ASX stocks set to gain on global reflation

Post-Brexit speculation over forthcoming global fiscal and monetary stimulus has clearly helped the best performing ASX stocks of the past week.

The top fifteen stocks are dominated by commodity stocks linked to the global industrial cycle. This is also the segment of the market that is most stretched in valuation terms, but if we do see major fiscal packages from Japan, UK, China (ongoing) and possibly Europe then earnings estimates will have to be substantially upgraded, which would validate some of these lofty valuations. If we are at a reflation inflection point, then this is not going to be the end of the move for the cyclicals that are already at the top end of the table.

NAME

5 Day

1 Month

YTD

NAME

5 Day

1 month

YTD

BLUESCOPE STEEL

17.2

27.2

85.8

COMPUTERSHARE LT

-2.4

-16.4

-24.4

WHITEHAVEN COAL

15.8

77.9

141.4

COVER-MORE GROUP

-2.7

-12.5

-42.8

SANDFIRE RESOURC

12.9

12.1

12.3

MANTRA GROUP LTD

-2.7

-18.6

-36.6

FLEXIGROUP LTD

10.6

3.4

-34.4

ALTIUM LTD

-3.3

6.9

45.8

BT INVESTMENT

10.0

-8.9

-33.4

PROGRAMMED MAINT

-3.5

-12.1

-33.6

BLACKMORES LTD

9.9

0.0

-30.3

SKY NETWORK TEL

-3.6

5.6

7.1

FAIRFAX MEDIA LT

8.9

5.4

6.5

SPARK NEW ZEALAN

-4.1

2.3

13.5

QANTAS AIRWAYS

8.8

5.8

-24.5

ST BARBARA LTD

-4.3

16.9

147.7

WESTERN AREAS LT

8.4

39.2

26.8

REGIS RESOURCES

-5.3

12.8

62.9

SEVEN WEST MEDIA

8.3

1.4

43.9

NORTHERN STAR RE

-5.5

12.6

96.4

SIMS METAL MANAG

8.0

5.7

21.3

EVOLUTION MINING

-5.6

26.8

107.9

HENDERSON-CDI

8.0

-23.9

-38.0

SYRAH RESOURCES

-6.1

-6.8

43.3

SIRTEX MEDICAL

7.8

4.9

-25.0

BEACH ENERGY LTD

-6.1

-8.9

25.5

INDEPENDENCE GRP

7.5

42.7

69.7

TASSAL GROUP LTD

-7.3

-4.0

-14.0

MONADELPHOUS GRP

7.4

22.5

34.4

NEWCREST MINING

-7.9

11.2

89.1

 

Consensus Price Targets

Global fiscal stimulus has certainly not been factored into the consensus price targets by the analyst community. Resources companies dominate the list of companies that are trading well above their price targets, and price targets for resources stocks are the most ephemeral given how difficult it is to forecast commodity prices.

Stock Ticker

Name

Percentage Above Consensus Target Price

RMD US

RESMED INC-CDI

655.8

FMG AU

FORTESCUE METALS

37.1

MND AU

MONADELPHOUS GRP

34.7

BWP AU

BWP TRUST

32.7

NST AU

NORTHERN STAR RE

28.5

IGO AU

INDEPENDENCE GRP

27.7

SAR AU

SARACEN MIN HLDG

27.5

WOR AU

WORLEYPARSONS

25.7

RRL AU

REGIS RESOURCES

24.0

CIM AU

CIMIC GROUP LTD

23.9

 

The list of stocks well below their consensus price targets could be showing up some value buys, or just where the analyst community has got it very wrong.

Stock Ticker

Name

Percentage Below Consensus Target Price

MSB AU

MESOBLAST LTD

-55.1

GMA AU

GENWORTH MORTGAG

-28.4

MTR AU

MANTRA GROUP LTD

-26.9

CVO AU

COVER-MORE GROUP

-26.2

EHE AU

ESTIA HEALTH LTD

-25.3

QAN AU

QANTAS AIRWAYS

-24.0

PRG AU

PROGRAMMED MAINT

-22.9

SYR AU

SYRAH RESOURCES

-22.6

ASB AU

AUSTAL LTD

-22.3

ISD AU

ISENTIA GROUP LT

-22.1

 

Value Screens

Since some of the most hated resources exposed cyclicals stocks have been outperforming, I thought it might be worth revisiting some tried and tested value screens. These screens actually picked up a lot of the recent winners (MND, WSA, SHV) about a month or two ago, and both have robust backtested results with 15% or higher average annual returns.

Let’s start with Joel Greenblatt’s “Magic Formula” which is a simple equal-weight of earnings yield (the inverse of the P/E ratio) and return on invested capital (ROIC). I’ve given it a 70/30 weight towards earnings yield to weight “value” higher.

QAN and MND still look reasonable buys if their earnings don’t drop off a cliff.

Stock Ticker

Earnings Yield

ROIC

70/30 Score

QANTAS AIRWAYS

0.30

0.20

0.27

MONADELPHOUS GRP

0.21

0.31

0.24

FLIGHT CENTRE TR

0.21

0.32

0.24

JB HI-FI LTD

0.11

0.55

0.24

OZ MINERALS LTD

0.29

0.06

0.22

BLACKMORES LTD

0.05

0.61

0.22

REGIS HEALTHCARE

0.08

0.51

0.21

AUSTAL LTD

0.25

0.10

0.21

DOWNER EDI LTD

0.25

0.10

0.21

SANDFIRE RESOURC

0.19

0.21

0.20

 

And a lot of similar names show up in Joel Greenblatt’s “Acquirer’s Multiple”, which is just enterprise value divided by EBITDA minus Capex. Both screens do suggest a good selection of names to look at if we do see fiscal stimulus reflationary cycle return, and a few other names whose business models are slowly crumbling like FLT and MTS who most investors would probably still want to avoid.

Stock Ticker

EV

EBITDA-Capex

Acquirer's Multiple Score

MONADELPHOUS GROUP LTD

644.2

164.5

3.9

AUSTAL LTD

354.3

67.9

5.2

DOWNER EDI LTD

2117.8

370.5

5.7

FLIGHT CENTRE TRAVEL GROUP L

2098.4

340.4

6.2

METCASH LTD

2098.0

330.0

6.4

WESTERN AREAS LTD

746.2

95.6

7.8

SANDFIRE RESOURCES NL

1020.3

126.2

8.1

OZ MINERALS LTD

1518.9

187.3

8.1

MCMILLAN SHAKESPEARE LTD

1507.6

184.8

8.2

SKY NETWORK TELEVISION LTD

2190.5

264.3

8.3

 

Insider Buying

Air New Zealand (AIZ) tops the list of insider buying over the past month, showing that at least some in top management are happy to be contrarian against the general hate of airline stocks globally at the moment. Interestingly, NAB is also showing up in the scan which is certainly an interesting development as we head into earnings season. Fairfax seeing some insider buying alongside being one of the better performing stocks at the moment also indicate there could be some good earnings news ahead.

TICKER

NAME

1 Month Volume Insider Buys

AIR NZ Equity

AIR NEW ZEALAND

0.14

MYO AU Equity

MYOB GROUP LTD

0.05

SKT NZ Equity

SKY NETWORK TEL

0.05

SCP AU Equity

SHOPPING CENTRES

0.05

BTT AU Equity

BT INVESTMENT

0.04

FXJ AU Equity

FAIRFAX MEDIA LT

0.04

NAB AU Equity

NATL AUST BANK

0.02

RYM NZ Equity

RYMAN HEALTHCARE

0.02

TAH AU Equity

TABCORP HLDGS

0.01

 

Short Positions

There has been a big increase in short positions in Mesoblast over the past week, which is quite significant given that it is already the third most shorted stock on the index in short interest ratio terms.

Stock Ticker

Short Interest Ratio

Week on Week % Increase in Short Positions

MESOBLAST LTD

35.3

53.7

MAYNE PHARMA GRO

2.7

29.1

COCHLEAR LTD

3.2

14.7

CSL LTD

2.1

11.2

OZFOREX GROUP LT

8.3

9.5

METCASH LTD

17.4

9.4

AUSTAL LTD

2.9

9.0

INCITEC PIVOT LT

2.6

8.5

NATL AUST BANK

2.1

8.0

G8 EDUCATION LTD

7.3

7.7

 

Growthpoint properties, the A-REIT, seems to have seen the biggest drop in short positions over the past week.

Stock Ticker

Short Interest Ratio

Week on Week % Decrease in Short Positions

GROWTHPOINT PROP

6.7

-25.7

DEXUS PROPERTY G

2.6

-5.7

ADELAIDE BRI LTD

3.5

-5.1

MACQUARIE ATLAS

2.7

-5.0

SELECT HARVESTS

5.2

-4.8

NUFARM LTD

5.5

-4.6

SCENTRE GROUP

3.4

-4.4

VILLAGE ROADSHOW

9.1

-4.1

TASSAL GROUP LTD

8.1

-4.0

INSURANCE AUSTRA

4.6

-3.8

 

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.

AST – Buy

AusNet Services looks to be heading higher.

CMW – (BUY)

Cromwell Property Group is also trending nicely higher.

FXJ – (Buy)

Fairfax media is screening up on a range of market measures like insider buying, and it has some good technical momentum behind it.

SYR – (Sell)

Sentiment has really turned on Syrah Resources and a break of support at A$5.40 could see a major selloff.

SKT – (Sell)

Sky Network Television has declined six sessions in a row, and sentiment does not look good as we begin to approach earnings season.

 

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