Broker tips: Glenstrata, Tesco, Tobacco stocks

1st Oct 2012 11:11

Jefferies has reiterated its 'buy' ratings for potential merger partners Glencore and Xstrata after the companies announced on Monday morning that they had reached agreement on the final terms of a tie-up.Jefferies said that both Xstrata and Glencore shares may underperform for a short period after these votes, but the combined 'Glenstrata' will be one of its top picks for the long-term.The broker said it expects the combined entity to be "highly disciplined with respect to capital allocation, and we expect industry leading dividend growth to lead to a premium equity valuation and the ability to make accretive acquisitions for the merged company."Seymour Pierce has downgraded its rating for supermarket giant Tesco from 'hold' to 'reduce' ahead of the group's first-half figures this week, saying that visibility remains poor."While the valuation is not the most demanding given longer term growth potential, it is hard to see the shares performing while there is no visibility on UK profitability and whether management actions will reinvigorate the business," the broker said.Investec has upgraded its recommendation for British American Tobacco (BATS) and reiterated its positive stance on sector peer Imperial Tobacco (IMT) after the stocks' recent underperformance."The NHS wants us to stop smoking for October. We respond by going long on UK tobaccos," said analyst Martin Deboo."While we are not starry-eyed about the outlook, fundamentals, plus a spot of chartism, argue for upside from here."BC