Australian Investment Blog

WHAT MATTERED TODAY

With no overseas lead to key off this morning, local stocks were muted from the outset however continued strength in the Iron Ore price and reasonable buying through Asia + US futures that ticked higher during our time zone meant more buyers than sellers emerged. The IT stocks saw most attention thanks to strong moves in both Nearmap (NEA) and Xero (XRO) on bullish broker notes plus Appen (APX), Wisetech (WTC) & Technology One (TNE) did well, while the defensive utilities and real-estate sectors saw some profit taking after recent strength.

An overall quiet day on the desk and across the market more generally as the market awaits the next volatility event - shouldn’t be too long!

Overall today, the ASX 200 added +32 points or +0.51% to 6484. Dow Futures are trading up +56pts / +0.22%.

ASX 200 Chart

ASX 200 Chart

CATCHING OUR EYE;

Iron Ore stocks; the three main iron ore names - BHP, Rio & Fortescue - all traded higher today as the price of the commodity holds strongly about the $US 100 mark. Analysts continue to grapple with forecasting post the Vale outage resulting in begrudging upgrades from the bulge brackets. Today Goldman’s flinched, moving their price expectations into the triple figures citing solid steel production, falling stock piles and a lack of production capacity around to plug the gap left by Vale with the analyst expecting supply to be significantly impacted through 2020.

The new price deck forced the bank to upgrade Rio Tinto (RIO) +2.22%, which traded up to new decade long highs today in an early spike to $107.99. Goldman’s is not the only bank talking up the longevity of higher prices however street expectations still remain well below current spot prices. We own BHP in the Growth Portfolio, and RIO in the Income Portfolio.

Rio Tinto (RIO) Chart

Iluka (ILU) +1.06% is a recent buy in the MM Growth Portfolio at $8.55 and today the stock closed at $9.49. Interesting to seePerpetual become substantial (again) in an old favourite of theirs. Perpetual has had a multi decade relationship with Iluka – and its predecessors, however has been off the register for some time. ILU share price has been weak at the back end of last year, however the operational backdrop has improved plus ILU would be a net beneficiary of any trade war resolution. We remain bullish ILU and view Perpetual’s move as a positive.

Iluka (ILU) Chart

Aristocrat Leisure (ALL) +1.57%: It’s been a strong week for the gaming company after they reported a stronger than expected 1H19 earnings result that allayed some circling market fears that projected growth was an unattainable ambition. The market was bullish on ALL, had been for some time however it was clear that some were questioning their thesis.

Of the 15 analysts covering the stock (on Bloomberg) there are 10 buys and 5 holds without a sell to be seen. Such bullish expectations can often lead to disappointment however ALL delivered and we’ve seen a number of upgrades flowing from last week’s result. Deutsche Bank has become the most bullish with a $42 price target while we’ve also seen upgrades from JP Morgan ($34.25 PT), Macquarie ($31.00 PT) & Wilsons ($32.15 PT). We own Aristocrat (ALL) in the Growth Portfolio and we expect ALL to re-test recent highs around ~$33

Aristocrat Leisure (ALL) Chart

Broker moves:

QBE –3.57% was hit hard today which is fitting post our update on the insurance stocks this morning (click here). Today’s move was blamed on a MQG downgrade from outperform back to neutral, or in other words, from buy to hold. PT now $12.90 from $13.20. As we suggested this morning, QBE will be interesting again at lower levels however bond yields are too much of a headwind currently.

QBE Insurance (QBE) Chart

Xero (XRO) +1.45% was also in focus but on the upside today after it copped an upgrade out of Morgan Stanley despite the stock trading just shy of all-time highs. The accountancy software has a great deal of upside in its small business platform expansion according to the analyst, whilst continuing to show growth in the offshore arm. At the full year result announced just a fortnight ago, the small business platform saw revenue growth of over 120%, 4 times that of the rest of the accountancy business.

• Vocus Upgraded to Neutral at UBS; PT A$4.60
• Vocus Upgraded to Neutral at Macquarie; PT A$4.70
• QBE Insurance Downgraded to Neutral at Macquarie; PT A$12.90
• Bluescope Downgraded to Underperform at Macquarie; PT A$10.15
• Domino’s Pizza Enterprises Cut to Equal-weight at Morgan Stanley
• F&P Healthcare Downgraded to Sell at Goldman
• F&P Healthcare Upgraded to Hold at Morningstar
• Reject Shop Downgraded to Sell at Goldman; PT A$1.55
• Nearmap Rated New Buy at Citi; PT A$4.26
• Rio Tinto Upgraded to Buy at Goldman; PT A$108.40

OUR CALLS

No changes today

Have a great night

James, Harry & the Market Matters Team

Disclosure

Market Matters may hold stocks mentioned in this report. Subscribers can view a full list of holdings on the website by clicking here. Positions are updated each Friday, or after the session when positions are traded.

Disclaimer

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