The ASX200 enjoyed a solid recovery on Tuesday, regaining around 60% of Monday’s losses with strength across all sectors, even the “yield play” area held up which was pretty impressive considering the strong gains by US bond yields the prior session. After a month of choppy price action, the ASX200 sits up less than 1% with Telco’s and Healthcare the best performing sectors, not 2 groups of stocks that have been in the winner’s circle together often over recent years.
The low volumes were again very noticeable in both stocks and derivatives, the September SPI futures traded in an extremely tight range for virtually all of the day with the discount hovering around 55-points, mid-range of the last few months i.e. indicating a neutral market.
Short-term MM remains neutral the ASX200 with a close below 6140 required to switch us to a more bearish stance, however we remain in net “sell but patient mode”.
Overnight stocks were again a mixed bag with the US up around +0.3% while Europe surged closer to 1% plus a solid advance in the likes of oil and copper has BHP set to open up over 2%. The futures are calling the ASX200 to open up around 15-points higher today which feels a touch light considering overnight leads.
Here are 4 stocks we are watching carefully, from both a buy and sell perspective.
Suncorp (SUN) $15.02
SUN is slowly but surely approaching our $15.5-$16 target area. However we have been watching SUN closely for an important second reason - SUN has been following our technical roadmap very well since the market pullback in 2015/6 and assuming this is maintained a break to our targeted sell area will ring alarm bells for the position of the overall market i.e. 3-4% higher.
Insurance stocks enjoy higher bond rates as they hold their collected premiums in bonds to pay out on any eventual claims, hence the slow but steady increase in bond yields has been a tailwind for SUN as has the recent return to favour of the Australian banking sector.
Suncorp (SUN) Chart
Mineral Resources (MIN) $17
After correcting well over 30% in 2018 the mining and mining services business MIN is now looking attractive especially considering where we are in the mining cycle – capex for the mining sector will likely continue to increase in the coming years. We have discussed inflation and the sorts of stocks to be in inflation starts to bite. Commodity companies are certainly a strong hedge against inflation.
The stock is trading on an undemanding valuation of 12.4x 2018 earnings while paying a healthy 3.4% fully franked dividend – meaning it’s about ~11% cheap relative to its 5-year average. Our target is $22.50 while we can run stops below $16, very compelling risk / reward.
Mineral Resources (MIN) Chart
IRESS Ltd (IRE) $11.74
IRESS is a stock we don’t often mention but its technical position caught my eye last night. The information provider for financial markets has been on a rollercoaster ride over the last 18-months as investors have juggled the impact of its foray into the UK market. IRE has also invested heavily in artificial intelligence (AI) which as we all know is a “hot topic” at present with amazingly 50% of its 1800 staff now working in the area.
Technically we like IRE around $11.74 targeting $13 and potentially beyond, if we are correct the $11 area should not be breached.
IRESS Ltd (IRE) Chart
QANTAS (QAN) $6.72
MM has been watching QAN from a distance for most of 2018 – in hindsight we should have had a speculative dabble.
Our long-term $7 target remains firmly both intact and now close at hand. Although the company’s valuation is not scary at 10.35x estimated 2018 earnings we remain on balance negative into further strength.
QANTAS (QAN) Chart
Of the 4 stocks we looked at 2 are in the sell basket and 2 the buy:
Buy– we are bullish both MIN and IRE around current levels – we like both of these stocks as they have a low correlation to the ASX200.
Sell– we are sellers of SUN between $15.50 and $16 and negative QAN around $7.
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