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Wall Street resumes orderly selling

WITH the rhetoric of a patriotic rise in share prices on the US markets after the terrorist attacks, and the longest closure of the Dow Jones since World War 1, the markets resumed to sustained orderly selling. At the end of the trading session on Wall Street, stock prices had fallen to near three-year lows, with falls of 5 to 10 per cent commonplace.

The Dow Jones sell-off of 617.78 was the largest point fall in history, and the major indices hit their lowest levels since 1998 in extremely heavy trade. A record 2.34 billion shares were traded on the New York Stock Exchange and 2.2 billion on the Nasdaq.

The selling was calm and sustainable, there was no panic and the market soaked up any weakness.

“It’s a weak session but it could definitely be worse,” Prudential’s Bryan Piskorowski said. “Enhanced liquidity, corporate share buybacks as well as a general sense of cool-headedness has softened the blow.”

The tragic events in the US have provided Australian investors with a rare opportunity. Australian stocks have been heavily sold off in advance of the Wall Street weakness and are trading below true value at present.

At a range between 2800 and 2950, the All Ordinaries is at very good value levels in an historical sense. Any investor purchasing blue chip stocks at present will do very well with a long-term investment outlook.

The All Ordinaries index is around levels not seen since April 2000 after the tech-wreck. Defensive stocks are still the preferred sector, with banks, healthcare, gambling stocks, alcohol and selective retail stocks shining out.

Our preferred bank is ANZ with its limited international exposure, and currently trading at levels around $15.10. BankWest offers a good opportunity at present, with a dividend due shortly of 6.5 cents per share fully franked. It is currently at $3.79.

TAB and Tabcorp are also stocks that offer great defensive positions in uncertain markets. TAB is currently at $2.47 and Tabcorp is at $8.99. Ramsay Healthcare is a health stock with defensive characteristics and earnings certainty, currently trading at $3.65.

ADSTEAM MARINE

Adsteam Marine is the largest marine towage operator in Australia, and also is the world’s largest independent towage company. With concern over air travel at present, and the obvious security risks prevalent in air travel, other forms of transport may benefit from this negative sentiment.

Adsteam Marine has expanded its marine-related businesses in recent years, both in range and geographical spread. The group’s activities now comprise harbour towage, lines and mooring operations, tug and barge cargo operations, fuel distribution, ships agency and ocean salvage. They have operations in Australia, NZ, USA, the UK, throughout the South Pacific, Indonesia and India.

Adsteam Marine has widespread geographic exposure, giving a defensive element to revenue, protecting the group against a downturn in a particular region. It also is well positioned to make further strategic acquisitions in the international towage industry.

The recent acquisition of Howard Smith’s towage operations was a landmark event for Adsteam Marine. It helps Adsteam Marine’s international ambitions, with the group’s pro forma geographic split of revenue of the combined entity being 40 per cent in Australia and Asia Pacific, 41 per cent in North America and 19 per cent in the UK.

The move also puts the group in a strong position in the domestic market, with Adsteam taking full control of their j/v operations with Howard Smith.

The company is currently trading at $2.07, and the share price should continue to benefit from a positive mix of strong management, solid EPS growth and robust cash generation.

The company is currently capitalised at $405 million, with EPS growth estimated over the next three years at 12.9 per cent. The estimated dividend yield is 7.14 per cent fully franked, which is an exceptional yield for a defensive stock.

* Feedback to phayes@abnamromorgans.com.au

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