Leon Hinde

The XJO is the first of the major global equity indices to form a lower high formation and display an Algo engine “sell signal”.

We suggest investors stay alert and watch the short term momentum indicators for a rollover.

Healthscope has been one of our “high conviction” buy ideas.

Brookfield Capital Partners are finalising due diligence and we expect to see their offer formalised in the coming weeks.

The price gap is now closing, (all cash offer $2.44), as HSO trades at $2.40 today.

TWE reiterated its forecast for 25% EBIT growth in FY19. This is in-line with market consensus and is positive for the share price.

TWE is likely to consolidate within the $14.50 to $15.50 price range. At the upper end of the range, we suggest investors look to add a “covered call”.

Example – April $15.50 call is collecting 55 cents per share. TWE also goes ex- div 15 cents on the 7th of March.

In the first few days of 2019 our market positioning was “buy the XJO” and for added leverage to a recovery we advocated “buy oil”.

Two weeks into the New Year and hopes for renewed U.S. – China talks to resolve trade tensions are boosting world stock markets and oil prices.

STW is up 7% and OOO ETFs are 10%.

Chart above: STW ASX200 ETF

Chart above: OOO Oil ETF

Strategy Update: As we near a new “lower high” formation across many markets, we’ll soon look to a more cautious positioning.

CWY is now trading at $1.83 and we feel it is approaching a level where investors should look to lock-in the gains. 

The post below is from the 28th of December. 

Our Algo Engine generated a buy signal in CWY recently at $1.70 and the stock is a current holding in the ASX 100 model portfolio.

The share price spiked down to $1.65 during last week’s market volatility and has since found strong buying support.

Ansell is under Algo Engine buy conditions and the share price should remain supported by the ongoing US$265m buyback program. 

Assuming 10% EPS growth into FY20, we have ANN trading on 19x and a 3% dividend yield. ANN goes ex-div $0.26 on the 16th Feb.

We expect buying support to increase near the current $22.70 level.

At higher prices, we recommend a buy write strategy, (overlay call option), to enhance the income return.

Wesfarmers 1H19 earnings show declines of 8% in the Kmart division and in Bunnings, margins are resilient, however, growth is difficult to achieve.

We consider Wesfarmers near full value at the current 18x FY20 earnings per share multiple.

Based on FY20 earnings, we have WES trading on a 4.8% yield and we see some price support on the likelihood of a large scale share buy back in the range of $2.5bn +

We recommend selling out of the money calls to enhance the income, whilst staying exposed to the Feb dividend.

Healthscope has rallied from $2.02 to $2.30 in the past few weeks, as the market becomes more certain of a positive outcome on the pending takeover offer.

If the takeover fails, shareholder value will be unlocked through the separation of the REIT from the hospital assets.

The takeover offer is priced at $2.44 and so far, the due diligence has not uncovered anything to prevent the proposal being formalised. We expect to learn more in the next 4 – 8 weeks.

QBE and IAG are our preferred exposure within the Australian listed
general insurers.

Both names are now under Algo Engine buy conditions. We see the potential for more upside in QBE’s up coming earnings result, given the deep discount it trades on, relative to peers.

Based on FY19 Net Operating Income increasing by 10%+ to $850m, we have QBE on a forward yield of 5.5%.

We now look to add covered call options to enhance the income and capture the March dividend.