At this point in the market we prefer healthcare names as a sector allocation for new money. Here are the recent buy signals generated by our Algo Engine.
With SHL, CSL and ANN we’ve added covered calls to boost the annualised cash flow to over 10%, whilst still allowing for capital growth if exercised at the strike price of the sold call.
Healthcare names are being sold off due to their high PE ratios and negative sentiment towards the sector, which is permeating from the US healthcare stocks leading the sell off.
Keep these on your watch list as the selling will likely exhaust and we’ll look for entry levels triggered by the algo engine.
The algo engine has triggered a number of ASX signals in the last 48 hours. CSL has sold-off and is worth watching, the other theme is the potential short in the insurance names IAG & SUN.
We’ll be looking at these trades next week.
Within the current sell-off Resmed, Sonic Healthcare & CSL look like reasonable opportunities in a back drop of increased volatility. Here are the entry levels to add to your watch list.
Resmed (RMD.ASX) – Buy at $8.50 – $8.70 range
Sonic Healthcare (SHL.ASX) Buy at $20.50 – $21.00 range
CSL (CSL.ASX) Buy at $96 – $102 range
CSL.ASX reported FY16 revenue of $6.1b on EBITDA of $1.65b. The $500m share buyback is less than conducted in the previous 2 years but will still provide marginal buy side support to underpin the stock. In FY17 we see revenue growing to $6.5b and EBIT in the range of $1.8b suggesting the underlying business can continue to grow at around 12%. This places CSL.ASX on a 12 month forward PE of 27x with a yield of 1.4% assuming dividends per share of $1.30.
An okay result and a stable outlook underpins CSL as a buy write . We own it at lower levels in the model and generated significant call premium earlier in the year when selling December call options.
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