Month: November 2015
Is there value in 3 underperforming household names?Good morning everyone and hope you all had a great weekend!OverviewSo far 2015 has been a fascinating but tough year for equities. The market is down almost 4% but some household names have been literally hammered e.g. ANZ Bank -14%, Seek -19% and BHP -35%.When household names get oversold the reactions can be dramatic as was witnessed by QANTAS rallying ~250% over the last few years; clearly aided by the collapse in oil prices that was significantly larger than analysts were predicting. However picking the bottom of stocks that are under pressure is statistically fraught with danger as was illustrated perfectly by Slater and Gordon’s 74% plunge last week alone. Then we look at BHP where Market Matters has recently been looking to pick a value bottom which clearly illustrates how dangerous and potentially expensive this can be.Turning to the MarketsToday Market Matters has chosen 3 well known stocks that have fallen between 18 and 47% in 2015.1 Myer (MYR) $1.07
- The ASX 200 lost ground and closed 36 points lower (-0.7%) to 5,166 following our brethren, China currently down 2.1%.
- The main sector of today’s negative tone was driven by the miners, with BHP down 3.6% to $18.09 and Fortescue Metals (FMG) down 4.9% to $1.96.
- The recently battered Slaters & Gordon (SGH), enjoyed some short covering today and closed 34.1% higher at $0.925 after it reaffirmed its profit guidance to investors.
- Dick Smith (DSH) was quite the opposite, slumping 57.6% to $0.28 after announcing a $60m impairment charge and cannot reaffirm its previous profit guidance.
Best Sector – Health Care
Worst Sector – Materials
Looking closely at 3 big movers from yesterdayHappy Friday everyoneOverviewYesterday was very encouraging for local equities with gains being achieved even with the significant negative influences from BHP and Slater & Gordon. The local futures rallied an aggressive 84 points from the opening but drifted from midday closing up 20 points for the day; a break back over yesterday’s high should at least have a second test of 5300 – see chart 1.Turning to the MarketsWith the US enjoying Thanksgiving last night markets have fewer offshore leads today. Nevertheless, futures are calling a healthy open of around +30 points.1 Sydney Airports (SYD) $6.58
- The ASX 200 climbed on the opening, but it was short lived as the market slipped into the red around 1.00pm. The market finished down 8 points to 5,202. For the week, the index lost 1.1%
- The energy sector was up today with Woodside Petroleum (WPL) up 2.2% to $30.25, Origin Energy (ORG) was up 1.1% to $5.60 and Caltex (CTX) closing up 1.4% to $34.25.
- Slater & Gordon (SGH) continued to draw in the sellers, with the stock closing down 25c to 69c down another 27%. The stock has lost just over 74% for the week.
- RIO Tinto (RIO) announced today they are expanding into the bauxite market, spending $1.9b on their South of Embley project in Queensland. RIO finished the day down 26c to $46.23.
Best Sector – Energy
Worst Sector – Utilities
BHP is rapidly becoming a big stone in investors’ shoes!Good morning everyoneOverviewToday we take a look at BHP more closely.Market Matter put an aggressive sell on BHP when it was trading close to $35; now over 40% lower Australia’s most inherited asset has clearly hurt many people’s overall wealth – see chart 1.However, Market Matters also put an aggressive buy on the stock ~$21.50 and this is feeling extremely uncomfortable.With the China driven commodities “Super cycle” behind us, a strong $US pressuring the prices of resources and a major tragedy in Brazil it was feeling like all the bad news was in the market, but the BHP share price continues to decline! From a contrarian perspective it’s even been heartening to read that institutional brokers are not even trying to peddle BHP at present!Interestingly, unlike Glencore that really a proxy for the copper price, for BHP, the strongest influencing commodity is oil and it is this that sets BHP apart from other ‘miners’. Perhaps this is why BHP is suffering more than the likes of Rio Tinto which has no oil business at all.Theoretically, the stock is yielding 8.65% fully franked which is a great way to illustrate that the market’s not optimistic about its earnings going forward.Overnight, both Iron Ore and Crude Oil were marginally higher, there was no negative lead from US equities BUT BHP fell ~3% which is very concerning. A saying from one of world’s prominent traders in the Market Wizards book comes to mind this morning after seeing BHP’s weakness overseas.”When your position feels so bad you want to vomit, double up, place a close stop and walk away!” – Buzzy Schwarz.At Market Matters we have previously stated that we never advocate averaging unless it is part of the original plan but the second part, capital preservation, is vital to successful investing.Turning to the Market
- A busy day was experienced on November Equity Options Expiry, where the ASX 200 drifted to close mildly higher, up 17 points to 5,210 after the benchmark traded as high as 5,253 earlier in the day.
- BHP Billiton (BHP) had a rough day losing 3.7% to $18.94, following the selling seen in the London and the US markets and after the September Capital Expenditure in the Mining Sector fell more than expected.
- The strengths were seen in CSL, ending 1.6% higher to $99.00, after touching a high of $100.04 and Commonwealth Bank (CBA), up 1.5% to $80.22.
- Santos (STO) disappointed today by 3.4% to $4.03, despite oil currently trading 0.4% higher at present.
- However, Slater & Gordon (SGH) continues to slump, down 51.4% to 94c.
Best Sector – Health Care
Worst Sector – Materials
Equities are looking solid as we enter the historically very strong seasonal period between the end of November and start of January. However after a strong 300 point rally over recent days finding decent risk / reward opportunities is clearly becoming tougher. Also, it should be remembered that Market Matters have been calling a top for US stocks in Q1 of 2016 so positions taken now are likely to be shorter term in nature.Below we have looked at three opportunities where we like both the stocks and trading risk / reward:
- It was a quiet session today in the Australian Equities market, however the ASX200 ended on its lows, down 32 points to 5,193.
- The banks had a breather from leading the pack in positive territory as of late and were broadly weak. Commonwealth Bank (CBA) ended 0.8% lower to $79.00.
- In the consumer staples front, Woolworths (WOW) had a late rally in the afternoon, after reports of the company approaching a corporate advisory firm with regards to a potential Big W sale. WOW rallied 1.4% to $24.38.
- Santos (STO) had a positive day, ending 3.5% higher to $4.17.
Best Sector – Energy
Worst Sector – Telcos
The Copper Price implies no economic recovery on the horizonGood morning everyoneOverviewThe financial press often refers to copper as “Dr Copper” due to its historically unique ability to forecast economic trends so with it falling another 13% this month concerns are rising!This relationship makes sense because copper is used in most sectors of the economy e.g. homes, factories, electronics leading to the base metal being view as a reliable economic indicator. We currently have a slowing Chinese economy in the mix which has an enormous influence on the copper price but not as much on the US / European economies; hence perhaps the ‘Dr Copper’ effect might be diluted from a world perspective this time around.Nevertheless, it is the Chinese economy and base metal prices that have a profound effect on the Australian economy and related share prices.Turning to the MarketsMarket Matters has been, and remains, bearish copper since Market Matters began, targeting sub 150 – still 25% below today’s prices – see chart 1. This prediction was based on concern over China going forward and a very bearish technical chart pattern.Obviously this was a big call when copper was trading close to 350 as was the call for BHP to fall from the mid $30 region to around $20 BUT never underestimate what the market can do!Interestingly, Copper, the BHP ADR market and Newcrest Mining (NCM) long term charts all have very similar “false breakout” characteristics that have a high statistical negative ramification- see charts 1, 2 & 3.The Market Matters call has not directly made money but the 100% avoidance of the resources space apart from the occasional trade and a very recent aggressive BHP play has saved an enormous amount of money and stress.
- The ASX 200 lost some ground today as expected, finishing 44 points lower (-0.8%) to 5,232 with the banks and materials sector providing plenty of weight below water.
- National Australia Bank (NAB) was the weakest link of the big 4 banks, ending its day $0.38 lower (-1.3%) to $29.84.
- BHP continues to disappoint and reach new lows since the GFC. BHP closed 1.8% lower to $19.71.
- In the Health Care sector, Healthscope (HSO) slid 6.7% lower to $2.64, after HSO confirmed with its investors that Private Equity groups, TPG and Carlyle have sold their stake. HSO finished 6.7% lower at $2.64.
Best Sector – Energy
Worst Sector – Materials
Really bullish, there's more to go in the reflation rally
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