Australian Market Summary (Issue 359) – 10 July 2015

Last week I promised I would provide a little more detail (opinion) for you in this week’s missive.

Please bear with me, as I have quite a few things to say.

Importantly, I am going to try and be quite explicit with a few thoughts and ideas and hopefully these make sense to you.

Before I kick off, can I also please say that I am planning to get out and do a heap of meetings amongst the client base and our associated accounting partners in the coming few months, and I quite genuinely would encourage you to shout out if you would like to a) sit down for a chat, or b) have me sit down for a chat with you and your friends or colleagues at a venue of your choosing.

Please don’t be shy to raise this, it would be great to meet and see more of you, and to be able to share more of the thoughts we have with you and your peer group.

OK, enough said there.

Even though the market is currently being dominated by Greece and China right now, perhaps I can leave my detailed remarks on that situation for the ‘International’ section.

In short, it is hard to be anything but cautious on the whole Chinese and Greek situations right now, irrespective of the outcome this weekend in Greece nor the ‘bounce’ in Chinese shares Thursday and Friday.

My inclination is that this market shake-out is still incomplete and opportunities will arise from modestly lower levels.

In the next few paragraph’s here I would like to outline some broader market and stock thoughts specific to the Australian investable universe.

So, some initial statements:

  • Short-term I expect the market lower, but in the medium term I see shares at higher levels. I do not think the market has peaked yet.
  • Opportunities in the coming 6-12 months will come, as they have this past year, OUTSIDE THE TOP-20. We are watching all manner of names, but Oil Search (OSH) is perhaps the most interesting. Let’s see.
  • Commonwealth Bank (CBA) will not trade above $100 in the next 2-years and possibly longer.I recognize this is an inflammatory statement to some, and my views on the lack of value in CBA have been long made, but the reality is that CBA is expensively priced on nearly any measure of sustainable earnings, and has minimal (if at all) dividend growth in the years ahead.
  • Additionally, Australia is now at the end of its interest rate cutting cycle. Hence, the support CBA, the banks and many of Australia’s leading dividend-payers have received from falling rates is eroding. In the same way Wesfarmers (WES) has underperformed the ASX200 for the past 2 years, despite being a ’high quality’ name, I fully expect CBA to increasingly lack impetus on the upside. CBA will become the next WES.
  • Computershare (CPU) is a BUY. We have had a good history with CPU in the past few years, and we again think there is great value in the share here on 14x P/E.
  • The biggest focus on BHP in the upcoming 2015 report will be on its dividend policy. Many investors have felt the US$1.20 dividend was underpinned, but with oil, copper and iron ore all at significantly lower prices than previous years, it is anything but that.
  • You don’t buy miners for dividend yield. BHP & RIO are both looking to be a ‘fair’ value at $26 and $50 respectively, but as I have said before, you don’t buy stocks at fair value. You want things cheap. I could foresee a relief rally in miners, but it isn’t worth chasing.
  • Insurance Australia (IAG) Group is a BUY. In fact, at current prices, you can buy the shares cheaper than Warren Buffett!
  • Medibank’s (MPL) weak performance since IPO has not ended. MPL is now seeing reductions to forecast earnings which only makes the share look MORE EXPENSIVE. MPL will fall back towards $1.80, and it would only be down at those levels that we would potentially consider the share.

So.

There are a few forthright opinions on some large and important shares within the Australian market, and a broader comment on market direction – a shade lower, then a bounce.

As for the market this week, it was all over the shop and taking its lead entirely from overseas events.

On the week we are virtually flat – oil stocks were notable underperformers as the oil price and broader commodity prices fell.

Once again guys, do please shout out if you want to chat or you want me to come and see you or a group of you to chat through markets, portfolios or our broader investment thoughts.

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Key Dates: Australian Companies

Mon 13th July
N/A
Tue 14th July
N/A
Wed 15th July
Div Pay Date: CBAHA, MBLHB
Thu 16th July
Quarterly Report: Wesfarmers (WES), Woodside (WPL), Djerriwarrh (DJW)
Div Pay Date: Vanguard ETF’s (VAF, VAP, VAS, VGB, VGE, VGS etc)
Fri 17th July
Quarterly Report: SANTOS (STO)[/fusion_builder_column][/fusion_builder_row][/fusion_builder_container]

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