Resmed (RMD.ASX) reports first quarter FY17 results on the 26th of October. The result is likely to meet or exceed market expectations.
RMD is forecast to deliver 10%+ in EPS growth across the next few years. The recent acquisition of Brightree, Inova and Curative Medical will underpin both revenue and future profit growth, within an industry sector where demand continues to grow.
We hold Caltex (CTX.ASX) across most client portfolios from lower price levels. The algorithm engines triggered the entry signal back on 8th of July when CTX.ASX was trading at $32.00.
Our target was $34+ with a view towards selling covered calls at this point to then achieve an average exit price in the range of $36 to $37 or on a stand still basis, (or unexercised), 10% per annum cash flow from the dividend and option premium.
The investment continues to perform as expected.
FY17 forecast EPS of $2.15 with a forward yield of 3.3%. Underlying growth 5 – 7%.
Chart – CTX.ASX
Over the past 12 months, the correlation between the EURO and Eurozone (EZ) share market has gone through several different phases. Earlier in the year, the single currency was sold off on risk aversion when EZ equities were showing weakness. A few months later, the EURO was bid higher when EZ stocks fell as fund managers allegedly unwound currency hedges while cutting long stock positions.
However, during last Friday’s LDN session, the EUR/USD tracked the German DAX index with pretty much a point-to-point correlation. As discussed in previous FX UPDATES, the legal and financial pressures on Deutsche Bank (DB), along with other EZ banks, has been a headwind for the EURO but so far hasn’t unravelled the current price or chart structure.
But last Friday was different. As the LDN session opened, the German DAX was pushed below the 10,200 level for the first time since early August. At the same time, the EUR/USD fell to the session low of 1.1160 and was well offered on the crosses. A well timed rumor that the US Department of Justice (DoJ) was willing to lower their penalty demand on DB down to the $5.0 billion area triggered a 1.5% rally in the DAX and reversed the EUR/USD back up to near-term resistance at 1.1250.
With a full slate of data points from both sides of the Atlantic this week, FX Investors will be watching to see if this EURO-Equity connection of stronger EZ equities driving the EUR/USD higher has any staying power, or if it was just an end of month adjustment.
It’s our base case is that the DoJ rumor was just that and the market will be sensitive to ongoing litigation between the DB and the DoJ. Further, two of the key data points this week, US ISM aggregates and the US Jobs data, are both extremely currency sensitive releases which will drive USD flows.
On balance, we expect both the ISM manufacturing and services reports to bounce back from last month’s readings, which would be USD positive and SP 500 positive. The US Payroll data has been a volatile series over the last six months, but a print near the forecasted number of 170,000 new jobs should be good enough to keep the EUR/USD on a downward trajectory.
Chart – Deutsche Bank
In today’s post we look at stocks recently commented on that require further attention, as profit taking is in sight or the entry level setups are now looking compelling.
NVT.ASX – Lift trailing stop loss to $5.25 support and retain profit target at $5.40
BLD.ASX – We had a buy recommendation on this at $6.20 and it has now rallied 10%+ to $6.85. Take profit on BLD and switch to JHX.
AMC.ASX – We see value in AMC at $15 only when complemented with a covered call strategy. Target is 7% capital growth, plus 2% from Feb div and 3% option premium. We have a six month time horizon on this trade.
ASX.ASX – Looks better value following the recent pullback and our algorithm engines are flagging a buy point.
The above charts summarise a few opportunities we’re watching. For further detail on our investment ideas, visit the monthly strategy piece or the recent mid week update.
If you have trouble locating the links to either of the above recordings, please email me.
leon@investorsignals.com
James Hardie (JHX.ASX) has now retraced back to $20.30 and our algorithm engines are flagging this as a buy signal. Strong EPS growth combined with the technical signals should set JHX up for a substantial rally. Our target range is $22+
Chart – JHX.ASX
Today’s NY close will mark both the end of September and the end of the third quarter of 2016. Often times, these month-end, quarter-end trading sessions can see broad reversion moves within long worn price ranges. With the UK current account data scheduled for release today, could month-end flows lift the Sterling into the weekend?
Doing a straight quarter-to-quarter price analysis, the GBP/USD looks overdue for a substantial recovery. The pair started Q2 of 2016 at 1.4250 and started Q3 more than 10 big figures lower at 1.3225. Over the last couple of months, the GBP/USD has been trading in an inverse pennant formation bound by the 1.2850 level on the downside and finding resistance just under 1.3500.
During the same period, the FTSE 100 has gained just over 4%, which illustrates a combination of over expectations of widespread asset devaluation post-Brexit and the re-pricing of growth assets relative to the lower Sterling.
The UK balance of payment report is first-tier data set and has been heavily influenced by the sharp devaluation of the Sterling since the June 24th referendum. Market forecasts are calling for a contraction of the trade deficit from – £32.00 billion to -£30.00 billion. And while seeing the deficit shrink by 2 billion quid may not appear to be a large improvement, it’s still materially better than blowout numbers predicted by Brexit opponents.
Chart – FTSE
EUR/USD
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