Yield Names Get A Boost From Lower US Rates

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As US 10-year bond yields pull back from recent highs, shares in local yield sensitive names have been lifted off their recent lows.

The inverse correlation between US interest rates and GPT, SYD and TCL  has been acute over the last 3-months.

Since January 1st, US 10-year yields have risen over 20%, climbing from 2.40% to reach a 4-year high of 2.95% last week.

During this same period, the share prices of GPT, SYD and TCL have all dropped by over 10%. However, both SYD and TCL gained over 2% on Friday.

It’s our base case that the US 10-yrs will find resistance at the 3% level and offer upside price action in the local yield names.

All three of the above names are included in our ASX Top 50 model portfolio.

We expect to see price appreciation in the 4% to 6% range over the near-term as US yields retrace lower.

 Sydney Airport

Transurban

 

NCM Down 3% On Dismal Earnings Report

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Shares Newcrest have dropped over 3% in early trade as their half-yearly results disappointed the market.

The mining giant announced that revenue was down 5% to $1.7 billion, EBIT fell 50% to $230 million and free cash flow was reduced by 48% to $134 million.

As awful as these headlines appear, there were some bright spots.

The balance sheet improved compared to June 2017 with cash equivalents increasing to $556 million from $492 million.

Net debt improved to $1.436 billion from $1.499 billion, with their net gearing reduced from 16.6% to 15.9%.

 

A dividend of USD 7.5 cents per share was declared with the report, which will be paid to shareholders on May 2nd.

NCM was added to the Top 50 Model Portfolio on December 13th at $22.10.

We will look to add NCM to client portfolios on a pull back below the $22.00 level.

Newcrest Mining

 

WPL Update: Rights Issue Pegged At $27.00

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Shares of Woodside Petroleum remain suspended today pending the final details of their $2.5 billion equity raising.

The company has been clear that the majority of the fresh equity will be used to increase their stake in the Scarborough gas field in WA.

Early reports from institutional brokers signal that the 1-for-9 rights issue at $27.00 is being filled without any hesitation.

As a point of reference, WTI crude oil closed $60.50 per barrel last night. The last time WPL shares traded at $27.00 per share, WTI was near $42.00.

Our ALGO engine triggered a buy signal for WPL on February 12th at $31.30. WPL was added to our Model Portfolio on June 6th at $31.05 per share.

WPL shares are expected to trade again on Monday the 19th.

Woodside Petroleum

 

 

ALGO UPDATE: WFD Is Technically Oversold

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Our ALGO engine triggered another buy signal for WFD at $8.51 into yesterday’s ASX close.

This additional technical buy signal references a “higher low” formation relative to the November lows near $8.15.

Looking at the daily price chart, the gap from the takeover announcement in December has been filled.

This is a key development and suggests the current oversold conditions will likely be met with new buying interest in the near -term

Fundamentally, Unibail-Rodamco, the French retail giant which effected the takeover bid for WFD, has posted a 7.2% increase in 2017 earnings and expects similar growth in 2018.

Since a percentage of the $10.01 takeover price is script, it’s reasonable to expect WFD to get a boost from their result.

WFD was added to our Top 20 Model Portfolio on February 7th at $8.89 per share.

We prefer the long side of WFD at current levels with a medium-term upside target of $9.70.

 

Westfields

 

Technical Update For CCL

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Since posting an intra-day low of $7.52 on November 24th, shares of CCL have been carving out an ascending flag formation.

This is a bullish continuation pattern and is bounded by support at $8.05 and resistance at $8.65. A break of the $8.65 level would point to a measured move targeting the June highs near $9.40.

CCL is due to report earnings next Wednesday, the 21st.

In late November, the company advised that profits for the 12 months to December were expected to be $13 million higher than the consensus of $405 million.

CCL is scheduled to pay a 25 cent dividend on February 27th. At the current price, that pencils out to an annual yield of 5.5%.

Technically, an ASX close above $8.45 would suggest range extension to the $8.65 level.

Coca Cola Amatil

 

 

 

 

 

IAG Posts New All-Time High On Stronger Guidance

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Shares of IAG have rallied over 2.5% in early trade, hitting an all-time high of $7.89, as the company lifted their earnings guidance for the year ahead.

The general insurer reported a 23 % increase in net profit after tax, which hit $551 million in the six months to December, helped by price rises in its consumer and commercial insurance products.

IAG also reported insurance margin widened to 17 %, compared with 13% a year earlier. Further, the company lifted its dividend by 1 cent to 14 cents, which will be fully franked and paid on the 29th of March.

IAG has been in our Top 50 Model Portfolio since January of last year.

We suggest investors can sell the 7.50 calls into June for 25 cents. This will increase cash flow into the portfolio and allow for the 14 cent dividend.

Insurance Australia Group

 

A Buy/Write Strategy For AMCOR

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Shares of AMC continue to hold above $14.40 after yesterday’s sharp reversal off of the $13.70 low.

After announcing their H1 net profit of USD330 million, versus USD309 million last year, the packaging giant lifted its interim dividend by 8% to 21 cents.

We are holding AMC in our ASX Top 50 model portfolio and consider the stock a “buy/write” name over the medium -term.

As such, we would look to sell the $15.00 call into June, which would allow investors to collect the February dividend of 25.6 cents and enhance portfolio returns with the call premium.

Amcor

 

 

 

 

WTI Drops 3% On Higher US Production

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West Texas Intermediate (WTI) crude oil fell to a seven-week low of $58.07 per barrel, before paring losses to close Friday’s NY session down 3.2%  at $59.20.

This was the sixth consecutive day that Crude oil has traded lower. For the week, crude oil was down nearly 10%.

WTI broke below $59 a barrel after Baker Hughes reported the U.S. oil rig count rose by 26 rigs to 791, the highest total since April 2015.

The week’s losses accelerated on Wednesday after AEI data showed weekly U.S. production jumping to a record 10.25 million barrels a day. Meanwhile, the nation’s stockpiles of crude rose for a second straight week.

Our ALGO engine triggered a buy signal in both OSH and WPL on Friday’s close.

We expect the sharp down move in WTI to push both OSH and WPL back in the buy zone near last week’s lows of $7.20 and $31.05, respectively.

Oil Search

Woodside Petroleum

 

Higher US Rates Pushes AUD To A Two-Month Low

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The AUD/USD made an intra-day high of .8135 on January 26th.

At the time, we noticed that this had a potential for a “double top” formation relative to the .8125 high posted on September 28th.

The Aussie traded down to .7760 overnight and the internal momentum indicators are now pointing lower.

The fundamental reasoning for the recent fall has been the divergence in interest rates between the USA and Australia.

Since January 1st, the US 10yrs have risen from 2.4% to 2.85%. Over the same period, the AUD 10yrs have traded from 2.65% to 2.85%.

We expect this divergence to continue this year as the FED continues to tighten rates and the RBA remains neutral. At this point, the US 10yrs have a high target of 3.25%.

This estimate is based on the FOMC raising rates 3 times during 2018, which would correspond to the AUD/USD trading back to .7150.

Investors looking to profit from a lower AUD/USD can buy the BetaShare ETF with the symbol: YANK.

YANK is an inverse ETF, which means the price of YANK increases as the AUD/USD trades lower. It also has a weighting of 2.5%, which means the unit price will fluctuate  by 2.5% for every 1% change in the AUD/USD exchange rate.

With a current price of $13.20, we calculate that the price of YANK will be near $16.50 as the AUD/USD returns to the January 2017 low of .7160.

BetaShare ETF: YANK

 

Newcrest Mining Is Approaching The Buy Zone

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The price of Spot Gold has dropped over $40.00 since last Friday.

As a result, shares of Newcrest mining have fallen close to $2.00 and posted a 4-month low of $21.20 earlier today.

We expect good support in the spot Gold market near the $1300.00 area.

This roughly pencils out to the $20.80 level for NCM shares.

We suggest keeping NCM, as well as the smaller Gold producers, on the radar for a buying opportunity if spot Gold holds the $1300.00 level over the next few trading sessions.

Newcrest Mining