CIMIC Group – Buy Signal
Our Algo Engine recently generated a buy signal in CIMIC and the stock is held in our ASX 50 model portfolio.
We recommend buying CIMIC within the $38 – $41 range, with an upside target to $52.
Newcrest Gets A Lift From Citi Price Upgrade
Shares of NCM are over 1.5% higher to $21.40 in early trade after a Citi Research report upgraded the stock to “BUY” and raised their 12-month target price to $25.80 per share.
The report focused on the share price relative to the replacement costs of the assets, which suggests that NCM may end up as a takeover target for a larger mining company looking for Australian assets.
Considering that the performance of Spot Gold has been tepid over the last month, local gold mining shares have been well bid.
At current levels, we prefer adding to long positions in NCM and NST.
Newcrest
Northern Star
ALGO Update: Stay Long Tabcorp
Much of the recent reporting on TAH has been focused on the growth in wagering revenues, in general, and the potential boost during the soccer world cup, specifically.
However, a recent report has shed light on the revenue contributions from the Tatts Lotto side of the business. With pool growth expected to rise 4.1% over the remainder of 2018, we see this as a net positive for the share price.
At the current price of $4.50, TAH is trading at 15.2 X earnings and 22% below the target price of $5.50 per share.
Our ALGO engine triggered a buy signal for TAH on April 4th at $4.22 and the stock was added to our model portfolio on February 12th at $4.52.
Tabcorp
Shares Of CYB Soar After Virgin Money Bid
Clydesdale & Yorkshire Bank was spun-off by National Australia Bank in 2016 and has since become a leaner-meaner banking machine. CYB is further bulking up through the acquisition of Virgin Money in the UK.
Overnight CYB announced a 7% increase to its preliminary offer to acquire Virgin Money, and extend the final bid deadline to the 18th June.
Whilst a key to holding CYB long-term is the impact of Brexit-related
macro-economic risks, we see scope for a rally back to $6.00 following the take-over.
IPL – Algo Buy Signal
Our Algo Engine generated a buy signal recently in IPL and the stock is currently held in the ASX top 50 model.
The stock price has pulled back to form a “higher low” at $3.30 and we see forward earnings surprising to the upside, due to the finalization of the Gibson Island gas agreements and the recent recovery in global nitrogen prices.
IPL is also set to recommence a $300m share buyback.
Mirvac Group – Algo Sell Signal
Our Algo Engine triggered a sell signal in Mirvac at the recent “lower high” formation.
We note the difficulties residential REITs are likely to face in a falling house price environment. Tighter credit conditions will impact Mirvac’s core customer, the investor.
Resistance within the $2.30 – $2.45 range.
CBA Settles With AUSTRAC For $700 Million
Shares of CBA have opened over 2% higher to reach $70.35 in early trade.
Before the open, CBA announced that the bank had settled on the alleged money laundering charges for $700 million.
This amount is not quite twice the $375 million amount the bank earmarked for the potential penalty, but well below some of the early estimates which were over the $1 billion mark.
And while settling these allegations is a positive result for CBA, we still believe the share price has more downside risk than upside potential.
Our ALGO engine triggered a sell signal for CBA at $80.32 in November last year. We see the next significant support level near $68.50.
CBA
ALGO Update: Keep Santos On Your Radar
Since rejecting Harbor Energy’s takeover bid on may 20th, shares of STO have dropped over 10%, which is inline with the drop in global crude oil prices.
Despite the fall in the share price, CEO Kevin Gallagher has been firm that the company (and shareholders) will be better off and will see the benefits of their $2 billion cost cutting plan over the next few quarters.
Our ALGO engine triggered a buy signal in STO at $5.50 on May 30th.
We see good support in the $5.30 to $5.40 area and would suggest adding to long positions there.
We don’t rule out another offer from Harbor Energy in the $7.00 per share area sometime in the future
Santos
S&P/ASX 200 Index
The S&P/ASX 200 Index finished the week to Friday down 0.7%.
The best performer was the Utilities sector, up 1.5% with APA Group rising by 4.9%. The worst performer was the Telecoms sector, down 2.9% with Telstra falling 3.1%.
XJO short-term support is 5964
The chart below of the Dow Jones shows the consolidation phase between 23,360 and 25,086.
Dow Jones short-term support is 24,247
Dow Jones
Expect More Debt Stress From Italy
One of the first lessons that we learned working on a dealing desk is that instability in sovereign bond markets can create sudden turmoil across a wide range of financial products.
The reason for this is because the aggregate amount of global bonds outstanding dwarfs the value of all the shares of stock in the world, combined.
Last Tuesday, global financial markets were spun into a frenzy as Italian sovereign bond yields exploded to the upside.
The catalyst for the move was President Mattarella’s rejection of the new government’s candidate for Finance minister, Paolo Savona.
Mr Savona is an outspoken critic of the EU and the Euro currency
As a result, Italian 2-yr bond yields rose from .68% to 2.42% in one day. That’s a rise of 250% in just 24 hours!!
Looking past the political aspect of this week’s events, Italy is well on its way to becoming the next financial basket-case in Europe.
Regardless of who governs Italy, the country will need to re-finance over 350 billion worth of debt maturities and close to 300 billion worth of non-performing loans over the next five years.
We consider the ongoing debt stress in Italy as a potential source of contagion for global equity markets, including the ASX 200 Index.
Italian Sovereign Yields
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