Our ALGO engine triggered a buy signal for JHX on July 31st at $21.50.
Since then the stock has picked up almost 6% and is over 1% higher at $22.75 in early trade today.
The company will release their Q1 FY19 results next Friday.
Expectations are that the EPS should rise to 67 cents per share on stronger earnings.
Our initial upside target is the May 16th high near $23.85.
James Hardie
Our ALGO engine triggered a sell signal for Commonwealth Bank on July 9th at $76.10.
Since then the stock has lost over 3% and reached $73.50 in early trade today.
CBA is scheduled to report its FY18 result next Wednesday. The early forecast is for NPAT to print at $9.5 billion and DPS to be flat near $2.30.
There are three key reasons why we believe the earnings risk is skewed to the downside in this report.
The AUSTRAC settlement of $327 million, margin pressure from short-term funding costs and a disappointing 4% loan growth in June.
Technically, the CBA chart has followed a “lower high” pattern since since mid-January and has dropped over 10% during that time.
We continue to hold a bearish bias toward the banks, in general, and expect CBA to test the June low trade of $67.50 over the medium-term.
CBA
RIO’s 1H 2018 earnings result was slightly below the consensus forecast with underlying EBITDA of US$9.2 billion.
If we assume flat earnings and dividend growth over the next 12 months, it places RIO on forward yield of 4.5%.
Returning cash to share holders through an increased share buy back program, (largely proceeds from asset sales), will help to underpin RIO’s current share price.
We recommend investors add a covered call option to enhance the income returns.
RIO goes ex-dividend US$1.70 on the 9th August.
Rio Tinto
All four major banks, and the regional names, are now displaying Algo Engine sell signals. Currently we have no bank long holdings within our model portfolio.
Within the financial sector our preference remains for ASX and IAG. Both offer a fully franked dividend yield, and when combined with a covered call, we’re generating 10 – 12% annualized cash flow.
Our concern about the low ROE for the domestic banks is driven by weak housing loan growth and the rising cost of funds. These conditions keep us cautious on the banks, especially when combined with the present group of ALGO sell signals.
EVN has been on our watch list with a target retracement zone within the $2.50 – $2.75 range.
The share price has now traded at the upper band of our target and investors can now consider a partial allocation in EVN.
Should the stock trade down to the $2.50 – $2.60 area, it will then make it onto our high conviction list.
Evolution Mining
Origin continues to form “higher high and higher low” price structures and remains one of the best performing stocks in our model portfolio.
The recent 4Q production report helps support the earnings recovery and we feel the share price trades within the $9.50 – $10.50 range.
4Q18 revenue of A$570 million was ahead of consensus with higher volumes and higher realized domestic LNG prices.
FY18 revenue is forecast at $15 billion, EBITDA $3 billion, EBIT $1.5 billion generating EPS of $0.55 per share.
In FY19 we expect earnings to grow by 20% and the company to payout 50% in dividends, placing the stock on a 3% forward yield.
In FY20, both increasing profit and payout ratio will then lift the dividend to $0.60 per share placing ORG on a FY20 yield of 5.5%.
Origin Energy
Shares of Star Entertainment have reclaimed the $5.00 handle for the first time in three weeks as investors get positioned for the FY 2018 earnings report due out on August 24th.
Over the last two weeks, SGR has had nine buy ratings and two hold ratings from local broker names.
The company operates casinos in Sydney, Brisbane, the Gold Coast and also manages the Gold Coast Convention Center on behalf of the Queensland Government.
SGR is one of the largest beneficiaries of tourism inflows into Australia, which means their hotels and developments could significantly raise future earnings.
The stock is currently trading at 8.7X FY19e EBITDA and we believe their FY 2018 earnings could surprise to the upside.
SGR was added to our ASX Top 100 portfolio and we see scope for a move back into the $5.70 range over the medium-term.
Star Entertainment Group
Our Algo Engine triggered a buy signal recently in Healthscope and we continue to see upside potential.
HSO has announced the sale of its Asian Pathology business to TPG Capital Asia for A$279 million. The transaction is expected to be completed by the end of August 2018.
Cash proceeds from the sale will be used to pay down debt and fund new domestic development plans.
The potential for M&A activity, along with the retracement in share price, makes HSO an attractive consideration supported by 3% dividend yield.
Healthscope
Over the last two weeks, shares of TAH have been trading in a narrow 15 cent range between $4.60 and $4.75.
It’s likely that this indecision pattern is due to the upcoming FY 2018 earnings report scheduled for August 8th.
This will be the first report which will include the combined Tatt’s and Tabcorp earnings data.
A recent broker note suggests that the the merged entities will have at least $130 million of synergy savings and has upgraded the stock to “overweight” with a target of $5.20.
Our ALGO engine triggered a buy signal on TAH on April 5th at $4.27 and the stock is included in our ASX Top 100 portfolio.
Tabcorp
AMP will need to address a wide range of issues including the Royal Commission responses, grandfathering and impact of Budget proposals in order for investors to understand AMP’s sustainable level of profitability.
Investors are also looking for the CEO to outline the longer-term group strategy. With many anticapiting some sort of restructure and the separation of the funds management business away from the advice model.
1H18E profit guidance came in lower than consensus expectations at $490-$500 million.
AMP is the worst performing stock in the ASX 50 model.
We have two under performing stocks, AMP and FMG. Both businesses face unique structural issues that have weighed on their respective share prices.
We feel investors will be rewarded for slowly accumulating AMP shares at discounted levels but it is very difficult to see when the inflection point occurs.
AMP goes ex div $0.145 on 23rd August and we have the stock trading on a forward yield of 7%.
AMP
Level 17 Chifley Tower
2 Chifley Square
Sydney, NSW 2000
1300 614 002
Investor Signals Pty Ltd
ABN 44 143 555 453