Woolworths Group is a current holding in our ASX 100 model portfolio, as well as the ASX 20 & 50 models.
The stock is up over 9% including dividends after being added at $28.50 back in August last year. With the share price trading at 24x forward earnings and only a 3% dividend yield, we consider it expensive.
We suggest selling a long dated European call option to enhance the income. For more detail on the strategy, please call our office on 1300 614 002.
Coles has under invested in the supply chain and online platform vs Woolworths and therefore, investors need to be prepared for lower returns as Coles steps up capital expenditure over the coming years.
If we assume 3 – 5% EPS growth, (half that of WOW), Coles will offer a 5.4% dividend yield into FY20, based on earnings per share of $0.80
Coles trades on 18x FY19 earnings and with little upside to the share price, we recommend investors add a covered call to enhance the income return.
The XJO has formed a “lower high” pattern within the existing Algo Engine buy signal structure.
The market has rallied 6% from the recent buy signal but we’re now mindful of the recent break of the “higher low” structure, as circled on the chart below.
5941 is resistance for the XJO and whilst the market remains below this level, some caution is required.
Names that remain supported within today’s broad market sell off include, AGL, CTX, GPT, WES, SCG, TCL, HSO & WOW. We remain cautious on the banks and select resource names .
XJO
With Woolworths trading back below $27.50, we believe the share price now represents good investor value.
The $26.50 – $27.00 price range is an attractive buying opportunity.
On a rally back above $28.00, we recommend selling $29.00 Euro-style March call options to enhance the return.
Woolworths goes ex-dividend for $0.43 on the 1st of March.
Our ALGO engine triggered a buy signal for WOW on Monday at $27.45.
This “higher low” pattern is referenced to the $26.40 low posted on April 20th.
WOW shares have been drifting lower for the last two months and are now consolidating in the $27.30 to $27.60 range since going ex-dividend for 60 cents last week.
With the current share price trading at 22x earnings, we see the stock as good value above the $27.00 level.
WOW was added to our ASX Top 20 model portfolio on August 22nd. Our medium-term target is $29.40
Woolworths
We recommend buying Woolworths and selling a March $29.01 European-style call option to enhance the yield.
Unlike American-style options, European-style options can only be exercised on the expiration date.
As such, the share price can trade through the strike price during the course of the option duration without being exercised.
The strategy delivers effectively 3 payments, September & March dividend, plus another $0.55 per share in option income.
Woolworths
Our ALGO engine triggered a buy signal for WOW on August 23rd at $28.25.
Since then, the share price has has traded in a relatively narrow range between $28.80 and $28.20.
The technical picture has improved and internal momentum indicators are now in oversold territory.
We see good support in the $28.00 area with an upside target near $30.00 over the medium-term.
WOW goes ex-dividend for 50 cents on September 13th with a special dividend of 10 cents, for a total of 60 cents.
Woolworths
Our Algo Engine has triggered a buy signal in WOW following the recent sell-off from $30.50 back down to yesterday’s close at $28.25.
Woolworths goes ex-div $0.50 on the 13th of September and we recommend accumulating the stock now , ahead of the dividend and then looking to sell $29.00 covered calls to enhance the income.
Woolworths
We’re looking for a retracement in Woolworths’ share price back to $28.50 and recommend accumulating within the value range displayed below.
WOW goes ex-div $0.50 on the 7th of September. Adding a covered call will boost the cash flow to 10 – 12% on an annualised basis.
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Consensus expectations for the upcoming Woolworths’ earnings result, is for underlying profit to grow by 8 – 10%. This is well above competitors, but hardly supports the current 24 x multiple.
If the sell-off in WOW extends to the downside, we would encourage investors to “load up” on Woolworths. Our target buy range is $28 to $29.
Based on forward earnings WOW trades on 3.2% dividend yield. We’d like to see that increase to 3.6% as the share price retraces. Keep this one on the radar and watch for the next ALGO buy signal.
Woolworths
Level 29 Chifley Tower
2 Chifley Square
Sydney, NSW 2000
1300 614 002
Investor Signals Pty Ltd
ABN 44 143 555 453
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