KEY POINTS:
Energy and resource stocks, Sky TV, SkyCity and, surprisingly, some listed finance companies are among the most popular choices in this year's Business Herald Broker Picks for 2008.
But the top contender for 2008 - with four of the nine broking firms picking it as a stock to watch - is Fisher & Paykel Healthcare.
Brokers have displayed a lot of faith in the underlying quality of the company, its technology and market position in the US.
It was also one of the top picks for 2007 but came in with returns of - 23 per cent for the year.
Last year a lot of pundits were picking it as something of a currency play. As an exporter it will certainly pick up on any signs of a fall in the kiwi. But it is a brave investor who'd gamble on that happening any time soon, given the mess the US economy is heading into. Many of the brokers in this year's competition now see the stock as fundamentally undervalued.
"FPH has been weighed down by the weak USD, where it earns most of its revenue. However, the company has a strong growth outlook and a track record of developing internationally competitive medical devices," notes Goldman Sachs JBWere. "We expect good earnings growth in FY09, without currency tailwind - any depreciation in the NZD/USD would be a bonus," says First NZ Capital.
F&P Healthcare remains a fantastic New Zealand success story by any measure. A change in market conditions could see it soar in 2008 but clearly many brokers believe it has the momentum to start delivering strong returns even if conditions remain static.
The popularity of energy and resource stocks comes through as a clear theme in this year's picks.
Not surprising given the global intense demand for energy resources. Add to that the prospect of a carbon trading environment that could be a big positive for some renewable energy producers and 2008 could be a good year.
Three firms have picked the perennially strong Contact Energy.
Contact is well positioned to benefit from the new carbon emissions trading regime in 2008. It has access to substantial undeveloped geothermal power sources.
Infratil is also picked three times - largely as a play on its majority stake in TrustPower. TrustPower will also be a beneficiary of the carbon trading regime with a 100 per cent renewable generation base. McDouall Stuart picks both Infratil and TrustPower.
New coal mining operation Pike River is tipped by Direct Broking and First NZ Capital. All going well it should start digging out its first commercial coal in the first part of next year. While it's taken some time to get the black stuff out of the ground, world prices for high-quality coking coal have continued to soar, setting the company up for good returns in 2008.
Another resource stock to rate a mention was NZ Oil & Gas.
It has made the transition from oil explorer to oil explorer and producer, notes McDouall Stuart.
"The Tui field, in which NZO has a 12.5 per cent share, is now producing consistently at 50,000 barrels/day, delivering close to US$5m [$6.5m] a day in revenue at current oil prices. The Pike River (NZO 31 per cent) and Kupe (NZO 15 per cent) projects are both scheduled to be commissioned within the next 18 months, providing NZO with further cashflow surety."
Hamilton Hindin Greene also tips it - as a cheeky sixth long-shot pick.
Direct Broking tips Heritage Gold and Pan Pacific Petroleum.
Investors often talk about counter-cyclical buying being the way to make money long term.
What could be more counter cyclical right now than the finance companies. Most are just hoping to service the next 12 months.
But Dominion Finance, Dorchester Pacific and Pyne Gould Corporation are picked by McDouall Stuart, Direct Broking and Hamilton Hindon Greene respectively.
The logic is that while more finance fallout is anticipated in 2008 there may be opportunities for those companies with the strength to ride through the downturn.
"Although we do not expect the sector to fully recover in 2008, quality companies like Dominion Finance are well positioned to benefit from the tightening in credit availability being seen across the wider sector. In our view, Dominion Finance's share price does not support the company's underlying value, and we expect the market to reflect this over the coming year," McDouall Stuart says.
Similar thoughts from Hamilton Hindon Greene on Pyne Gould: "PGC's MARAC business has managed to grow its lending in the past quarter despite tough conditions in the finance industry. MARAC has a well diversified source of borrowing and focuses on high-quality lending."
Both Sky TV and SkyCity also feature in this year's picks.
Neither stock has had a great run in 2008. That's probably an understatement for SkyCity, which has been beset with management woes and difficulty offloading new assets.
A takeover still remains a possibility in 2008, writes Forsyth Barr. "But even if this does not eventuate we still see considerable operational upside over the next two years."
New chief executive Nigel Morrison will no doubt inspire further confidence in an operational turnaround.
Sky TV was down about 5 per cent in 2007. But it remains a popular choice in 2008.
"Strong franchise, beneficiary of strong NZ$1 to US$1 and undervalued relative to our discounted cashflow," notes ABN Amro.
* TOP FIVE FOR 2008
DIRECT BROKING
Dorchester Pacific
NZX
Pan Pacific Petroleum
Pike River Coal
Heritage Gold
* * *
HAMILTON HINDIN GREENE
Pumpkin Patch
Pyne Gould Corporation
Ryman Healthcare
Fisher & Paykel Appliances
Fisher & Paykel Healthcare
* * *
ABN AMRO CRAIGS
Auckland Airport
Fisher & Paykel Healthcare
Infratil
Port of Tauranga
Ryman Healthcare
* * *
FORSYTH BARR
Fletcher Building
Mainfreight
Pumpkin Patch
SkyCity
Sky TV
* * *
ABN AMRO
Sky TV
SkyCity
Methven
Infratil
Contact
* * *
MCDOUALL STUART
New Zealand Oil and Gas
Infratil
Trustpower
Dominion Finance Holdings
Air New Zealand
* * *
FIRST NZ CAPITAL
Fisher & Paykel Healthcare
Contact Energy
Tower
Freightways
Pike River Coal
* * *
ASB SECURITIES
Mainfreight
Vector
Hellaby Holdings
Freightways
Wellington Drive
* * *
GOLDMAN SACHS JBWERE
Contact Energy
Freightways
Sky Television
Fisher & Paykel Healthcare
Pumpkin Patch
