Australian Investment Blog

Another day of some hits and a few misses in terms of reporting, however interestingly, those stocks that have reported well in the last few days have continued to see strong buying on the back of it. The broader market was strong on open, bid up strongly in the first hour of trade before some selling kicked in from early afternoon. On the broader market today, the Telco stocks did well with Telstra seeing some love adding +1.68% to close at $4.24, while the biggest drag was seen amongst the Energy names - an overall range of +/- 36 points, a high of 5777, a low of 5741 and a close of 5757, up +27pts or +0.47%.

ASX 200 Intra-Day Chart

ASX 200 Daily Chart

RIO – we sent an alert to SELL our 5% position in RIO today with a $63.50 limit. Markets are fluid and clearly the alert put some pressure on the stock which dropped very sharply as the alert was being received. Some may have been able to get out around $63.50, others may not, however this clearly illustrates the reality of the MM service. Real alerts, trading on a real portfolio and clearly mkt liquidity and speed of execution becomes a factor. To be clear, Market Matters is a service that writes daily notes about the markets, and trades a portfolio of stocks on the back of that. Whenever we trade, we send an alert to our subscribers notifying them of the actions we have taken on our portfolio. In our mind, this is the most transparent, clear and concise way to operate. In the instance, as the intra-day chart below shows, the stock pulled back sharply in a very short amount of time.

James will cover the stock in the next day or so, as part of a Direct From The Desk update to subscribers.

Rio Tinto Intra-Day Chart

Taking a step back, the basis of the SELL recommendation is around our more sanguine view for the material sector in the shorter term. We wrote….We are in the market now selling our position in Rio Tinto above $63.60 taking an 8.5% profit inclusive of the recent dividend. As per recent comments in the reports, we expect that RIO and resources generally will go through a period of underperformance, and therefore we’d like to increase our weighting towards the banks, reducing our exposure to resources in the short term. The threat of a sharp bounce in the $US we think could play into near term weakness in the sector, and given our large exposure there, we thought it prudent to cut RIO in this instance – locking in a nice profit, allocating the funds to other areas of the mkt.

Rio Tinto Daily Chart

Elsewhere, Domino’s (DMP) was hit hard – falling more than 20% at one stage after missing prior guidance, and downgrading their FY18 numbers. In terms of the result for FY17, it was a slight miss however they’d angered the mkt by upgrading a few months prior. They then put further kindling on the fire by guiding to +20% profit growth for FY18 versus the market expectations of more than 30%. Consensus earnings for FY18 sat around ~$160m and guidance implies something closer to ~$140m. The drop in terms of expected earnings plus a rerate in terms of PE saw DMP whacked – and rightly so. The stock closed down -18.8% to $41.50 after trading as high as $80.69 this time last year. BIG downgrades to flow through tomorrow and the stock still trades on around 30x. This is not one to BUY in the short term in our view, however another leg lower might just get us interested!

Domino’s Pizza Daily Chart

Have a great night

The Market Matters Team

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