Australian Investment Blog

WHAT MATTERED TODAY

A reasonable open to trade this morning with the index bouncing nicely from sub 6000, banks doing a lot of the grunt work before a selloff across Asian markets put a cap on the advance. Still, we saw some big stock moves once again. Galaxy Resources putting on +14.38% after announcing the sale of an asset – that also helped the other players in the sector with Orocobre (ORE) and Kidman putting on 3.5% and 3.18% respectively. On the flipside, online retailer Kogan (KGN) which has had a phenomenal run since listing making Ruslan Kogan a very wealthy individual saw some selling – down -6.67% to $8.40 - the trend in that stock now looks very weak

Kogan.com (KGN) Chart

Overall, the ASX 200 added 9 points or +0.16% today, with the index finishing at 6013

ASX 200 Chart

ASX 200 Chart

CATCHING OUR EYE

There was a very good article on www.livewiremarkets.com from PM Capital today looking at the return contribution from the resource stocks relative to the rest of the market. From the chart below it’s clear that resources have been the driving force behind returns since the start of 2016. Commodity / Energy price tailwinds on the back of improving global growth dropping down to good earnings and therefore good share price performances have underpinned strength while the rest of the market has been somewhat subdued.

In the last week though, resource stocks have suffered from selling with the likes of BHP falling ~7%. We covered the theme in the AM report this morning (click here) covering 5 of our favourite resource stocks into weakness. The conclusion from the AM report was simply that we remain short-term bearish the oil & resources space however the dream is not over – with more upside to go from the resource sector as inflation and interest rates track higher – a strong combination for resources. Recent weakness will provide an opportunity in the sector, but not yet. Our desired buy prices remain; BHP ~$29, FMG ~$4, AWC ~$2.40, IGO ~$4.40, OZL ~$9

Here’s current broker thoughts on BHP – consensus target sits at $31.33 however GOLDMAN’s now the most bullish with a $40 Target Price outpacing Macquarie at $36.10 and Shaw’s Peter O’Connor at $35. – you can catch my last video with Peter O’Connor (here) – he’s the No 1 rated analyst on the stock…

Broker Moves – downgrades flowed through for Metcash today in terms of earnings numbers, but no change to current calls from what I could see, the stock down today (-0.66%) but finished up from session lows

Elsewhere…

* ALL AU: Aristocrat Upgraded to Hold at Morningstar

* BPT AU: Beach Energy Upgraded to Hold at Morningstar

* IPL NZ: Investore Property Cut to Neutral at First NZ Capital

* SGM AU: Sims Metal Upgraded to Hold at Morningstar

Galaxy (GXY) $3.42 / +14.38%; Rallied hard today after the lithium miner announced a $US280 million ($A371 million) asset sale deal with Korean giant Posco. They sold a package of mining tenements in northern Argentina + unveiled plans to work more closely with Posco on future projects. Galaxy is developing the highly prospective Sal de Vida lithium and potash brine projects in Argentina, situated in the lithium triangle where the country meets with Chile and Bolivia. The lithium triangle is currently the source of 60% of global lithium production. The deal is subject to Posco board approval, which is expected during the third quarter of 2018, however the cash will go some way in assisting GXY deliver on the potential of its resource. While we like ORE and to a lesser degree KDR in the sector at this stage, the move today in GXY was strong and flowed through to reasonable performance in the other names.

Galaxy (GXY) Chart

OUR CALLS

No changes to the MM Portfolios today

Have a great night

James & 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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