CSL and Cochlear – Valuation & Earnings Update

Posted on | by Leon Hinde | Leave a Comment on CSL and Cochlear – Valuation & Earnings Update

CSL trades 27x forward earnings.

FY18 revenue to grow 5% to US$7b, EBIT +18% to US$2.2b, EPS US$3.60 & DPS US$1.70.

This places CSL on a forward yield of 1.8% into FY18.

We own CSL and recommend a covered call into the $130 range to enhance the yield.

Chart-CSL

 

Cochlear was recently triggered by the Algo Engine as a buy signal and we update our 12-month share price target  to $138 based on a PE of ~27.5x. and a forward yield of 2%.

Risks remain associated with COH reimbursement changes, regulatory
intervention and adverse currency movements. However, momentum favors the stock at present.

Chart-COH

 

 

US 10-year Yields

Posted on | by Todd | Leave a Comment on US 10-year Yields

The Dow Jones 30 posted it’s 7th straight lower close for the first time since 1978.

As a result, the US 10-year bond yields fell to a 1-month low of 2.38%. An increase in equity market volatility could could lead to another 10 to 15 basis points of downside on the yield.

Some of the local names that have moved higher on the lower yields have been SYD, TCL, WFD  and, to a lesser degree, TLS.

It’s likely interest rate stabilization will work as a near-term cap on these companies and allow for a covered call strategy to enhance the portfolio returns

Bendigo Bank: Reverting Higher

Posted on | by Todd | Leave a Comment on Bendigo Bank: Reverting Higher

On March 16th, the ALGO engine flagged a buy sign for Bendigo Bank (BEN) at, or near, the $11.00 level.

BEN shares have reached $11.68 in early trade today.

Looking from a broader perspective, we believe the chart reflects a mean-reversion pattern, as opposed to the beginning a protracted trend higher.

On January 12th, BEN posted a high of $13.40 before reversing lower. On March 24th, BEN traded as low as $11.20 and then began to move higher.

Taking into account the high valuation of the domestic banking sector, we would expect the upside in the current move to be capped at or near  $12.30, which is the 50% reversion level of the move from $13.40 to $11.20.

Prudent money management on this trade would be to work a sell stop at last week’s low of $11.20.

Chart-Bendigo

CBA- Back to the $80.00 Handle?

Posted on | by Todd | Leave a Comment on CBA- Back to the $80.00 Handle?

Shares of Commonwealth Bank (CBA) have been trading below the 30-day moving average of $83.80 for the last four consecutive trading sessions.

As the technical picture continues to deteriorate, we have looked at some previous chart resistance levels which could now act as price support.

Between late January and early February, CBA tested the $81.10 level three times over the course of 10 trading sessions; this will be the first key support level.

However, going back to May of last year, CBA shares failed to break above $80.00 five times before extending higher in July. We feel that this is a more significant support level and a reasonable medium-term target.

Investors and subscribers will remember that we sold European-style call options on CBA in late January. By selling the $83.01 strike-price into March, we were able to collect $2.50 in option premium and still hold the shares to collect the $2.00 dividend paid in February.

Those options will expire this Thursday.

As such, we will look to reset the derivative overlay strategy in CBA on corrective price moves higher.

Chart-CBA

Our Long TCL – SYD Position Update

Posted on | by Leon Hinde | Leave a Comment on Our Long TCL – SYD Position Update

Over the past month, we’ve been long TCL and SYD , as we felt US interest rates would not push beyond levels already priced in by the market, therefore creating value in yield sensitive names.

Out of the potential basket of yield sensitive names to consider, our preference was TCL and SYD coming into their June dividends.

With the above stocks now trading up 15%+ and 10%+, (respectively), from their recent lows and the yields now compressing below 5%, we feel potential capital gains from here are limited and it’s time to sell covered calls to enhance the return.

Chart – TCL
Chart – SYD

 

 

Strong Rally In Caltex

Posted on | by Todd | Leave a Comment on Strong Rally In Caltex

Despite a generally weak Crude Oil market, shares of Caltex have rallied almost $2.00 this week.

The shares were lifted off a 3-year low after the company announced a stronger-than-expected refiner margin of USD 12.71 per barrel for the month of February.

This is an increase from last year’s refiner margin of USD 12.43 per barrel and well ahead of the street’s estimates of USD 9.74 per barrel.

The increase in the margins has had a knock-on effect and lifted the calendar year EPS forecasts by 1.3% to the $2.40 range.

We now see chart resistance for Caltex at, or near, the February highs of $31.00.

BOQ: Caution In Front of Results

Posted on | by Todd | Leave a Comment on BOQ: Caution In Front of Results

After trading as high as $12.50 on January 12th, shares of BOQ have followed the same “sideways-to-lower” pattern as the rest of the Australian banking names.

With first-half 2017 results due on March 30th, this pattern could continue and even breach the February low price of $11.30.

The headwinds of negative loan growth and falling margins don’t appear to be fully priced-in at current levels.

The trading multiples of BOQ are not cheap, and with 2017 EPS growth estimated at under 3%, we believe an $11.00 price is more likely than a $12.00 price over the medium-term.

ALGO Buy Signal: ASX

Posted on | by Todd | Leave a Comment on ALGO Buy Signal: ASX

The ALGO engine generated a buy signal for shares of ASX at $49.00.

Many investors were able to write covered calls or exit long positions of ASX around the $52.50 level, last traded in early February.

We are cautious of the general market sentiment , but still like the longer-term growth prospects and a move back at least to the 30-day moving average near $51.10.

A tight stop-loss metric should be employed on long positions of ASX at, or near, the January 2nd low of $49.15.

ETF UPDATE: Aussie Dollar Pointing Lower

Posted on | by Todd | Leave a Comment on ETF UPDATE: Aussie Dollar Pointing Lower

Since early January, the AUD/USD  has traded in a 250 point range between .7500 and .7750.

Now that the FED has raised rates this year (and has given guidance for more tightening) the yield differential between the overnight rates between Australia and the USA has narrowed to just 50 basis points.

This compares to 200 basis points this time last year.

In addition, with domestic employment growth sputtering and lower inflation readings, the RBA has maintained an easing bias for overnight rates in Australia.

This strengthens the case for the AUD/USD to trade lower and return to the December lows of .7150.

Investors looking to profit from a falling AUD/USD have been buying the BetaShare YANK Exchange Traded Fund (ETF). The current unit price of YANK is $14.10.

We estimate that a move back to the December low of .7150 would increase the unit value of YANK to approximately $16.75.