In this section we provide readers with three stocks that have attracted the interest of the broking community or the ‘herd’. Broker recommendations tend to be biased and highly optimistic. We try and breakdown these barriers and give our own honest opinion. It is important to keep in mind that technical analysis is only one part of the investment process and any recommendations do not give consideration to the underlying fundamentals of each business. RCR Tomlinson (RCR) – Current Price – $4.30 – Is a diversified engineering and infrastructure company providing integrated solutions to clients in the resources, energy and infrastructuresectors. RCR’s services include design, manufacture, fabrication, construction, installation, maintenance and off-site repair operating across Australia, New Zealand and Asia. RCR has three business sectors comprising RCR Resources, RCR Energy and RCR Infrastructure. These include power generation plants (solar, wind, battery and hydro), water and waste treatment systems, rail and road tunnel infrastructure, rail signalling and overhead wiring systems, mineral processing and material handling plants, integrated oil & gas services (both onshore and offshore), supply of RCR proprietary materials handling and process equipment, and property services including facilities management, HVAC and electrical services. Some of its latest projects include: The Daydream and Hayman Solar Farms in QLD and the Pilbara Minerals (PLS) Lithium processing plant. Broker View: Macquarie (OUTPERFORM $4.64) – The broker has re-instated its coverage with bullish rating. Following a $90m capital raising it believes RCR is now ideally placed to capitalise on the growing renewable sector and other infrastructure projects. It is also leveraged to any upside in the resources sector. Unconventional View: We agree with Macquarie. The company posted a bumper August profit result. Both profit of $25.7m and Revenue of $1.3bn beat expectations. Net debt was reduced to $25.2m with its gearing ratio remaining quite low. RCR has a strong order book of $1.4bn in work and has been awarded multiple large contracts. To add to it, the company completed a $75m capital raising @ $3.55. The funds raised will help provide balance sheet flexibility to take advantage of growth opportunities and it will support growth and development in solar and rail. What we like about RCR is its high exposure to the renewables sector. The renewables energy industry is forecast to be the fastest growing energy sector. It has some 12.7Gw in the pipeline of solar power projects. It also has $1.3bn in major rail and tunnel projects across Australia and NZ. Its renewables portfolio is growing, it consists of: 200MW Daydream & Hayman solar farms, 125MW Sun metals, 110MW Darling downs and another 191MW under construction. To add to it, RCR has won new contracts and work to shut down AGL’s Liddell power station and Origin’s Eraring Power Station. With an Order Book of $1.4B and Preferred Contractor Status of $1.6B, RCR upside growth potential is staggering. We expect further revenue and earnings growth in FY18 just from its pipeline of projects. On the StockOmeter the company pulls up OK at 67. Its ROE is increasing and its EPS is high. Debt to equity is low but then so is its dividend. On the chart – RCR has rallied quite hard since its results and it trading significantly higher than its support line. Its intrinsic value is around $3.80, which seems about right when you look at the chart. For that reason, we advise investors to Buy RCR on a dip closer to the $3.80 mark. Otherwise it’s a Buy. A2 Milk (A2M) – Current Price – $6.50 – Synlait (ASX: SM1) has received registration which will allow exports of a2 Milk’s China label infant formula to China to continue. All manufacturers of infant formula are required to register brands and recipes with the China Food and Drug Administration (CFDA) in order to import products into China, through traditional import channels, from 1 January 2018. The rigorous process included raw materials and finished products testing, certification of manufacturing standards and formulation assessment, as well as packaging changes in response to labelling and branding requirements. Broker View: Deutsche Bank (HOLD $6.17) – The broker has downgraded A2M from Buy to Hold. The reason for its downgrade is because of the strong move in its share price for both SM1 and A2m. Deutsche now finds its value is harder to obtain. Unconventional View: We disagree with Deutsche. As we’ve seen with Bellamy’s, momentum in the baby formula space is running red hot and bar any unforeseen hurdles, A2M can continue its upward march, higher and higher. The latest announcement only cements A2M’s outlook. Synlait Milk’s CFDA registration for A2M’s infant formula to be sold in China adds to A2M’s in-market credibility. Both A2M and Wattle Health (WHA) have strengthened their regulatory position in China via this registration. Being approved by the Chinese health regulator is a stamp of approval going forward. We think this approval is a big win for A2M, considering the stringent requirements China imposes on imports. Deutsche seems to be undervaluing its importance. Going forward, most brokers believe A2M is well positioned to expand their offerings both locally and internationally. Underlying demand is still very strong and the company continues to benefit from improved product availability. On the StockOmeter, the company comes in at 71. Yes it is trading on a very high PE of 59x, but it’s easily justifiable on its 48% ROE. Its EPS has also risen by 83%. The company also has no debt. What investors need to be aware of is…

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