Australian Market Summary, 13 November 2015
Firstly, a big thanks to Guy for taking up the slack and writing last week’s missive on very short notice.
And to markets…
Friday morning and it all feels a little glum.
The ASX200 is down just under 2% today, taking the losses for the week and the month to 3.5-4%.
But, though that may be true, I have to say, I am getting a little more excited by the opportunity presented.
This week’s release of the October employment figures showed the strongest monthly jobs growth in over 3 years.
Shouldn’t we be focusing on the positive?
Banks – the glass is looking fuller …
ANZ and National Australia Bank are both offering dividend yields this year of 7% fully-franked (that’s a 10% gross yield).
The employment figures give me heart that the underlying health of the Australian household is continuing to improve, and that any widespread housing down-turn is less likely since debt serviceability should remain strong.
In a sector that is likely to trade a tight range for a few years, the glass is now half-full in banks, and for this reason we moderately upped our underweight position in the bank sector in PRIME’s Separately Managed Accounts (SMA) this week (as per the ‘Portfolio Revision Note’).
Again, as a reminder to what PRIME’s Separately Managed Accounts are please see the short video from Mark Johnson in the link below:
Separately Managed Account (SMA): What is it? from Prime Financial Group on Vimeo.
Woolworths (WOW) – a classic high quality contrarian BUY
We initiated a BUY recommendation in Woolworths (WOW) this week.
I have to say, this is absolutely up our street in terms of the types of investments we like to make – a high quality, dominant franchise with an excellent balance sheet that has fallen on hard times.
The news-flow in WOW will likely turn incrementally positive in the months ahead as confirmation of a new CEO is made, and the group determines the outcome of possible sales and closures of underperforming business lines, Masters and Big W.
There is value there guys. I would liken the WOW call to past recommendations made in Cochlear (COH), RESMED (RMD) & AGL Energy (AGL).
BHP – a horrendous human tragedy, but a share price that now looks too low
Now, the controversial one – BHP is under $20 and at its GFC lows.
Before I talk to the investment metrics on BHP, first let me say, what a devastating human tragedy the Brazilian tailings dam collapse is. It’s appalling and the images are devastating.
Regrettably these things can happen in large-scale resources development.
The situation in Brazil has turned a dark cloud over BHP shares, and caused significant under-performance relative to its mining and oil peer group.
Arguably this has now made the shares look cheap.
In fact, it’s not arguable, they are cheap I think.
Trouble is, it’s the mining sector and I really can’t see any fundamental rays of sunshine coming in the foreseeable future.
So what we have decided to do with our SMA’s, is to increase our BHP positions as a trade, in expectation of a snap-back in performance in the near term.
BHP is hugely oversold, and we feel it is prudent for us to take back some of our pessimism by adding to the shares here for a trade and hence did so (as the ‘Portfolio Revision Note’ published Thursday night demonstrated).
If the stock bounces 20% as we expect it might, we would then look to unwind this position.
Elsewhere in the market this week … partial profit-taking in RESMED (RMD) and IOOF (IFL)
Having seen excellent outperformance in recent months, we chose to book some profit in the SMA’s in both RESMED (RMD) and IOOF (IFL).
We retain core positions in both, but having seen excellent performance, we felt it entirely appropriate to reduce the position sizes to some extent.
SANTOS (STO) – what a mess
Well, you would hate to be a SANTOS (STO) share-holder this week. Talk about going from hero to zero.
Having seen a speculative $6.88 cash bid tabled for your company only a week ago, STO shareholders perhaps have reason for mirth after their board of directors not only rejected that bid out of hand, but used the share price strength to then ask you for another $2.5bn to prop the ailing group up.
Fortunately it’s not been a name for us, and won’t likely be so in the future.
Oil Search (OSH) is and remains our energy pin-up, and we still feel strongly that Woodside (WPL) and OSH will find cause for further negotiation on the proposed tie up between the two groups.
Other items… Computershare (CPU), NAVITAS (NVT)
Computershare (CPU) put its skates on this week after a broker upgrade, and like IFL and RMD, the stock has gone a huge way to recouping the lost out-performance incurred after its profit warning in August.
NAVITAS (NVT) is coming back a shade and we remain minded to turning more positive towards the stock. Just a reminder to you all that this is on the watch-list.
Anyways, that’s the lot.
Time to feel a little more optimistic about things now that we are back at 5000. We are putting our money where our mouth is in our SMA’s and are running cash weights down.
Key Dates: Australian Companies
Mon 16th Nov
Div Pay Date: NABHA
Tue 17th Nov
AGM: Commonwealth Bank (CBA), Monadelphous (MND)
Div Ex Date: RESMED (RMD)
Earnings: Incitec Pivot (IPL)
Wed 18th Nov
Earnings: Orica (ORI)
Thu 19th Nov
AGM: BHP (BHP), RESMED (RMD)
Fri 20th Nov
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