We recommend buying GPT and selling an out of the money call option to enhance the income return.
GPT goes ex div $0.126 on the 28th June.
For more information on the option strategy, please call our office on 1300 614 002.
If a picture tells a thousand words, maybe nothing more needs to be said?
Long-Term graph of the NASDAQ.
US Markets are muddling through the March quarter earnings as investors grapple with a weak earnings picture and trade tariff related issues. The bar was lowered significantly heading into the March quarter earnings season. Where consensus expectations were looking for -5% EPS growth, we’re now 75% of the way through the S&P500 earnings and the average EPS is tracking around -1%.
The graph above of the long-term pattern in the NASDAQ, highlights where investors’ concerns should be pointed. Elevated PE ratios in an environment of flat to contracting earnings could soon become a big problem, especially for technology stocks where in some instances there is little to no profit.
Short-term we’re watching the 10 day average on the NASDAQ and highlight last night’s close below the average. Longer-term, we remain cognizant of the need for the NASDAQ index to revert to the mean.
For more detail, please call our office on 1300 614 002.
Commonwealth Bank of Australia reported 3Q19 cash earnings of A$2.2bn,
being below market consensus by 10%.
Analysts have downgraded FY19 earnings by 6%, (which incorporates the $500m post tax remediation charge), while FY20 and FY21 estimates are also lowered on weaker revenue numbers.
CBA currently trades 13x earnings on a 5.8% yield. A key risk for the business is an adverse turn in the credit cycle, which is not reflected in the current share price.
CBA has been under Algo Engine sell conditions following the lower high formation over the past 3 years.
Incitec Pivot reports 1H19 earnings on Monday the 20th of May. We’re expecting the result to disappoint the market and we place our readers on alert.
Queensland floods and plant disruptions will offset any benefit from higher fertilizer prices. If the earnings release is as negative as we forecast, we feel that a buying opportunity will present soon after the announcement.
We see the FY19 issues largely as one-off in nature and there will likely be an opportunity to profit from a recovery in the back-half of 2019.
Keep this one in your diary and look out for next week’s update on the blog. We’ll identify the entry level, post the result.
REA Group is under Algo Engine buy conditions and is a current holding in our ASX 100 model portfolio.
REA Group announced that its results for the nine months ended 31 March 2019. Reported 3Q revenues up 7% and EBITDA up 6%. The result highlights the quality of the REA business, with solid growth despite a very challenging macro environment.
If we assume FY20 revenue of $990mn, EBIT $520mn and DPS of $1.50, it places REA on a forward yield of 1.8%.
Underlying earnings growth in FY20 is forecast to be up 12%.
Cochlear is under Algo Engine sell conditions following the lower high formation at $200.
The stock is expensive at almost 40x forward earnings and we see the earnings outlook as overly optimistic.
Consider COH on the short side and watch the short-term indicators for a reversal lower.
The entry level in Orora was flagged at or near $3.00, the stock price has now rallied 7% and investors should consider locking in the gains.
Our main concern is the weak technical backdrop for the XJO index, combined with the recent Algo Engine sell signal on Orora.
Coca-Cola Amatil is under Algo Engine sell conditions following the lower low and lower high price structure. The downtrend started back in 2013 when CCL traded as high as $15 and during investor capitulation in 2017, traded down to $7.50.
If we look at the valuation metrics on CCL and assume flat earnings per share growth over the next 12 months, we have CCL trading on a 5% dividend yield. We assume total revenue of $5bn producing EBITDA of $950mn.
The last positive volume growth period was after Coke Life was launched in 2015. Indonesian volumes appear to be rebounding with growth of 10%+ in the March quarter, compared to the same time last year.
Buying CCL and selling a covered call option is a consideration for investors looking to generate 10%+ cash flow from a low risk opportunity, on a moderate PE of 15.5x earnings.
CCL goes ex-div $0.21 on the 27th August. For more detail on the covered call strategy, please call our office on 1300 614 002.
Gold Miners ETF, GDX is now under Algo Engine buy conditions, following the higher low formation at $29.
Look for the short-term indicators to turn positive and buying support to increase within the $28.50 to $29.50 range.
Our preferred ASX listed gold miner is Evolution Mining
GrainCorp is now added to our watch list following the recent Algo Engine buy signal. We see value near $7.50 and look for buying interest to rebuild following the disappointing half year earnings announcement.
GNC reported an underlying net loss after tax of $48 million for the half year. Net profit after tax for the half year last year was $36 million.
GrainCorp Chief Executive Officer Mark Palmquist says these results reflect a particularly challenging period in grains and oilseeds, including severe drought conditions in eastern Australia and grain trade conditions.
They expect continued demand for Malt products in the 2019 northern hemisphere summer but challenging conditions in eastern Australia to continue in the second half.
Planting for the winter grain crop is well underway in eastern Australia, however it is too early in the season to forecast grain production levels and the potential implications for GrainCorp.
We’ll continue to track GNC and update our readers as we see the short-term indicators rebound.
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