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COVER STORY

.7

C.

i.I STACK -llz YOUR HAND WITH I Po

ACES

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economic news continues to be positive. Interest rates are on hold and the unemployment rate is low. Throw in a record breaking Aussie dollar, a recovering US economy and global disasters and you have some amazing investment opportunities. It's worth thinking about diversifying into these hot sectors. Money asked five experts for their best picks and to share their wisdom. Resources guru Dr Alan Trench explains his passion for junior resource stocks, precious metals ETF expert Danny Laidler shares his strategy to take advantage of the rise of the silver price and currencies strategist Kara Ordway tells you why she thinks the Yen will gain ground. Property specialist Chris Gray gives his tips on negotiating the best price for quality real estate and renowned US stock picker Joe Forster gives his best buys in US shares.

Australia's

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RESOURCES All about your risk profile editor found me in a good mood the day she called me to guide Money

Your magazine readers to "what's hot" in

the resources sector. Why? On the day, one stock in my portfolio was up an impressive 89% (March 25). As I sat down to write this article, however, that same stock was first down 14% and then up 17% during the next day's trading before finishing unchanged. The stock is Newland Resources (NRL),

which stirred strong market interest via drilling results from new coal coking seams in Queensland. Low-risk investors targeting the resources sector should stick to BHP Billiton (BHP), Rio

Tinto (RIO) and Woodside Energy (WPL) simple as that. They're all great companies

and each has an enviable project pipeline for growth. Higher-risk investors should target smaller resources companies however. The two-day market experience of NRL described above is

BEST FMK Here's a freebie for readers. Subject to shareholder approval at a general meeting in early May, Navigator Resources (NAV) shareholders will receive a free in-specie distribution of shares in new initial public offering (IPO) Kimberley Rare Earths (KRE) on a 1 for 20 basis. The entry price, of course, is to own Navigator Resources shares before the record date for the distribution, set for May 16, 2011. I am the independent chairman of Navigator, so I will

be taking up my free shares, and subscribing around $50,000 to the new KRE float also.

be investors in the junior resources sector. Firstly, while the resources sector is "hot" overall, the day-to-day returns at the junior end of the sector can be extremely volatile. Those investors wishing to gain exposure to the emerging resources sector, therefore, need to be comfortable with such higher risk - meaning that shares will go down in price (and significantly on occasions) as well as up.

Next I should communicate that the 89% gain described above was the result of nearly two years of patience. I first bought into NRL at just lc in a private placement back in September 2009. It is now trading at around 15c, recording perhaps the best "14% gain" I have ever made. Mathematics was never my strong subject at school.

But seriously, the re-rating of NRL did not just occur in one day - it has taken over 18 months to accrue, much of that time without the headlines that accompanied the drill

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a useful example: it provides lessons to would-

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results and consequent share price gains of late March.

upwards for the balance of the next decade. As an aside, the benefits of China's growth

I cannot emphasise this latter point strongly

are not confined to steel. In frastructure build-out and urbanisation is particularly

enough. Profits, even in such a hot sector

as resources, take time to accrue. As an independent board member and adviser to a number of junior resources companies, witness over-impatience among investors

positive for copper and aluminium markets - and vanadium, niobium, rare earth metals and lead and zinc too. Elsewhere, there is uncertainty over ura-

regularly. Some junior resources sector inves-

nium's future as a global clean energy source,

tors expect re-ratings to occur every single day. That is simply unrealistic. Having set the scene, this brings me to answering some key questions.

given the unfolding Fukushima crisis. Here again, however, the main driver is China and not Japan. Over the next decade it is possible China will do for uranium what it has done for iron ore this decade; that is, drive miners to the point where they cannot mine sufficient quantities to satisfy demand. On to oil and gas: Clearly any escalation

Where would I put my money now? I put it where I have done for many years now

- in emerging junior resources companies. Junior companies seeking to develop tin, tungsten, lead, nickel, uranium, vanadium

of violence in the Middle Fast and North

and rare earth metals could all perform

not stall - far easier said than done.

trend is also upwards. "Peak oil" is a looming issue (where world oil production begins to decline in absolute terms) and is no doubt being discussed already in the boardrooms of both major oil companies (the producers) and mining companies (oil consumers).

Why invest when the sector is high risk?

lion barrels of oil a day - and an 80 million barrel new oil discovery is not made every

Never before in human history have two developing economies, namely China and

day. Any junior who has an exciting oil prospect and who makes (or shares in) a signifi-

India, each with more than 1 billion people,

cant discovery will fare very well indeed. The outlook for gas is not so bullish, particularly for juniors exposed to North American markets. Whereas some years ago the

strongly in coming years. The important provision here is that for the junior companies to be successful, they must keep advancing towards production and

Africa could drive near-term prices higher.

In the longer run, however, the oil price

How to find a

real bargain

In a nutshell, the world requires over 80 mil-

reached the metal-intensive phase of their economic development at the same time. As stated, however, junior resources shares can be risky. Personally, although I hold no shares in any other ASX sector aside from junior resources - I do however maintain a modest property portfolio to diversify risk.

What are the main investment drivers?

Henry Hub (North American gas benchmark) traded at a premium to other gas markets, it now trades at a discount to prices elsewhere,

given the plethora of onshore gas discoveries in the US in recent years.

India. This is not to ignore the steel-intensive rebuilds required for the recent natural disasters in Queensland, New Zealand and Japan. The reconstructive efforts for each

DR ALLAN TREN

of these regions are seen as a positive in terms of steel and steel-alloy markets over

several books, 'Deluding A Sharebtryer's Guide to Investing in

the coming year; however, the main driver remains China's growth. In steel China is on track to consume 1 bil-

lion tonnes of steel a year by 2020 - with positive implications for Australian iron ore and coking coal seaborne trade exports. China's economic and industrial growth

is subject to volatility just as for any other country - but the trend is onwards and

wants a bargain but, rememher, the number-one rule of property investing is finding quality proper-

Everyone

ties. The good news is we are currently in a buyers' market. The combination of more stock on the market and a slight uncertainty in the economy, which causes some buyers to sit on the fence, means you have a higher chance of grabbing a blue-chip property for a slightly lower price than at another stage in the market cycle. If you buy and hold on to a blue-chip property,

you can build up equity as its value increases,

borrow against it and build up your portfo-

China - and, to a far lesser degree at present,

TV Allan Trench

la is the author of he iditestpalian in Soom. Allan is an independent director

lio. Blue-chip property values typically grow between 6% and 10% a year in the long term.

If you were to buy for $650,000 today it would be reasonable to expect the property to be worth $689,000 in one year on 6% growth.

Looking at 10% growth, you could expect the property to be worth $715, 000 - a profit of $65,000. As property values often double every seven to 10 years, this is the real bargain.

of a number of emerging ASX-listect

Picking your suburb

resources corrlwles and als0 adjunct

Research the market, talk to real estate and

professor at the Western Australian School of Mines.

buyers agents and use resources such as property research houses to decide which suburbs

or properties are undervalued in your area. Page 3 of 7

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WHAT'S HOT NOW "ST me-41, For those with their heart set on finding the latest hot spot as well as staying blue chip, some tip Maroubra as the find of Sydney's eastern beaches. In Maroubra buyers can find properties around $100,000 cheaper than at the neighbouring beaches. Developers and renovators are moving into the area and, with more and more people recognising the suburb's merits, Maroubra could represent a rare chance to find a bargain in the Sydney market - but you will need to get in quickly.

The research houses always give good ratings

to inner-urban suburbs such as Albert Park, Middle Park, St Kilda, Elwood, Elsternwick, Prahran, South Yarra, Armadale, Hawthorn and Richmond in Melbourne and Sydney's

eastern beaches from Maroubra to Bondi Beach, the inner-west suburbs Leichhardt, Annandale and Ba linain, and north shore ha rbourside suburbs including Neutral Bay, Kirribilli and Cremorne.

Buy a bargain, renovate, and watch your wealth grow In November 2008 my company paid $620,000

for the last outstanding unit, to own a small block of seven at Coogee on Sydney's eastern beaches. Coogee fits the bill for investors: it is close to the CBI), where professionals work, and has all the leisure facilities professionals

look for: bars and restaurants, shops and, of course, the beach.

In less than two years the units were valued at $800,000. We are now going through council to double the size of the block, render it and extend balconies, which will add tremendous value to every unit. Internally we're likely to also spend $70,000

value, there are steps to understand the market and get property at a slightly better price:

Silent sales: Invest time in building up industry contacts or a buyers agent who already has contacts and will be in the know about properties before they hit the market.

on it, which should see its value increase a

Auctions: Auctions can be a great place

further $100,000 to $120,000. I always outsource renovations to a professional who can manage everything, and will get the job done to a very high standard very quickly. This requires an upfront spend but the property will be ready to lease or resell far sooner, so you can realise the capital gains on your bargain buy. I didn't buy the property cheap, but the price I paid is now cheap compared with if I had bought it after the work was done.

to find a bargain but they can also be a great place to get caught out and pay well above the odds. There will always be another property so keep a cool head, stick to your price limit and be prepared to walk away. Timing: It is possible to get a bargain by simply having a signed contract and deposit a few hours before someone else. Agents love the peace of mind of a guaranteed deal. Big picture: Amateur buyers can become

Negotiate to get the best price While quality is usually priced at a fair market

so emotionally involved, or get so caught up in the minor details, they lose sight of the bigger picture and pay too much. Always keep your price limits and long- term goals in mind.

CHRIS GRAY

-

Gray is OM of Empire which Chris builds property portfolios for other people - searching, negotiat-

ing and reriov,oting on their behalf. Chris hosts Your Money, Your Cair each Friday on Sky News ausiness channel. Chris is an accountant buyersagent and 'mortgage broker. For more visit ihnivvo.chrislrayroom.au.

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"1/1411111g

hA 2011 for the Aussie remains positive, currency

markets naturally have pullbacks.

Since our first parity party in October 2010, we have seen a few such pullbacks - for

example during the Queensland floods and after the Japan earthquake. We need to guard

ourselves against these types of pullbacks when planning exposures to our naturally long SA position.

How long, how far? There is a perception that FX trading is a shortterm speculative activity. But this is not always

g

FOREIGN CT TRRENrY!

Picking the moment to trade you are a foreign-exchange (FX) day trader, a company owner who deals with foreign currency,

Whether

a prolific buyer of overseas goods, or simply planning your next holiday, all of us are affected

by the movements in the Australian dollar. While picking up my US dollars at Sydney airport for a recent holiday, I found out the harsh reality that its all in the planning, no matter how small your currency trade is. After a hectic week at work seeing the Aus-

sie dollar dip and rise, I was a bit surprised to see the disparity between the underlying market and what money exchange companies charge. When I left the office the $A was trading at around US97.07e, but the rate I got from the money changer %'as only US89e. A week and a half later it was trading at $US1.03 and higher in the underlying market.

-11ST "ICH The Japanese yen will be one to watch as it gains ground directly after the earthquake. We saw some extreme volatility in the yen immediately after the disasters when the Japanese government pumped billions into their market. The G7 group of nations was also at the ready and did not hesitate to intervene to ensure the yen's stability after the disasters. We would expect to see large amounts of volatility in the coming weeks and there will be plenty of opportunities for intra-day trading for the yen crosses.

Hidden costs So, while we may feel we are enjoying the benefits of a superior economy with a higher interest rate, a stronger currency, stable infla-

tion and well-managed low public debt, it doesn't always translate into daily benefits for the average consumer. This is due to the hidden costs and fluctuations for the green, yellow, red, blue and purple notes we hold in our wallets. My experience at the airport money changer is a common example. How can we invest and make the most of the Aussie dollar to really feel the benefit of its superior rate against the greenback? If you're a small import company that buys

most of your supplies overseas, this may be a good time to pay your bills. It may be a good idea to lock in a price for that holiday package you've been delaying. If you have children studying overseas, perhaps

send some advance funding to their bank accounts or prepay some of their expenses. Moves in currency pairs can be fast. Buying something online one day compared with buying the same item three days later might

We live in a strong economic environment compared with most of the northern hemisphere and the general feeling of global confidence has increased the appetite for traditional "risk" currencies such as the Aussie. An interest rate of 4.75% while the rest of the world is hanging around the zero to 0.5% mark makes for a very attractive investment for those in the carry trade (this is when you borrow money at low interest and invest it in a high-interest-rate environment.) The euro continues to be strong, particularly with speculations of rate rises to come, though many traders are calling the euro/SUS crossover bought at its current level. Long term,

however, I am more bullish on the euro, as I expect $US weakness to continue, the European Central Bank to announce rate rises in the short to medium term and inflation pressures to continue across Europe.

When trading currency pairs you must always be aware what data is being released

and how that will affect a currency pair. Many traders are focusing on what central banks intend to do with their interest rates.

KARA oRnwAY Ordwm Is

a strategist with City index CASia Pacific.). Kara was

apviinted to 'establish an options trading

make a big difference to your credit card state-

desk In Aiastralia after serotral years at the City Index global headquarters in the UK. She is responsible for risk management

ment. Volatility increases as economic data

of some of City Inclieit's 'high spaLume and

is released and sentiments change among

high yakie trades.

market participants. Though my outlook for Page 5 of 7

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true, particularly with the recent $A strength making it an attractive long-term investment opportunity. The question for many investors and traders now is: Is this likely to continue, and, if yes, for how long and how far?

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PRECIOUS METALS: Wait for the sweet spot and silver have been by far the standout performers in the precious metal sector over the past

Palladium

RETURNS RASED ON

V, SPOT PRICL

12 months, posting stellar returns of 73% and 60%, respectively. Both palladium and silver

have found a "sweet spot" in terms of the current economic environment, as investors weigh up the potential of further "tail risks" against the sustainability of the nascent global economic recovery.

Gold and silver are well-known commodities for Australian investors. Gold's reputation as the ultimate "store of value" asset has seen the price of gold hit record highs in recent weeks, as investors attempt to buffer portfolios against the possibility of a broad decline in riskier assets such as equities. The multitude of threats plaguing the global economy - from the Middle East and North African unrest boosting oil prices to the Japan disaster, to the ongoing sovereign default concerns in the euro zone - have kept gold prices well supported. Additionally, with global financial markets

awash with liquidity, investors are again looking to gold and silver to hedge against the potential of declining currency values.

the US in 2010, and expected growth in the

HIGH PERFORMANCE 1Mill

MTh

LMITH

Gard

Silver

EG%

Platinum

1.)%

Palladium

4%

S&P/AS.X200

7%

3%

71% -3%

curce.8loorribeukETT Securilirmatt 3o441.-11.

BEST PICK

ments generally, rather than the spot price of the metal. Another alternative for investors

The silver price has seen

is to purchase the physical metal.

orponeritial growth in recent months. However. it is unlikely that that pace

Buying the metal

of growth can be sustained in the near term. If global Indust-jai aCtivity can maintain its recr_Ivery while risks to global growth linger in the background, a pull-back from recent highs should provide a niort opportune entry point into the silver market.

Silver, unlike gold, has the added benefit of

The hybrid nature of silver has pushed prices to 31-year highs, significantly outper-

Investors' challenges include confirming the quality of the metal, transporting and storing, and insuring it. When an investor wants to sell some of a holding, they need to find

a buyer prepared to give them a fair price. Investors can gain a direct allocation to precious metals through exchange-traded products such as ETFS Physical Gold, ETES

Physical Silver, ETFS Physical Platinum,

being used in a wide range of real-world applications, allowing industrial demand to do some of the heavy lifting if investment demand should slacken.

car market should reinforce platinum and palladium price growth in 2011. Traditionally, it has been common for Australian investors to gain exposure to precious metals through mining company shares. The problem with using mining stocks as a proxy for precious metals is that their price changes do not solely reflect the movement in the spot price of the metals. They are affected by a host of companyspecific factors, apart from the underlying commodity price. The result is miners are more correlated with equity market move-

ETFS Physical Palladium or ETFS Physical

forming gold, as the recovery of the global economy remains in place. Elsewhere in the precious metal sector, platinum and palladium tend to trade almost

as industrial metals, with around 70% of demand being accounted for by industrial uses. The automotive sector is the largest source of demand, with both platinum and palladium being similarly used for the production of catalytic converters.

Palladium is used primarily in normal petrol vehicles (as opposed to diesel) and its relative strength compared with platinum highlights the importance

PM Basket, all of which directly track the spot price(s) by holding physical bullion. HSBC acts as custodian for the bullion backing these products, and its costs are included in the annual management fee of 0.4% for gold, 0.49% for silver, platinum and palladium, and 0.44% for the precious metals

basket. All are listed on the ASX, so investors can trade them like any other equity. See disclaimer page 82.

DAM LAIDLER Lainier is the

IJanny head of Australia

investors

arid New Zealand for EIT Securities, with

have been

over 12 vea s Industry

placing on

the growth in car sales in

Asia, particu-

larly in China. China is the largest car market in the

experience.. ETF

Securities is the leading pioneer in develop-

kixj euthanqe-ttadedomrnodItie5 and listed the world's first ETC, Gold EtUlliOn Securities. In London and AustraNa in 2003.

world, having surpassed

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COVER STORY FtrisT nTry Nike is tne worm s numberone maker of athletic footwear and apparel, with two-thirds of the company's sales outside the US. Nike picked up Umbro in 2008 for $576 million, gaining a strong foothold in the soccer world. In 2012 they will replace Reebok as the NFLbranded apparel (the US National Football League). Their stock price performed extremely well when they had this licence previously. We recommend a buy up to $US77.41.

around SUS9.5 billion to as low as SUS6.5 bil-

US SHARES: What to buy US economy is flush with cash but

3M is a barometer of global economic

the money supply has not exceeded inflationary growth rates. Higher oil

activity, with 80,000 products from sa fety protection equipment to optical films for iPod touch screens and Ik:D TVs. 3M has 78 manufacturing sites across 28 US states, so the falling US dollar and high unemployment rates make them much more competi-

The

and food prices are affecting the Producer Price Index (PH), but gross domestic product (GDP), capacity utilisation and, most impor-

tantly jobs and housing sales are, showing slow but steady signs of improvement. The US has countered three shock events - political unrest in the Middle East driving up oil prices, the earthquake and nuclear disasters in Japan, and the European debt crisis. The 6% dip in the sharemarket these caused was quickly recovered. The market has proved resilient and it's a time to buy selected stocks.

Dr Pepper Snapple is the leading producer of flavoured beverages in North America and the Caribbean with more than 50 brands, including six of the top 10 non-cola soft drinks.

Dr Pepper has profit margins at about half those of Coke and Pepsi soft drink operations, and its freedom from Cadbury and incentives to improve margins are the right ingredients for the stock price to double. We recommend a buy up to SUS37.51.

iShares Dow Jones US Financial Sector Index Fund is an exchange-traded fund. The US has the roost flexible economic system in the world, and over time the finan-

cial sector will recover to pre-financial crisis highs. This is a longer-term investment and you can expect some volatility. Buy up to 5US59.61.

tive, while 65% of sales come from overseas. The company raised its forecast for 2012 to sales of SUS30.5 billion, and profit ofSUS6.20 per share. Buy up to SUS93.13.

Kraft Food and beverage company Kraft has reported a 30% jump in sales to SUS13.8

billion, reflecting acquisition of Cadbury. Sales in China soared 74% on the introduction of Oreo cookies. Profits came in line with adjusted expectations at US31c per share, or

Microsoft Handheld devices such as Apple's i Pad are revolutionising the way we work and play. Phones and tablets from competitors are coming fast and hard. Microsoft is too powerful and competitive and undervalued to be ignored. At 9.2 times June 2012 earnings, the stock is undervalued, and ignored by the raging interest in Apple. Microsoft will compete. Buy up to SUS25.48.

Oracle supplies software for enterprise information management. Its ma in battle is over data centres that power the "cloud". Oracle, Microsoft and others argue data cen-

tres should store servers, storage devices and software programs. Desktops should he access points only. Its time has come due to increases in bandwidth and speed. Oracle is poised to take market share from SAP and Hewlett-Packard. Keep buying, up to SUS32.02.

SUS540 million. The decay in profits was caused by weaker demand from unemployed Americans. J Morgan downgraded the stock after the announcement. Next year crop prices will fall, employment \all improve and Kraft will surge. Buy up to SUS31.61. Pfizer, the world's largest pharmaceutical company, is counting on products from the SUS68 billion Wyeth acquisition in 2009 to help overcome sales lost to generic copies of cholesterol pill Lipitor, the hest-selling drug in the world. Lipitor's patent ended in Canada and Spain and the medicine will lose protection in the US in November.

J9111111F5TER, Toe Fcwster

kJ is Managing Director of fortrend Securities, which helps Auslrallan investors diversify into sectors not avairabhe In Australia. His stock

selection process has helped him beat the market consistently fcir the past 15 years.

The stock price rose otter the announcement that they will slash R&D costs from Page 7 of 7

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lion. Pfizer has 17 experimental drugs in the last of three phases of tests required to seek US regulatory approval. The stock is moving, buy up to SUS20.38.

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