Australian Investment Blog

Most focus will be on the Melbourne Cup today ("The race that stops the nation") at 3pm only 30 minutes after the RBA announces their decision on interest rates at 230pm. For the record we believe interest rates will remain unchanged and our "punt" for the Cup is "Big Orange”! We actually believe rates are likely to remain on hold for the next 6-months while the local economy shows its hand and the RBA get to see how aggressively the US will recommence with its rate hiking cycle.

Interest rates have essentially been falling for the last 35-years and as most of us hopefully realise all good things come to an end. The following chart illustrates that US 5-year bonds interest rate have fallen from over 16% to well under 2% today. Our belief is this bear market for interest rates has run its course and while it may not turn up quickly we are confident they will. When we consider the crazy situation that much of the world's bonds yield negative interest rates it gives us the confidence to believe in this inflection point i.e. a panic extreme.

US 5-year bond interest rate

Today we are going to look at 3 aggressive plays / trades that we are considering in November. Unfortunately we have been fairly quiet in this department recently which is a shame since we have a great strike rate in the short-term arena. If interest rates are heading higher and stock markets are likely to have a tougher few years ahead more active situation style trading / investing will be important. An aggressive play can also be within a portfolio as opposed to simply a short term trade, perceived safety is often not the case e.g. CBA is 23.8% and BHP 50.4% below the highs of the last few year BUT they would have been a must have in most portfolio managers holdings.

1 QBE Insurance $9.99

A story we have discussed for a while but now we are a little more cashed up we are watching this one closely. Simply QBE benefits significantly from higher US interest rates and a lower $A, both of which we foresee in years ahead.

QBE is a turnaround story at best having dropped the ball on too many occasions since the GFC, it's trading 30% below its panic GFC low while the ASX200 has rallied over 70% even after the last year's weakness. A good yardstick is companies take 4-years to turn themselves around hence QBE is clearly overdue!

We believe investors who buy QBE under $10 have a strong possibility of enjoying a 50% return in the coming few years.

QBE Insurance (QBE) Monthly Chart

2 TPG Telecom (TPM) $7.56

TPM has been smacked well over 40% in the last few months as investors dumped their overweight / too comfortable holdings in the Telco. The selling appears to have lost momentum and the stock popped 4.7% yesterday.

This is one for the aggressive trader but we believe you can buy TPM under $7.50 targeting over $8.10 with stops under $7.20 i.e. solid risk 2-1 risk reward.

TPG Telecom (TPM) Weekly Chart

3 REA Group (REA) $51.14

REA Group has been sold off over 20% along with many of the high valuation stocks over recent months. REA is not cheap on a P/E basis compared to the market but we believe it has both the pricing power and growth to justify these levels. Worth noting, REA holds its AGM on Friday and the lower risk strategy would be to wait for this to play out.

We are buyers ~$51 as a fairly aggressive investment but ideally would want to average ~$40, traders should exit on a break below $48.

REA Group (REA) Monthly Chart

Summary

We deliberately selected 3 stocks which we would / may play in a different manner:

1. QBE is an aggressive but longer term investment. We are buyers under $10, eventually targeting $15. Stops can be run under $9.40.

2. We like TPM as an aggressive trade under $7.50 targeting $8.10 with stops under $7.20.

3. We like REA today as an aggressive entry into a medium /longer term investment or trade. We are buyers ~$51, longer-term investors should average ~$40 but traders should exit under $48.

Overnight Market Matters Wrap

• The US markets traded in another narrow range last night with the Dow finishing the day down just 19 points to 18,142.42. The broader market S&P500 index closed less than one point lower to 2,126.
• Oil took another battering last night, dropping to a one-month low on fears that OPEC will not be able to implement the cut in production due this month. Oil fell US$1.98 (-4.1%) to US$46.72/bbl.
• Iron ore might help the likes of RIO this morning after it rose 42c (+0.7%) to US$64.38/t.
• The December SPI Futures is indicating the ASX 200 to open down ~13 points this morning, testing the 5,304 area.

All figures contained from sources believed to be accurate. Market Matters does not make any representation of warranty as to the accuracy of the figures and disclaims any liability resulting from any inaccuracy. Prices as at 1/11/2016. 7.30AM.

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