Advisory

Learn MoreFREE TRIAL

In Wednesday’s blog we looked at the basket of yield sensitive stocks that were likely to rally. WFD was highlighted as a counter trend trade and as the price approaches $8.50, we feel the stock will begin to run into selling pressure.

Investment banks mostly retain a bullish outlook for Santos. Recovering oil prices and greater confidence in rising production from the Gladstone LNG project, along with PNG expansion likely to underpin the share price.

Santos has lowered costs considerably and their balance sheet has improved, with gearing forecast to hit 20%.  Higher oil prices may see dividends reinstated earlier than forecast. 

Technically, the stock has broken out from the last lower high formation near the $3.90 level, our Algo Engine will generate a buy signal in the coming months, (following a price retracement) and we’ll be sure to highlight it on the blog, when it occurs.

Our Algo Engine triggered a sell signal in Suncorp following yesterday’s close price. The sell signal resulted in Suncorp being removed from both our ASX top 20 and ASX top 50 model portfolios.

The original buy signal was triggered on the 4/8/17 at $13.43 and then again on the 11/8/17 at $13.29.

There is a price gap in Suncorp on the 2/8/217 at $14.39. We expect the stock to run into selling pressure between $14.18 and $14.39.

1Q18 cash earnings were 3- 4 % better than consensus, but driven almost entirely by lower bad debt charges.

CBA’s underlying margin has expanded in the past 6 months, impairment charges have fallen to record lows. However, increased regulatory scrutiny and emerging economic risks and higher loan losses remain a risk.

If we assume flat dividend growth into FY18 and FY19, it places CBA on a forward yield of 5.4%.

We remain cautious on the outlook, we feel the current earnings is about as good as it gets over the next few years and risk exists on the downside due to declining ROE, slower home loan growth and corporate compliance concerns.

Technically, the chart below shows CBA in a lower high pattern and we think  the current rally tops out in the $80.50 – $83 range.

The SPDR ASX200 Listed Property ETF has been in a bullish higher low pattern for a number years and the Algo Engine has identified multiple entry points, where price has retraced within the broader uptrend.

The signals in late 2016 and again in mid 2017, suggest buying support near the $12 range.  Stop-loss below $11.75.

SPDR S&P/ASX 200 Listed Property Fund, seeks to closely track, before fees and expenses, the returns and characteristics of the S&P/ASX 200 A-REIT Index.  The fund yields approximately 5% per annum.

Coca-Cola is another counter-trend trade, (which we don’t normally advocate), however, with valuations stretched in most growth names we’re drawn to CCL on valuation grounds and encouraged by the company’s recently announced acquisition in the beer market.

CCL trades on a 5% yield and we’re now looking to sell the $8.50 call option into June 2018 to boost the annualised cash flow to 10 – 12%.  Achieved through the option premium and the February dividend.

Westfield is leading the recovery in yield sensitive names, as bonds in the US rally and bond yields move lower. WFD, TCL, SYD & SCG are examples within the ASX top 50 that are currently finding renewed buying support.

It is somewhat of a surprise for the market, as investors were mostly betting on higher US interest rates. The surprise catalyst, was last week’s slightly weaker employment growth numbers, (based on market expectations),  and flat growth in hourly wage numbers.

TCL, SCG and SYD are current holdings within our ASX 50 model and WFD should only be considered as a counter trend trade with a stop loss below the recent low.

The following six charts show a down trend. The CEOs of the major banks are cautious on the outlook for revenue growth.

No reason to believe we’re likely to see a meaningful recovery.

SCG released its 3Q17 operational update today, FY17 guidance  of 4.25% growth, DPS of $0.21, placing the stock on a forward yield of 5.5%.

We continue to view SCG as a suitable income strategy for portfolios when complimented with a tight covered call option.

The above strategy is generating over 10% per annum in cash flow from the call option and dividend income. We don’t expect much in the way of capital growth.

Westpac’s 2H17 result was consistent with the trends we’ve seen within the other banks, mainly weaker-than-expected income offset by very low bad debt charges.

Overall WBC’s result came in 2% below consensus with revenue growth at 2.8% and NPAT for 2017 up slightly on 2016 of $8b.

The outlook for WBC into 2018 is for flat EPS growth, meaning EPS of $2.40, DPS $1.90 delivering a yield of 5.9%.