Earlier this month we recommended buying Coles Group at $11.25. With the stock now trading $12.00 + we consider this an opportunity to lock-in profit.
Coles offers limited earnings growth and the rally in the stock price has been supported by lower global interest rates, rather than company specific news.
Alternatively, investors who wish to hold the stock, may consider selling at the money call options to enhance the income return.
Treasury Wine Estates is under Algo Engine sell conditions following a lower high formation at $17.50.
Earnings continue to grow at 15 – 20%, although there is evidence that the growth rate is slowing. If we assume total revenue in FY20 of $3bn on EBIT of $765mn, 15% earnings per share growth, we can support a 3% dividend yield.
On the above basis, we consider TWE fair value, but see little in the way of a catalyst to drive the share price higher. We therefore, recommend selling a covered call option to enhance the income return.
All major equity indices are now showing Algo Engine sell conditions. The NASDAQ has led the charge higher and the FANG stocks in particular, have outperformed.
Overnight the Dow fell 460 points and the NASDAQ was down 2.5%.
Bank stocks have been trending lower this week, as an inversion of the yield curve, (the spread between the 3-month treasury bill yield and the 10-year note rate), turned negative for the first time since 2007.
Fears of a recession are building as we see a continuation of weak economic data from around the world.
Technically, we suggest investors overlay the 10 day average on the NASDAQ and remain defensive, as long as the index trades below the average.
Betashares Us Eq Strong Bear Hedged is under buy conditions and with the S&P500 rolling over, investors should consider buying the inverse ETF to profit from a falling market.
Stop losses should be applied and we suggest using a 10 day average on the main index as a reference point.
For more detail on the strategy, please call our office on 1300 614 002.
Aristocrat Leisure was highlighted on the blog as a “counter trend” buying opportunity last week at $23. The stock is now trading at $25 and we suggest locking in gains.
Orora has formed a higher low at $3.00 and is now under Algo Engine buy conditions. The short-term indicators are still trending lower and suggest that $2.95 will provide an ideal entry level.
Following the earnings miss in the February result, we feel Coles share price now reflects fair value. At 15x earnings and 5% yield there’s an opportunity to buy the stock and sell covered call options, to deliver 10% annualized cash flow.
We question the earnings outlook next year, mainly due to increased capital spending requirements. However, for the balance of 2019 we expect the share price to remain within the $11 to $11.75 price range.
For more detail on the derivative strategy, please call our office on 1300 614 002.
The S&P/ASX 100 is nearing a break of the upward trending 10 day moving average. We’re using this as a reference for the shorter term momentum to align with the broader index sell signal.
Since writing the above post we are now seeing the XJO trade below the 10 day average.
Caltex Australia is under Algo Engine sell conditions and was removed from the model portfolio late last year at $28.50.
Fuel retail margin was A$35-45mn lower at end-February, (based on the same time last year), driven by diesel pricing and gasoline retail competition. The company will provide a Q1 trading update at its AGM on 9 May 2019.
In FY20 we assume $25.5b in revenue and 4% increase in EBIT to $1.07b which flows through to $1.25 in dividends, placing the stock on a 4.5% forward yield.
For investors who are not taking up the buy back offer, we recommend selling a covered call option to enhance the income return.
For more detail, please call our office on 1300 614 002.
InvoCare is under current Algo Engine sell conditions, following a recent lower high formation at $15.00.
Invocare’s balance sheet will be strengthened following the announced raising of up to A$85m, via institutional placement which will include $20m via a share purchase plan. We expect this to be done at around $13.30.
We anticipate the next signal to be a Algo Engine “buy” and we’re likely to see this before the end of April.
We see long-term value in IVC and suggest investors watch for an entry signal between $13.30 & $13.80
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