Defensive Stocks For An Uncertain Market

Posted on | by Todd | Leave a Comment on Defensive Stocks For An Uncertain Market

Recent price action in the local ASX market suggests we’ve entered a period of heightened volatility and potential for downside risk. Since posting the high for-the-year at 5945.00, the index for Australian shares has dropped almost 4%.

Looking across the spectrum of ASX top 100 stocks, we have found several names which can offer defensive value in a broadly sideways to lower share market.

These include: IPL, MPL, WOW, CTX, QBE, SHL, SYD, TCL, AMC, and IAG.

We consider these stocks to have the potential for moderate capital growth and, combined with a buy/write strategy, will offer 10 to 12% cash flow on an annualized basis.

ASX: XJO Index

 

 

ASX Yield Sensitive Names Rally

Posted on | by Leon Hinde | Leave a Comment on ASX Yield Sensitive Names Rally

With bond yields moving lower in the US, we’ve seen strong buying interest in domestic yield sensitive names.

The rally is nearing the peak and taking profit  or selling tight covered calls is advised. History shows yields compressing below 4% will act as resistance for further share price advances.

Chart – TCL
Chart – SYD
Chart – WFD
Chart – SCG

 

Algo Sell Signal For Transurban

Posted on | by Todd | Leave a Comment on Algo Sell Signal For Transurban

The Algo Engine triggered a sell signal in Transurban (TCL) yesterday at $11.72.

The stock has rallied over $1.00 since last week’s announcement that tolls to pay for an upgrade of the Inner City By-Pass in Brisbane.

From a broader perspective, TCL has traded between the $12.65 high made in August, and the low of of $9.45 posted in early November.

The $11.72 level is a bit higher than the 50% retracment of of this range, but we see stiff chart resistance at $12.00. We see the first level of support in the $10.80 area.

We own TCL in client portfolios from lower levels and we’ve been bullish in recent weeks on TCL and utilities, in general. This view has been predicated on the faltering backdrop for the the global relation trade.

The rally in TCL will soon stall at near $12.00 and investors should sell call options into September, with a view towards maintaining exposure to the upcoming $0.25 dividend in June.

Chart-Transurban

US 10-year Yields

Posted on | by Todd | Leave a Comment on US 10-year Yields

The Dow Jones 30 posted it’s 7th straight lower close for the first time since 1978.

As a result, the US 10-year bond yields fell to a 1-month low of 2.38%. An increase in equity market volatility could could lead to another 10 to 15 basis points of downside on the yield.

Some of the local names that have moved higher on the lower yields have been SYD, TCL, WFD  and, to a lesser degree, TLS.

It’s likely interest rate stabilization will work as a near-term cap on these companies and allow for a covered call strategy to enhance the portfolio returns

Our Long TCL – SYD Position Update

Posted on | by Leon Hinde | Leave a Comment on Our Long TCL – SYD Position Update

Over the past month, we’ve been long TCL and SYD , as we felt US interest rates would not push beyond levels already priced in by the market, therefore creating value in yield sensitive names.

Out of the potential basket of yield sensitive names to consider, our preference was TCL and SYD coming into their June dividends.

With the above stocks now trading up 15%+ and 10%+, (respectively), from their recent lows and the yields now compressing below 5%, we feel potential capital gains from here are limited and it’s time to sell covered calls to enhance the return.

Chart – TCL
Chart – SYD

 

 

REIT’s & Yield Sensitive Stocks Offer Value

Posted on | by Leon Hinde | Leave a Comment on REIT’s & Yield Sensitive Stocks Offer Value

Domestic yield sensitive stocks are looking well supported as global yields in G7 economies retreat from recent highs.  The bond  market seems to be losing some of the optimism in the”reflation” trade.

Evidence of the retreat in yields can be seen in the US 10-YR treasuries where the yields are now trading down from 2.61% to 2.31%.

The impact of this is:  money is now flowing back to REIT’s, infrastructure, consumer staples and telecommunication stocks.

We’ve been promoting the selling of resources and buying of defensive yield names, for the past few weeks. We continue to see defensive yield names complimented with tight covered call options as the best way to deliver 10-12% cash flow whilst protecting capital.

Chart – SCG

Chart – GPT
Chart – TCL

Transurban Lifts H1 profit

Posted on | by Todd | Leave a Comment on Transurban Lifts H1 profit

Shares of Transurban are up over 3.5% in early trade as the toll road developer increased H1 net profit 41.9% to $88 million on the back of strong traffic flows and operational performance.

The company also lifted revenue by 26.3% to $1.3 billion in the six months to December 31st.

As a result, Transurban will pay a partially franked interim dividend of 25 cents per share, up from 22.5 cents from the year ago period.

At $10.75 per share, we consider TCL a defensive income play. With limited scope on the upside, we suggest selling covered calls in the $11.25 area  for an annual return in the 10 to 12 % range.

Chart – TCL

AMC, CTX, SYD, TCL & TLS

Posted on | by Leon Hinde | Leave a Comment on AMC, CTX, SYD, TCL & TLS

We’re allocating funds to defensive names with moderate earnings growth. By adding tight covered call options we’re boosting the cash flow and generating our return on investment (ROI) through a lower risk, lower volatility investment process.

We’re holding small levels of hedging through inverse ETF’s and are mindful of the increasing number of stocks within the ASX 100 and the US S&P100 that are showing fading momentum. High valuations in many names combined with relatively low revenue and profit growth is likely to weigh on share price performance.

The following names we’re currently buying. AMC, CTX, SYD, TCL & TLS

Chart – Amcor
Chart – CTX
Chart – TCL
Chart – SYD
Chart – TLS