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The share price in Crown Resorts (CWN) has staged a solid rebound since hitting a low of $10.30 in early November. With Jamie Packer re-joining the board and some new capital management initiatives, there could be further upside from the current price of $11.70.
An analyst report yesterday noted that Melco Crown, in which CWN owns a 11.2% stake, has declared a USD 650 million special dividend to be paid in early February.
Aside from this dividend payment, the gaming giant has lowered its VIP revenue projections, adjusted revenues for CWN’s lower equity stake in Melco, resulting in a lowering of its EPS estimates out to 2019 by close to 2%.
The company’s board reshuffle highlights that CWN has yield and near-term capital management appeal with the prospect of further de-leveraging from offshore strategic initiatives.
Taking into account the trimming of its earnings forecast, the group is trading on 9.3 times fiscal EBITDA projections.
Over recent weeks, we’ve highlighted a number of stocks that are overvalued and susceptible to any increase in market volatility or risk-off period.
Stocks that have rallied due to higher US interest rates are starting to retreat as the yield on the US10-YR starts to slip lower from the recent 2.64% high. Companies affected in this group include Computershare and QBE.
Australian Banks are beginning their sell-off and our bank hedge is starting to pay-off.
Exiting property plays, especially where there’s development risk will likely prove worthwhile in the coming months. We’re happy to stay exposed to the best-of-the-best only in this space and sell tight covered calls.
The issue we see is that the US bank results out so far, is probably as good as it gets for US 4Q earnings. Over the next two weeks, multinationals, industrial names and then big technology will announcement their results.
If we see an average EPS run rate for the S&P500 that fails to meet the $132 per share expectations, and in fact averages somewhere in the range of $120 – $125, then the Dow Jones will struggle to move higher.
With the above in mind, we’ve been making adjustments to portfolios to hedge an uptick in volatility and deliver returns through an aggressive derivative overlay.
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With a 27% price increase since mid-November, LNG is one of the hottest commodities in the world.
New data on LNG rates show that the price of shipped natural gas for Asian delivery has jumped $1.95 per MMBtu to $9.20 per MMBtu.
A big part of the increased demand is coming from China, which saw its LNG imports rise to a record high of 47% in November as compared to the same time in 2015, to a total of 2.66 million tons.
South Korea was also reported as a big driver for LNG demand , with that nation buying cargoes to replace power generation lost during maintenance of four domestic nuclear power plants.
Our preferred energy names remain WPL, ORG & OSH.
Friday’s US Retail Sales report showed strong demand for automobiles and furniture, providing further evidence that the economy ended the fourth quarter with momentum at the retail level.
The Commerce Department reported that retail sales rose 0.6% in December after increasing by 0.2% in November. Sales were up 4.1% on a year-on-year basis from December 2015 and rose 3.3% for all of 2016 versus 2.3% for all of 2015.
The Core Retail sales figures, which exclude cars, gasoline, building materials and food, rose 0.2% after being flat in November.
The Core Sales data corresponds more closely with the consumer spending component of the GDP and printed below the 0.4% forecast. Despite the smaller gain in Core Retails sales, the consumer spending trend in the US remains solid.
US Financial markets will be closed on Monday for a bank holiday. After that, the rest of the week has several top financial names which will be reporting Q4 earnings. The dates and the street estimates for earnings and revenue are as follows:
Tuesday: Morgan Stanley (65 cents/ $8.46 billion)
Wednesday: Goldman Sachs ($4.74/ $7.76 billion)
Citigroup ($1.12/ $17.29 billion)
Thursday: American Express ( 98 cents/ $7.95 billion)
IBM ($4.89/ $21.70 billion)
Friday: General Electric ( 46 cents/ $33.94 billion)
With stock index prices pushing up against record highs, earnings reports will likely have to be flawless to match the market’s expectations. If any of these first-tier financial names post materially lower numbers, the risk is that the market may have gotten ahead of itself in the post-election rally.
Over recent weeks, our Algo Engine has been flagging a number of short signals. This is indicating there’s a large number of stocks that are at the peak of their counter trend rallies. As the key indices start to struggle, we’ll begin focusing on the short signals with a view towards either taking profit on existing long positions, overlaying a call option on defensive names or positioning on the short side to profit from any sell-off in over valued names.
In the January Video Market Update on the ASX Top 50, which we will release in the coming days, we’ll explain more on the algo short signal patterns emerging and how we’re positioning portfolios for what we think is a period of increased market risk.
We’ve used the chart below of BXB to help illustrate the counter trend pattern referred to in the text above. In the case of BXB, the algo signal has drawn our attention to the recovery BXB has had since November, the compressed forward yield of now only 2.8% and the high PE ratio. In response, we’ve used the signal as a trigger to sell $12.50 at-the-money call options into April for a $0.50 credit, whilst expecting to keep exposure to the March $0.15 dividend.
Our long ORG position continues to perform well with Origin being one of the standout recovery stories over the past 6 months. We think this has further to play-out as ORG restructures assets, pays down debt and grows LNG export volumes.
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