Building Stocks Approach Key Resistence Levels

Posted on | by Todd | Leave a Comment on Building Stocks Approach Key Resistence Levels

Reports about the health of the Aussie housing market vary depending on who is writing them; the RBA is suggesting the market is softening as household debt increases, while real estate agents look to foreign buyers to support higher prices.

Within this mix we have seen building stocks rally hard and are now beginning to look overbought.

Of the three major companies, CSR, JHX and BLD, our ALGO engine has triggered a sell signal on both CSR and JHX.

The internal momentum indicators on all three of these names are in extreme valuation ranges and and near their 52-week highs.

We believe it’s reasonable to expect a pullback from current levels and look for downside targets of $17.75 in JHX, $4.30 in CSR and $6.50 in BLD.

 James Hardie

CSR

 

Boral

ALGO SIGNAL: Sell James Hardie

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On August 8th, our ALGO engine triggered a buy signal on JHX at $17.90.

At the ASX close last Thursday, the ALGO engine gave us a sell signal at $18.83.

Looking at the daily chart, the price action fits the “lower high” pattern based on the July 27th intra-day high of $19. 80. In addition, internal momentum indicators have now crossed into overbought territory.

Investors who took the August buy signal on JHX should look to exit the stock around the current $19.00 level.

 James Hardie

 

Housing & Construction – BLD, JHX & CSR

Posted on | by Leon Hinde | Leave a Comment on Housing & Construction – BLD, JHX & CSR

Boral reported FY17 results that were inline with market expectations, with underlying EBIT of $460m NPAT of $343m. A final dividend of $0.12 per share (50% franked) was declared, taking the full-year dividend to $0.24, up 7% on FY16 and representing a payout ratio of 82%.

FY18 forward dividend yield, based on $0.26, is 3.5%.

The investment case for Boral is the strength of Australian infrastructure and US housing,  however, the trends within the housing and construction stocks look less than favorable.

 

Death of the high PE

Posted on | by Leon Hinde | Leave a Comment on Death of the high PE

We’ve been warning about a number of ASX large cap stocks which trade on 25X earnings and 2% yield and, at best, will deliver low single digit earnings growth.

Two examples are the recent sell signal posts we’ve made on Computershare and James Hardie.

We feel that the day of reckoning is approaching and, in many instances, as seen in CPU & JHX, the selling has already started and we’re now seeing a retracement back to the mean, (and likely beyond).

We’ll leave the 150x PE of Amazon, or the 200x PE of Netflix for a future  posting, but suffice to say; reality will soon hit.

Chart – CPU
Chart – JHXASX:JHX

 

 

 

 

 

 

James Hardie Hammered As Profits Drop 34%

Posted on | by Todd | Leave a Comment on James Hardie Hammered As Profits Drop 34%

Shares of JHX have dropped over 3% in early trade as the building materials supplier announced Q1 profits fell 34% to $USD 57 million.

JHX reported that net sales for the three months to June 30 have grown 6% to $USD 507 million, compared to the same period last year.

However, it said earnings margins were under pressure from higher production costs and increased competition in the construction materials sector.

At 26x forward earnings with a 2.7% forward yield , we’ve been advising clients about the risks of the low dividend, high P/E posture of the stock since it traded in the $22.50 area in early May.

We now see the next downside target for JHX in the $17.60 area.

James Hardie

 

 

Has The AUD Reached The RBA’s Pain Level?

Posted on | by Todd | Leave a Comment on Has The AUD Reached The RBA’s Pain Level?

At the start of the year, the market consensus was for the Aussie Dollar to fall against the major currency pairs during 2017. So far this year, the AUD/USD has climbed 10% and almost touched .8000 last week.

At 1pm today, RBA chief Philip Lowe will be giving a speech in Sydney. Since many exporters look at .8000 as a pain level, it’s reasonable to expect Mr Lowe to comment about the level of the Aussie.

The strengthening AUD/USD has created a headwind for domestic companies with earnings exposed to the softening USD.

Four companies that we follow which have seen their share prices dampened due to a stronger Aussie are: BXB, CPU, ANN and JHX.

Australian Dollar

Computershare – Earnings Result 16th Aug

Posted on | by Leon Hinde | Leave a Comment on Computershare – Earnings Result 16th Aug

Computershare reports earnings on the 16th August.

At 20x forward earnings and 2.6% dividend yield, we feel CPU will likely disappoint and deliver earnings below market expectations.

Any bounce in CPU from these levels will provide an opportunity to consider building new short exposure.

Chart – CPU

James Hardie trades at 26x forward earnings with a 2.7% forward yield.

Again, we consider this name expensive and likely to disappoint investors when JHX report earnings on the 8th August.

A rally back towards $21.00 will provide an opportunity to reset short exposure.

Chart – JHXJHX

 

 

Weaker Housing Data Could Drag On US GDP

Posted on | by Todd | Leave a Comment on Weaker Housing Data Could Drag On US GDP

Prior to the market open on Friday, the US Commerce Department announced that Housing Starts fell fort a third straight month in May and has reached the lowest level of new home construction in eight months.

This development, along with a drop in Consumer Sentiment and Building permits, suggest that general construction has declined broadly during 2017 and could be a headwind to economic growth over the second quarter of the year.

This slowdown may have earnings implications  for the US divisions of Boral and James Hardie.

 

 

 

 

James Hardie Support At $18.00

Posted on | by Todd | Leave a Comment on James Hardie Support At $18.00

Regular readers will recall that we’ve had a bearish bias on JHX since it broke the $22.50 level in the early part of May.

At that time, the stock was trading at 27 times earnings on a 2.2% annual yield

A weaker US house construction market combined with a general contraction in US retail sales has kept shares of JHX offered over the last several weeks.

We maintain our downside target of $18.00 per share over the medium-term.

James Hardie

 

JHX Points Lower On Weaker US Housing Data

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Since trading as high as $23.20 on May 2nd, shares of JHX have dropped over 14% and are now trading below $19.80.

We posted a report on the blog on May 19th pointing out that JHX reported FY17 results which were below market expectations.

Overnight, US New Home Sales fell to 569,000, well short of the consensus expectation of 610,000. As new home construction continues to slide, we sell further downside range extension for JHX.

The new key support level comes in near the February low of $18.20.

James Hardie