Market pulls back with all sectors in the red
What Mattered Today
Some weakness crept into stocks today but again, volumes were light and the conviction continues to be reasonably low. Unlike yesterday, material stocks were the outperformers dropping marginally as a group while the financial sector felt most pain.
We had a range today of +/- 61 points, a high of 5807, a low of 5746 and a close of 5760, off -46pts or -0.80%.
ASX 200 Intra-Day Chart
ASX 200 daily chart
We used today’s weakness to add one stock to the portfolio – that being Platinum Asset Management (PTM) which we view as cheap in a relative sense v peers and the technicals stack up with a good risk / reward entry at $5.34.
A few points about PTM worth reiterating;
1. It’s been a woeful 12 months for the fund manager, down around 25% from its 12 month high above $7 in early January.
2. The drop is a result of weak performance, largely from its international fund which houses the bulk of its FUM
3. As a result they’ve dropped from about $28bn in Funds under management to $23b
4. There’s been a few other issues with key personnel leaving and a move from retail investors to lower cost passive strategies such as ETFs
5. In terms of outflows, these continued in December, but were about $97m which was a big improvement from the months prior and above where most analysts thought they would be – the bleeding is slowing it would seem!!
So why buy a stock when clearly the themes around it seem negative?
It’s cheap, trading on 15 times versus the most relevant peer being Magellan on 20 times, they have a very low cost base – one of the lowest in the industry, the market hates them at the moment and ‘less bad news’ will prompt buying. We like going against the grain, and this is certainly one that fits the bill. We think the outflows may be improving and the strong market performance should get retail money back into their funds – but as always, its likely to happen after the horse has bolted! They also pay a 5.6% fully franked yield with their dividend due on early March. We allocated 5% to it as a starting point. This still leaves our cash balance at 31%.
Platinum Asset Management Daily Chart
Sectors – Materials relative performers after a weak session yesterday.
ASX 200 Movers – Golds strong however some signs that short term strength may be losing momentum – NCM susceptible to a pullback from current levels in our view.
What Matters Overseas
Q4 reporting kicks off this week in the US with JP Morgan and Bank of America reporting on the 13th. Both stocks have been strong in recent times (as has the financial sectors generally).
JP Morgan Daily Chart
Overall, the S&P 500 is trading of 17.1 times forward earnings, a premium to its historical average of 15.1 times. Earnings per share are expected to tick up by 3% which is positive – and reasonably optimistic we would think given the headwinds of a higher currency, higher wages and higher funding costs!
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.
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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 10/01/2017. 5.00PM.
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