Advisory

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Utilities, REITs and consumer staples continue to provide a defensive area to consider buy write strategies.

AGL, TCL, SYD, GPT & WOW are now pushing recent highs and investors should consider selling covered calls to enhance the income return.

The graph below shows the SLF, (ASX 200 Listed Property Fund), is now up 7% from the October low.

Our preference among the gold names are EVN and NST, following the recent Algo Engine buy signals.

Both are current holdings in the ASX 100 model portfolio.

The following group of stocks are short signals where we see further downside.

OZL, QAN, ORI, FMG, CBA and HVN.

A rebound in energy prices in Friday’s US trading session will place added pressure on Qantas, come Monday morning.

Structural issues with the HVN business model and weak consumer spending will weigh on the share price.

Both FMG and RIO now have lower high formations and Algo Engine sell signals.

AGL, SYD and TCL are now displaying Algo Engine sell signals. With global bond yields moving lower, (in recent weeks), yield sensitive names have generally outperformed.

The rally in AGL, SYD and TCL now represents full value and investors should look to take profit or sell covered call options.

Following the Algo Engine buy signal in August, we started accumulating AZJ between $4 and $4.10. Since making a low in October at $3.90, AZJ has rallied over 10% and is now trading at $4.42.

Based on FY19 EBIT of $850mn and DPS $0.25, AZJ trades on a forward yield of 5.7%.

To enhance the return investors can now look to sell at the money call options to boost the cash flow, whilst staying exposed to the February dividend.

For more detail on how covered call options work, please call our office on 1300 614 002.

Telstra management reconfirmed FY19 guidance and flagged that
‘good’ subscriber momentum had continued into FY19.

FY20 revenue remains flat at $24bn, EBIT flat $4bn, net earnings flat at $2.5bn, EPS $0.21 and dividends per share of $0.14. This places TLS on a forward yield of 5.2%.

US markets were off 3 per cent overnight, led lower by bank and industrial shares, as the US bond market sent worrisome signs about economic growth.

The yield on 10yr treasuries has now fallen from 3.27% back to 2.91% in the past two months. This move should help to support yield sensitive names.

Along this theme, we continue to like AMC, SHL & GPT as buy- write opportunities.  A combination of the dividend plus the call option income is generating over 10% cash flow on an annualized basis.

Woolworths is a current holding within the ASX 100 model portfolio. We see value emerging at $28 and suggest investors look to accumulate the stock with a view towards selling covered call options to enhance the income return.

The chart below shows a series of lower high formations that continue to form in CBA. As recently as last Friday, we had another Algo Engine sell signal at $73.05.

Other bank names under Algo Engine sell conditions are NAB, WBC, BOQ and BEN. We recommend remaining on the short-side of this group.

Medibank is a current holding within the ASX 100 model portfolio and is under recent Algo Engine buy conditions. With the share price now trading at $2.45, we see this as a level to accumulate the stock.

On a move back above $2.55 we suggest adding a covered call option to enhance the income return.