Newcrest – Algo Signal
On the 8/2/17 our Algo Engine generated a short signal in NCM at $23.95. The stock is now trading $21.50 and the short term momentum indicators continue to track lower.
Mr Trump’s Speech
On February 9th, President Trump jarred the US stock market by saying he was going to make a “phenomenal” tax announcement in a few weeks.
A few weeks are up, and Mr Trump will be speaking to a joint session of Congress at around 1pm Sydney time today.
Since Mr Trump’s original announcement , the SP 500 has gained over 60 points , or close to 3.5%, largely on three key policy expectations: tax reform, aggressive infrastructure spending and a more business-friendly approach to market regulation.
Considering the unprecedented nature of today’s speech, it’s difficult to precisely gauge the amount of time Mr Trump will spend on these economic policy initiatives and the level of detail he will provide.
It is very likely that the market will react sharply to any comments on the timing of tax reform. This includes comments about the Border Adjustment Tax (BAT); which has not been popular with retail and banking stocks.
In the lead up to today’s speech, administration officials have watered down some of the dynamics of these three policy measures. Despite this lowering of expectations, the US stock market has still traded at elevated levels relative to earnings valuations.
On balance, we believe that Mr Trump’s speech will fall short of “phenomenal” with respect to the specific details of tax reform for US corporations and individuals. Technically, the DOW, SP 500 and the NASDAQ are all overdue for a correction.
Whether today’s speech marks the beginning of this correction depends on the degree of detail that Mr Trump provides about these three key policy measures.
Value Emerging in AMC and BXB
Following the sell-off in both AMC and BXB , we now are looking for buying support at or near the current levels. Our short-term momentum indicators have not yet turned positive but we’re likely getting close to valuation support, where increased buying will occur.
We see value in AMC at $14.00.
We see value in BXB at $9.25
XJO – Chart Update
The XJO is now off 158 points from the 16/02/17 high of 5833. The resource sector has been the main drag, in particular, BHP and RIO.
Chart – BHP
Harvey Norman
Harvey Norman announced a record H1 result after property valuations and strong furniture and appliance sales lifted the company’s net profit by 39% to $257.3 million.
Underlying pre-tax profit rose 20.6% to 290.49 million, which is the highest first-half result in the retailer’s 30-year history.
The company declared an interim dividend of 14 cents (fully franked), which is up 1 cent on the same time last year.
Construction Arm Boosts Lendlease
Shares of property group Lendlease popped to an 18-month high of $15.84 in early trade as the company announced a sharp increase in after tax profit.
For the six months ending December 31st, Lendlease posted a 12% rise in net profit to $394.8 million.
The stronger result was largely based on the 40% increase in earnings for their construction division, with their investment and development divisions posting pretty much unchanged results from last year.
The company announced an interim dividend of 33 cents per share (fully franked), which was slightly higher than the street’s expectation of 30 cents per share.
The company’s return on equity for the last six months reached 13.7%, which is at the upper end of their 10 to 14% target guidance.
Origin Energy – Searching for Support
Origin Energy looks like it will find buying support in the $6.25 to $6.50 range.
Woolworths – Buy on the Dip
Woolworths trading back to $25.50 looks like reasonable value. We’re buyers on a dip in the share price at or $25.50. We see scope for 5% underlying EPS growth and when complimented with a covered call option, we’re generating 10%+ in annualized cash flow from the dividend and the call option income.
CCL is another name that we’ve been buying the stock at or near $10.00 and selling tight covered call options to generate 10 – 12% annualized cash flow .
Medibank Private – 10%+ Cash flow
We’ve been buying MPL and selling at-the-money covered call options to deliver an annualized cash flow of 10%+
There’s limited revenue growth, limited profit growth and a 4% dividend yield. However, we see the stock as a defensive income contributor to client portfolios.
In addition to the 10% cash flow from the dividend and option income, we’re allowing for a small capital gain over the next 4 months.
REIT’s & Yield Sensitive Stocks Offer Value
Domestic yield sensitive stocks are looking well supported as global yields in G7 economies retreat from recent highs. The bond market seems to be losing some of the optimism in the”reflation” trade.
Evidence of the retreat in yields can be seen in the US 10-YR treasuries where the yields are now trading down from 2.61% to 2.31%.
The impact of this is: money is now flowing back to REIT’s, infrastructure, consumer staples and telecommunication stocks.
We’ve been promoting the selling of resources and buying of defensive yield names, for the past few weeks. We continue to see defensive yield names complimented with tight covered call options as the best way to deliver 10-12% cash flow whilst protecting capital.
Chart – SCG
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