Woolworths has rallied from the November $22.20 support level. Based on consensus earnings the stock trades 18.5 times FY17 earnings and 3.8% dividend yield.
The earnings update in Jan/Feb will provide greater clarity on the turnaround following the Masters business failure and the refocus on Woolworth’s traditional food and liquor business.
The following group of stocks are in either established uptrends or, in recent months they’ve broken downtrends to begin building the early stages of a bullish “higher low” formation.
Many of these names have been mentioned previously in the blog and/or the monthly strategy video report. It’s worth loading these codes into your watch list and considering rebalancing your portfolio to include allocations towards some, or all of these names:
JHX, LLC, MQG, SHL, TWE, ANN, ANZ, ASX, CCL, CIM, COH, QUB, TAH, WOW & WPL.
With the lower growth names within the above basket, such as WOW & CCL, we compliment the position now with tight covered calls to enhance the yield to 10%+ per annum. With some of the other names, we give a little more breathing space as we expect 5 to 10% price appreciation before selling the call option overlay.
Woolworths (WOW.ASX) EBIT was down 36% to $2.5b from the same time last year. NPAT (normalised) was $1.55b and NPAT, on a reported basis including write downs, came in at a loss of $1.2b.
FY17 food & liquor should begin to show positive growth and based on FY17 EPS of $1.20 and DPS of $0.80, Woolworths is now trading on a forward yield of 3.3%.
We see Woolworths breaking out of the 18 month downtrend and beginning a new technical structure of higher highs and higher lows. We collected call premium over recent time and intentionally left the stock uncovered coming into this result. With the stock now back at our fair value target, we look to sell covered calls at or near the $26 range into November or December.
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