Top ASX stocks of the week: August 3rd 2018

2272
Brambles

Here are some of the more interesting ASX shares that have come across our desk this week.

Syrah Resources (ASX:SYR)

The Syrah Resources share price has had a tough 2018, falling 40 per cent year to date.

The move from exploration to production has had some hiccups, with early production targets missed, and Syrah has received weaker than expected prices for its graphite.

Syrah Resources is one of the most heavily shorted ASX shares, with the naysayers betting the company will need another heavily dilutive capital raising.

An article this week in the AFR said Syrah Resources CEO Shaun Verner will defer spending if it helped the company avoid an equity raising.

Rob Tucker of Chester High Conviction Fund has been attracted to Syrah as the world’s largest graphite deposit, which it expects will extract high quality graphite flake at (eventually) one of the lowest costs globally.

Another AFR article reports the top performing Regal Australian Long Short Equity Fund owns Syrah Resources shares.

One for the patient.

Bank shares

I’ve long been bearish on bank shares, saying their upside opportunity is limited whilst their downside risk is substantial.

You’d be hard pressed to find worse characteristics in an investment opportunity.

And the news wasn’t getting any better this week, with house prices having fallen 1.6 per cent over the past year, their largest decline since 2012

Yet bank shares maintain their popularity, particularly amongst SMSFs, drawn to their generous fully franked dividends.

Hamish Douglass thinks bank shares are pretty high risk over the next decade

A report from Endeavour Equity Strategy urges caution when investing in the big four banks. The report said the largest regulatory credit crunch in 30 years could see Sydney and Melbourne house prices fall by 15 to 20 per cent.

Although it may not have the dividend yield of the banks, a decent blue chip alternative is BHP Billiton (ASX:BHP) shares, trading on a forecast fully franked dividend yield of around 4.7 per cent.

Here are 4 more of the best dividend shares to buy on the ASX in 2018.

Zenith Energy (ASX:ZEN)

Zenith Energy builds, owns and operates remote energy power stations for a range of industries including the resources industry.

The company has been adding generation capacity, and this week executed a 10 year contract with Chevron Australia, something that helped the Zenith Energy share price climb 7 per cent higher this week to $1.20.

Naheed Rahman of Flinders Investment Partners estimates Zenith Energy shares trade on a FY20 forecast P/E of around 8.5 times earnings, making it one of the most attractive small cap opportunities currently available.

Paringa Resources Ltd (ASX:PNL)

This is a brand new company to The Capital Club radar.

I first came across Paringa Resources from the NovaPort Microcap Fund.

In their June 2018 quarterly update, the fund said a construction cost blowout saw Paringa raise further equity at a significant discount to the then prevailing share price.

Paringa is a new entrant into the Illinois coal basin. It is now fully funded to first production, expected imminently, in Q4 2018. After that, Paringa expects significant ramp up in 2019 with full production from two initial units in 2020.

The company expects to be cashflow positive in Q2 2019 and to generate $41 million EBITDA in 2020. This compares very favourably with its current market capitalisation of around $98 million. Paringa says it has a 25 year life of mine.

The Paringa Resources share price has fallen almost 40 per cent in 2018, currently trading at 22 cents.

As with all junior mining shares, this one is high risk, especially as it is subject to the vagaries of the coal price. But, if all goes to plan, it looks cheap.

Contributors to this article may own shares in some of the companies mentioned in this article. The Capital Club has a thorough disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
Avatar
Bruce Jackson has 30 years of hands on investing experience. He is passionate about stock market investing, running his own portfolio and SMSF. His focus is on small cap growth stocks. You can contact Bruce at brucej@thecapitalclub.com.au