Viewpoint: Bullish
The ASX200 recovered some recently lost ground on Tuesday enjoying broad-based buying but volumes were low, ultimately we saw over 70% of the index close in positive territory. The selling felt a touch exhausted yesterday following the recent aggressive downturn but there may be more bad news waiting in the wings before the weekend arrives:
KMD +2.23%: the retailer reported an FY22 miss today, however, the numbers were overshadowed by a strong August update. Revenue was up 6%, however Net Income fell 40% and was a ~5% miss to expectations. COVID disruptions weighed on the numbers. A factory shutdown in Vietnam also dragged on earnings while the company said up to 40% of orders for their footwear brand…
We have discussed LOV of late simply because it’s a stock we like and are long in our Emerging Companies Portfolio. Last month this jewellery retailer delivered an excellent result which came in 8% ahead of consensus for revenue at $459m, up 59% on FY22 while its high gross margins climbed to 78.9%.
Karoon Energy Ltd is an Australia-based oil and gas exploration and production company that has enjoyed the strong performance across most of the Energy Sector i.e. KAR is up +20% in 2022. This $1.1bn business doesn’t yet pay a dividend but it does feel unsustainably cheap trading on a P/E of 2.9x earnings for 2023 especially as it looks likely to remain FCF positive even at peak CAPEX, just as it did in 2022.
As we mentioned earlier, Apple (AAPL US) stole the show overnight ending the session up +2.5% while the tech-heavy NASDAQ only managed to advance +0.8%. The stocks ~15% below its all-time high and while it might prove a big ask to test the $US180 region into Christmas we can still see investors buying dips in this quality business.
US stocks recovered lost ground into the close overnight but it’s clearly a small blip on the radar as markets brace for the Feds decision, as subscribers know MM is finding it hard to envisage how much more hawkish Jerome Powell et al can become but likewise we don’t anticipate any softening of their stance until we see a meaningful dip in inflation.
Yesterday we saw OZL rally +3.5% ignoring the day’s weakness as rumours circulated that BHP would increase its bid for the copper producer from its original $25 offer. Obviously, we don’t know if the chat is correct or if OZL will say yes but it all makes sense to MM as the “Big Australian” looks to beef up its copper assets as the world evolves towards a cleaner future.
This week will see $18bn of dividends received by investors as heavyweights BHP Group (BHP), RIO Tinto (RIO) and Telstra (TLS) reward loyal shareholders, a huge amount of cash some of which will undoubtedly find itself moving back into stocks providing a huge tailwind for the index. To put things into perspective the whole of October will see shareholders receive less than $10bn in dividends although again this could still help the index regain its mojo.
The ASX200 drifted lower yesterday on apparent nervousness ahead of this week’s US rates decision as economists weighed the prospect of a 0.75% move, or potentially a sledgehammer-style 1% rate hike – only a few months ago the idea of a 0.5% hike was foreign to investors now many believe it could be twice that amount! Markets are developing that self-fulfilling quiet before the storm…
The commodity that has caught our attention the most over the last couple of weeks is precious metal silver although gold hasn’t yet managed to regain its mojo in quite the same manner. In our opinion, as bond yields approach a top and the $US a similar inflection point the backdrop will grow for a strong recovery by the likes of gold & silver with the latter already starting to shine.
