) on the long-term study results of its SIRFLOX, SARAH and FOXFIRE clinical trials. The aim of all three trials was to show that Sirtex's (one and only) treatment – the SIR-spheres – increased the overall survival rate, or progression free survival rate, of various types of cancers, when compared to the current treatment of choice.

Invariably, the aim of these three studies was to convince the oncology community that SIR-spheres should be used as a treatment of choice, rather than its current "last-resort" treatment status.

Disappointingly for investors, all three clinical studies failed to support the company's thesis that the SIR-spheres were superior to the leading treatment in effectively treating metastatic colorectal cancer.

Although each clinical study showed reduced patient side-effects when using the SIR-spheres (as against the leading alternative treatment), these positive aspects are unlikely to be enough to convince the oncology community to prescribe SIR-spheres as a first line of defence. Accordingly, I don't think investors should stick around much longer to see if the company can revive sales growth.

Foolish takeaway

Indeed, Sirtex may surprise and continue to grow dose sales given its low market penetration in the area.

However, as Acrux Limited (ASX: ACR) has previously shown, the biotechnology sector can be a fickle space with any negative publicity affecting the company's long-term prospects.

Although the recent results aren't company ending for Sirtex, I do believe the company's lack of alternative products and disappointing trials means investors should cut their losses and sell the stock at current prices.

The post Why I think it's time to sell Sirtex Medical Limited shares appeared first on The Motley Fool Australia.

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Amazon took its first scalp this week after Wesfarmers Ltd (ASX: WES) decided to shelve its plans to publicly list its stationery and offices supplies business Officeworks. The Perth-based retail conglomerate, which also owns Woolworths Limited (ASX: WOW) competitor Coles, said that soft retail conditions meant it wasn't the right time to sell out of its outperforming Officeworks business.

If management rhetoric is to be believed, Officeworks was never actively up for sale. Instead, the strategic review of the business was brought about by investment banks indicating Wesfarmers could get a good price if it sold out now.

However, with the recent profit downgrades of RCG Corporation Ltd (ASX: RCG), OrotonGroup Ltd (ASX: ORL) and slowing sales at MYER Holdings Ltd (ASX: MYR), it appears the market is fearing the worst for the retail sector in anticipation of Amazon's imminent arrival to Australia.

Accordingly, most retail stocks have plummeted as investors grow cautious of retailers' prospects.

However, one stock which continues to buck the trend is Australia's mini-rival to Amazon, Kogan.com Ltd (ASX: KGN).

About Kogan

I'm sure most readers have heard of Kogan at some point in their lives. Whether they've purchased a generic kettle from the manufacture of household appliances, or splashed out on a grey import iPhone at discounted prices (compared to Apple), most readers are likely to have visited Kogan.com at some point in their lives.

As the brainchild of former accountant and current CEO and founder – Ruslan Kogan – Kogan.com started in 2006 as a direct-to-market website where Kogan-branded goods were sourced from overseas OEM suppliers and shipped directly to customers.

Whilst purchasing from Kogan meant customers were expected to wait many weeks before their goods arrived, the direct from factory supply chain meant Kogan could substantially undercut competitors.

This business model has proven to be a resounding success – though its share price tells a different story.

Financial performance

Kogan listed on the ASX in July 2016 for $1.80 per share and has never breached that mark since. The company floated at a forward price-earnings of 20x, almost two times as expensive as bricks-and-mortar competitors JB Hi Fi Limited (ASX: JBH) and Harvey Norman Holdings Limited (ASX: HVN).

The key drawcard for investors was Kogan's exciting growth prospects as a listed company.

For the half-year ended 31 December 2016, Kogan exceeded 2017 full-year forecasts within its first half, as sales revenue swelled 37.3% on the prior corresponding period.

Pro-forma trading earnings (EBITDA) for the first half hit $7.3 million allowing the company to post margin expansion and generate a first-half net profit after tax of $3.7 million – almost 48% higher than full-year pro-forma forecasts,

Foolish takeaway

Indeed Kogan's first half was an exceptional result in the backdrop of a struggling retail environment.

However, unlike Amazon, Kogan specialises in selling generic white-label products which have been rebranded under its own name. Whilst this hasn't been a detractor to the company's success (yet), I'd imagine the introduction of Amazon's world-leading supply chain could mean branded products become cheaper, placing pressure on Kogan's margins and spelling trouble for shareholders.

Accordingly, I would stay away from Kogan shares for the time being.

The post Why Kogan.com Ltd investors should be worried about Amazon appeared first on The Motley Fool Australia.

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