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Alumina could offer 100pc return within 3 years

Tony Young  |  19 Sep 2014Text size  Decrease  Increase  |  

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Tony Young is a consultant to Morningstar. Tony was formerly head of research at a leading investment bank and was a director of Aspect Huntley prior to its acquisition by Morningstar. The views expressed here may differ from those of Morningstar.


This is my third stock-specific note for YMW in 10 years. In February 2009, near the nadir of the GFC, in an article on Australian banks titled Straw hats in winter I said: "I believe investors will achieve an excellent return from each of the four major banks on a five-year view."

The share prices of Australian and New Zealand Banking Group (ANZ), National Australia Bank (NAB), Westpac Group (WBC) and Commonwealth Bank of Australia (CBA) were respectively $12.60, $17.70, $16.30 and $29.40.

My second note, in February 2011, was titled: "Investment opportunity -- Australian office REITS. CPA could possibly offer an 80 per cent return over three years."

The two stocks mentioned -- Charter Hall Office and Commonwealth Property Office Fund (CPA) -- were taken over at significant premiums to their prices at the time of the note. CPA achieved a return of 61 per cent in the two years before it was taken over.

 

Now Alumina: Cyclical recovery in a secular growth industry

The Alumina Limited (AWC) share price is expected to reach at least $2.80 within three years and shareholders are expected to receive at least 25 cents in dividends. A key question is whether AWC can recover to the EPS (earnings per share) levels achieved seven to 10 years ago.

In my view, investing in AWC represents a low risk/high reward opportunity. I disclose I started investing in AWC in February 2013 and over the past 18 months have accumulated a material parcel. I have purchased more in the last month.

So, why am I writing another stock note after a gap of three years? It is for friends who continually ask why my view differs to those of many brokers.

Three global top-tier brokers have price targets on AWC of less than $1.21, versus a current price of $1.50. They may be right but I would like to offer an alternative view.

I have been investing in stock markets for over 40 years and was an institutional stockbroking analyst for 16 years. My models often had thousands of lines of analysis.

For the past 13 years I have been a full-time investor and have made the most money in situations where the analysis has been completed on one page. In my experience, one can achieve the best returns from macro analysis rather than micro detail.