Broker tips: Miners, Vodafone, G4S

28th Jan 2010 12:49

Miners have had a tough time this month, with the sector down almost 14% from its high, but Nomura is advising clients to buy the current dip. The broker thinks fears about draconian monetary tightening in China and its impact on metals demand is 'misplaced' and expects Chinese demand for industrial metals to continue to surprise on the upside through 2010.'More importantly, history suggests that the mining sector actually outperforms through tightening cycles,' it said. 'The current correction in mining equities reminds us of the short-lived correction at the beginning of China's tightening cycle at the end of 2004.'Mining equities are expected to remain 'choppy' through the first quarter of this year due to the expected short-term rise in Chinese inflation and likely peak in OECD leading economic indicators, but Nomura 'would buy the sector now'.Its top picks are Rio Tinto, which remains a 'buy' with £43 price target, and Anglo American, also a 'buy' with £35 target.Analysts at Royal Bank of Scotland are also hot on miners. Their preferred exposures for 2010 are bulk commodities, copper and Platinum Group Metals (PGMs)'In the lead up to iron ore/coal price negotiations, our top picks are BHP and Rio,' read a research note today. 'We prefer BHP to Rio on a 12-month view.''Our preferred commodity exposures remain those with supply constraints. In particular, we believe copper, iron ore, and coal should outperform other commodity prices on the back of growing demand from China, infrastructure constraints (bulks) and a lack of large new projects (copper),' it said.Deutsche Bank saw some green shoots of recovery in Vodafone's second quarter performance but thinks these will be more apparent in the third quarter trading update and advises investors to buy the shares ahead of the recovery.Aside from its 'buy' rating, Deutsche Bank has a 185p price on the mobile phone group.'Mobile voice volumes have suffered from deteriorating employment,' the broker said. 'Though still negative, improving employment growth should see the headwind easing.'It notes that consumers have been holding off plans to upgrade to the latest smartphones though this should change.'Clear evidence of a revenue recovery would do much for Vodafone's rating,' it said.Vodafone began selling iPhones, the smartphone made by Apple, earlier this month. Security company G4S has had a good run over the past 12 months, but still trades at an underserved discount to its peers, argues RBS.The broker likes its exposure to emerging markets, which account for 30% of the firm's revenue, and believes security is a late-cycle sector that will experience positive estimate upgrades during 2010.It also offers structural exposure to central government outsourcing, which makes up 29% of group turnover.'Even if highly rated outliers are removed, G4S trades at a 15% 2010F PE discount to global security peers despite above-average EPS growth,' say RBS boffins.They initiate coverage of the company with a 'buy' rating and 310p target price.