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Top ASX stocks to watch

With 178 companies now having reported, earnings were 15.5% below where the market was expecting them.

bg_australia 03
Source: Bloomberg

Energy was the only sector to see a major upside earnings surprise, 17.9% above consensus, with materials also having a minor positive surprise. Otherwise, it was a very dismal performance. But Australia finds itself in a very weak nominal growth (NGDP) environment, and, as the chart below shows, it is difficult to see much of an earnings recovery until we similarly see a recovery in nominal growth.

NGDP_290816

Market Capitalisation

Most are aware that the two dominant sectors in the ASX are the materials and financials sectors, and specifically the banks. However, their respective market capitalisation weighting in the index has often reflected some important trends. The materials sector overtook the banks in market cap weight in 2007 just as China stepped its investment-led growth strategy into high gear. The banks retook prime position as China eased back its stimulus program in 2011 and Australia’s surging housing market helped goose bank revenues. This trend now looks to be steadily reversing with the market cap of materials on track to move back above 15% for the first time since June 2015 and the market cap of the banks dropping to the lowest levels since January 2013.

ASX_sectors_290816

Top 15 Winner and Losers

Altium, which designs software for printed circuit boards, surprised with their earnings results on 24 August with earnings-per-share growing 43.5%. This stellar performance has helped them see the best returns in the index over the past week.

NAME

5 Day

1 Month

YTD

NAME

5 Day

1 month

YTD

ALTIUM LTD

27.0

38.8

102.4

OIL SEARCH LTD

-9.0

-1.0

3.1

GWA GROUP LTD

25.6

38.4

43.9

BEACH ENERGY LTD

-9.1

-10.6

12.2

ISENTIA GROUP LT

16.1

13.9

-23.8

NORTHERN STAR RE

-9.1

-21.9

54.0

SOUTHERN CROSS M

12.9

14.8

22.8

AUSTRALIAN AGRIC

-9.3

-8.8

31.2

RETAIL FOOD GROU

10.9

18.0

42.8

SYRAH RESOURCES

-9.6

-25.2

8.2

SIMS METAL MANAG

10.3

6.1

34.1

SARACEN MIN HLDG

-10.4

-12.0

146.7

METCASH LTD

9.9

15.3

38.1

INDEPENDENCE GRP

-10.9

-10.9

54.3

ASALEO CARE LTD

8.8

-35.4

-7.2

ILUKA RESOURCES

-12.0

-7.8

8.5

PACT GROUP HOLDI

8.4

4.1

25.8

WORLEYPARSONS

-13.8

2.9

71.3

SIRTEX MEDICAL

7.9

13.3

-16.6

MCMILLAN SHAKESP

-14.1

-15.9

-7.3

ARDENT LEISURE

7.1

32.5

20.8

ACONEX LTD

-14.3

-19.4

25.4

BLUESCOPE STEEL

6.9

6.9

99.1

MONADELPHOUS GRP

-17.6

1.2

36.5

CORPORATE TRAVEL

6.7

22.9

31.7

WESTERN AREAS LT

-19.6

-10.4

15.6

FLIGHT CENTRE TR

6.5

15.6

-6.4

BLACKMORES LTD

-21.7

-16.7

-40.8

CHARTER HALL GRO

6.4

8.8

28.6

APN OUTDOOR GROU

-35.6

-29.6

-13.0

 

Sector Performance

Telecoms continues to be the worst-performing sector over the past week and for the month, although this is largely a reflection of Telstra given its huge weighting in the sector. Big capex announcements in Telstra’s most recent earnings results to deal with its frequent outages have not pleased investors who mostly own the stock for its fully franked dividend. The classic Telstra investor just want to sit back, get the fully-franked dividend, and see Telstra’s dominance of the domestic telco market continue to generate steady cash flows with minimal capital expenditure, and when that doesn’t happen many want out.

Sector

5 day

1 Month Return

YTD Return

IT

-0.9

4.2

1.7

Utilities

1.4

-4.3

11.3

Healthcare

0.9

-3.2

11.3

Industrials

-2.0

-3.3

10.9

Financials

0.3

-1.7

-4.3

Consumer Staples

1.8

4.3

5.0

Telecoms

-2.7

-8.0

-3.1

Materials

0.1

3.2

27.1

Consumer Disc.

0.5

-0.2

12.6

Energy

-1.5

4.5

7.4

ASX Index

0.0

-0.8

4.2

 

Factor Performance

Surprisingly, small caps saw the biggest drop over the past week despite being the best-performing factor in the MSCI Australia so far this year. Investors increasingly look to be allocating towards value and quality factors in recent times. This makes sense, given the elevated valuations seen across the board, and the fact that minimum volatility and high-yielding factors have already seen massive rallies over the past twelve months.

Factor

5 day

1 Month Return

YTD Return

Value

0.6

1.6

11.4

Risk Weighted

0.5

0.1

17.4

ESG

0.8

0.6

7.8

Momentum

0.6

-1.8

21.9

Quality

1.4

0.5

16.1

High Yield

0.1

3.5

9.7

Minimum Volatility

0.8

-0.4

15.9

Small Caps

-0.5

1.1

23.7

Infrastructure

0.8

-3.8

16.1

MSCI Australia

0.6

0.5

11.5

 

Top Insider Buying

Carsales.com has seen a significant amount of insider buying over the past month, which after their strong results could indicate that insiders still see further upside. Interestingly, Telstra has also flashed up in the insider buying scan after seeing such a terrible monthly performance.

TICKER

NAME

1 Month Volume Insider Buys

CAR AU Equity

CARSALES.COM LTD

0.06

BXB AU Equity

BRAMBLES LTD

0.04

VCX AU Equity

VICINITY CENTRES

0.04

IVC AU Equity

INVOCARE LTD

0.03

TWE AU Equity

TREASURY WINE ES

0.02

AOG AU Equity

AVEO GROUP

0.02

TLS AU Equity

TELSTRA CORP

0.01

WHC AU Equity

WHITEHAVEN COAL

0.01

 

Stocks Below Consensus Price Targets

These are the top ten stocks that are trading the furthest below analyst consensus price targets. After Estia’s earnings release today it does look increasingly like the analyst community have got that one wrong. The more interesting names are Qantas and Beach Energy who both performed better than analysts had expected in their recent earnings results and are still quite cheap in valuation terms.

Stock Ticker

Name

Percentage Below Consensus Target Price

MSB AU

MESOBLAST LTD

-40.3

SYR AU

SYRAH RESOURCES

-36.1

NWSA US

NEWS CORP- CDI B

-35.3

EHE AU

ESTIA HEALTH LTD

-31.5

ACX AU

ACONEX LTD

-22.9

IPH AU

IPH LTD

-21.3

MTR AU

MANTRA GROUP LTD

-20.5

QAN AU

QANTAS AIRWAYS

-19.4

EVN AU

EVOLUTION MINING

-19.0

BPT AU

BEACH ENERGY LTD

-18.5

 

Momentum Stock Picks

Note: These momentum stock recommendations are based off backtested results looking at a 3-5 day holding period with a 5% stop loss on every trade.

SGM – (Buy)

Sims Metal Management reported another full-year loss on 25 August, but investors appear happy with their cost cutting gains. A lot of buying has come into the stock as many think that the worst of the earnings declines are over for the stock and that the fortunes of the metal recycling industry may well pick up in the next twelve months.

RFG – (Buy)

Retail Food Group that owns a range of food chains around Australia reported record results on 25 August while announcing that they planned further earnings accretive acquisitions. This has seen a big rally in their share price, but that doesn’t look to be over just yet.

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