ALGO Update: Go Long Sanfire Resources

Posted on | by Todd

Our ALGO engine triggered a buy signal in Sandfire Resources last week at $6.75.

The “higher low” pattern is referenced to the intra-day low of $6.42 posted on December 15th last year.

SFR operates the DeGrussa Copper/Gold mine in WA and reported a 50% jump in net profit to $123 million for FY 2018.

As a low-cost producer, SFR traded as high as $10.00 in mid-June, but has slipped along with the price of Copper over the last two months.

With an announced 38 cent per year dividend, the current price of $6.70 reflects a forward yield of just under 5.7%.

As the technical picture improves for both Copper and Gold, we see an initial upside target of $8.80 for SFR over the medium-term.

Sandfire Resources

 

 

Keep TWE On The Radar, Look To Buy Lower

Posted on | by Todd

Shares of TWE have been trading actively since the release of their full-year results on August 15th.

It seems investors are weighing up the negative impact of increased trade tensions between the US and China against the positive bottom line news over the last year.

TWE posted a NPAT of $360 million for FY 2018, which was an increase of 33% on the prior year.

The strongest component of the report was in Asia, which reflected a 23% rise in volume and a 12% increase in net sales.

As such, the biggest risk for TWE is a material slow down in demand from their Asian customers.

On balance, we see scope for a pull back into the the $17.20 area and a medium-term upside target of $20.00

Treasury Wine Estates.

 

 

 

Higher Rates Won’t Help The Local Banks

Posted on | by Todd

It’s a long held belief among investors that rising interest rates are good for Australian banks in terms of enhancing their earnings.

But this is not necessarily true in the current financial environment.

Banks make money on widening interest rate and credit spreads; simply, the difference between their cost of money and the return on the loans they make to their customers.

For example, last week the ANZ and CBA increased their variable rate mortgages by 16 and 15 basis points, respectfully.

The banks have cited the sustained rise in wholesale funding costs as the reason for lifting rates even though the RBA has kept official lending rates unchanged.

On a valuation basis, we’re cautious of how the repricing of variable rate mortgages will offset the headwinds of higher funding and materially add to earnings growth or an expansion of loan creation.

Further, it’s likely that the local banks will face increased regulatory expenses from the royal commission, including tighter underwriting standards and disclosures of fees.

On balance, we see scope for the share prices of the domestic banks to test the lows posted in June before sustaining any protracted rally higher.

CBA

ANZ

 

 

 

BHP Picks Up 6.1% Of SolGold

Posted on | by Todd

In a move to diversify its asset base, mining giant BHP has agreed to pay around $50 million for a 6.1% stake in SolGold, which operates a copper-gold project in the mineral-rich Cascacbel region of Ecuador.

Interestingly, one of BHP’s partners in the SolGold project will be Newcrest mining, which owns 14.5% of the mine and is the majority operator.

We take notice of the foresight of this purchase, along with other asset acquisitions by domestic mining names against the backdrop of falling raw materials and mineral prices.

We see solid chart support for BHP in the $30.60 area.

BHP

 

 

 

Oz Minerals Is Back In The Buy Zone

Posted on | by Todd

As a result of trade tensions between the US and China, prices of raw materials and precious metals have been trading sideways to lower.

The same price pattern has emerged for the shares of mining companies that export these materials.

In this environment, the shares of the lower cost producers will generally perform better as the raw material price begin to improve.

During the last quarter, OZL reported that their production costs for copper had dropped from 97 cents a pound to 72 cents a pound. In addition OZL has a strong balance sheet and may expand their share buyback plans over the next 6 months.

OZL is part of our ASX model 100 portfolio. We see good support in the $8.80/90 area with an upside target near $10.20 over the medium-term.

OZ Minerals

 

 

 

TCL Firms After Favorable ACCC Ruling

Posted on | by Todd

Shares of Transurban have been holding above the $12.00 mark since the ACCC approved the company’s bid on Sydney’s WestConnex tollway. Shares are currently in a trading halt.

The green light from the regulator clears the way for TCL to acquire other domestic assets to build on its future growth in earnings.

TCL currently own 15 of the 19 toll roads in Australia. This gives TCL an advantage over other bidders since many tollways feed into other strategic motorways.

The company plans to do a capital raising for $4.8 billion to fund the acquisition. $4.2 billion of this will be in the form of offering  shares at $10.80.

We don’t have a current ALGO buy signal on TCL and would look for lower levels to enter long.

Transurban Group

Share Buybacks Underpin US Stocks In August

Posted on | by Todd

This month was the best August for the NASDAQ index since the Dotcom bubble 18 years ago.

Both the SP 500 and the DOW Jones 30 indexes posted their best August performances since 2014.

More specifically,  Apple shares gained 20% and Amazon shares rose 12.5% during August. Together, these two names accounted for 25% of the entire NASDAQ gain last month.

It’s worth noting that share buyback programs for US listed stocks have increased over the last three years and are on track to reach $800 billion this year.

As illustrated in the chart below, August is usually the busiest month of the year for repurchasing stock and the pace drops off during September and October.

With US stocks at record highs and the local ASX index near a 10-year high, we urge investors to approach the market with caution at the current valuations.

Using our ALGO engine, we employ technical indicators to identify stock specific opportunities across a broad market spectrum during all market conditions .

Give us a call on 1-300-614-002 to discuss our current model portfolio holdings.

 

 

 

 

 

Westpac Gets A Lift From Higher Rates

Posted on | by Todd

Our ALGO engine triggered a buy signal for WBC on Monday’s ASX close at $27.76.

This “higher low” price pattern is referenced to the low of $27.24 posted on June 14th.

WBC shares got a lift yesterday after investors reacted positively to the bank’s out of cycle increase of variable rate mortgages.

Effective September 19th, WBC will impose a 14 basis point increase to all standard mortgages, which will lift the rate to 5.38%.

In previous postings, we have cited  compressed margins and decreasing loan creation as a potential headwind for the banking sector and consider the recent upside price action as corrective in nature.

We expect the other major banks to follow WBC’s lead and lift variable mortgage rates over the next few days.

Westpac

ALGO Update: Stay Long Woolworths

Posted on | by Todd

Our ALGO engine triggered a buy signal for WOW on August 23rd at $28.25.

Since then, the share price has has traded in a relatively narrow range between $28.80 and $28.20.

The technical picture has improved and internal momentum indicators are now in oversold territory.

We see good support in the $28.00 area with an upside target near $30.00 over the medium-term.

WOW goes ex-dividend for 50 cents on September 13th with a special dividend of 10 cents, for a total of 60 cents.

Woolworths

ALGO Buy Signal For AZJ

Posted on | by Todd

Our ALGO engine triggered a buy signal for Aurizon Holdings on Tuesday at $4.24.

This “higher low” chart pattern is referenced to the low of $4.10 posted on June 13th.

AZJ’s FY2018 results, which were released last week, showed a modest 1% decrease in revenue from last year, but the underlying EBIT of $940 million was up 6% from 2017.

With a total dividend of 27 cents, the stock has an effective yield of 6% at current prices.

We expect the initial price target of $4.60 to be reached over the medium term.

AZJ