A look at valuations
A bit of a yawn of a session really with the index ticking in and out of positive territory before closing marginally lower on fairly weak volume ~30% below the 20 day average. Energy the standout again continuing a very strong month to date - Origin (ORG) up +2.64% the best of them closing at its highest level since August. Most of the large cap energy coys look good here although ORG has the catalysts to move higher in the nearer term - we hold ORG in the portfolio.
Elsewhere, we put on a short term trade today in TPG Telecom (TPM) – a stock we’ve been looking at for some time and bought today given the risk v reward now stacks up. By that we mean stops can be placed at logical levels and we get a multiple of our risk in potential upside.
We spent some time today reviewing valuations of the various sectors , and it remains fairly clear that Banks remain reasonable value + if we see a likely uplift in margins from a supportive yield curve then it’s hard to see them pulling back too much from here.
Source; Shaw and Partners
The broader Financial space is also interesting with some expensive names (think ASX) fairly obvious – and on the flip side, it seems SUN is being priced as a Bank rather than an insurer. Banks + Insurers benefit from higher interest rates yet SUN is not being priced with this in mind (yet). We own SUN in the portfolio
Source; Shaw and Partners
…and for a broader perspective on the market, Resources have now gotten ahead of themselves and are expensive…although it is the area that is seeing most growth in earnings as analysts revise up expectations on the back of strong commodity prices…BUT, it now seems the market is paying too much for it. One of the key lessons I’ve learnt over the years is not to pay a high multiple for a highly uncertain earnings stream.
Source; Shaw and Partners
We had a range today of +/- 29 points, a high of 5364, a low of 5335 and a close of 5351, off -8pts or -0.15%.
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