Private Client Adviser
Wesfarmers Limited (WES)
Wesfarmers Limited ($41.33) is a highly diversified conglomerate with retail interests that include Coles supermarkets as well as the Target, Kmart, Officeworks and Bunnings chains. It also has interests in insurance, coal mining, gas, chemicals and fertilisers, and industrial supplies distribution.
Following the beating the local market has suffered over the past 6 weeks, we have seen stocks such as Wesfarmers in a situation where they have pulled back from all-time highs ($45.77 20/8/14) to trade at levels where the stock seems attractive to investors from a P/E ratio and dividend yield perspective.
Wesfarmers is currently trading at, in my opinion, a comfortable PE ratio of 17.62 and has a dividend yield of 4.60% which is attractive in this current low interest rate environment.
After trading as low as $39.66 in recent weeks, WES along with the broader market has seen a bounce and has returned to be trading within its recent trading range of $41.00 - $44.00.
I expect to see WES continue its move higher as the general market does and test $43.00 in conjunction with the 50 and 200 day moving averages.
We should then see the stock test resistance at the top of its trading range at $44.00 as it has so many times before. Look to buy WES with the view that it will recover along with the overall market.
Company Website: Pilkington Trading
Analysts & Research
Centaurus Metals Ltd (CTM)
Centaurus Metals Ltd (CTM) Last Price: 0.079 is an Australian minerals company focused on developing iron ore mining operations in Brazil. Ore Reserves totalling 48.5million tonnes (Mt) have been delineated as part of a Bankable Feasibility Study (BFS) at its most advanced Project, Jambreiro. The Company has established a broader mineral Resource portfolio totalling 216Mt, inclusive of Reserves.
Catalysts: Development of Jambreiro into a producing mine is Centaurus’s major value growth driver. With feasibility and permitting works complete, an offtake partnership and procurement of construction finance would send a strong signal of the asset’s near term, scalable cash flow potential.
Hurdles: With almost two years passing since completion of the original Jambreiro BFS, marketing and execution risks are impacting confidence toward the stock. Management must contend with international price benchmarks one third lower year to date, and a funding environment contingent on offtake clarity.
Investment View: Centaurus offers speculative exposure to the iron ore mining industry and Brazilian steel demand. We are attracted to the advanced status of its Jambreiro Project, and value growth which pending offtake and funding events could deliver. Whilst they may require a recovery in international price benchmarks, a high degree of risk appears to be factored into the stock. With our valuation offering a premium of 170 per cent to recent trade, and varying to iron ore prices by a factor of three, we initiate coverage with a ‘speculative buy’ recommendation.
Read the Full Wise-Owl.com Report on CTM
Company Website: Wise-Owl.com - Free Trial
Technical Analysis Research
BHP Billiton Limited (BHP)
Be wary of the Big Australian’s stock price in the months ahead.
BHP’s stock price has been making heavy going of it against a backdrop of deteriorating fundamentals; going south while the wider ASX/200 index has been on a long-term uptrend.
The slowdown in growth from China hasn't helped, of course. Nor has low global growth and commodity prices - especially iron ore, which recently fell below $80, and is critical to the company’s bottom line.
52% Iron Ore - see the iron ore price chart
24% Copper - see the copper price chart
23% Crue Oil - see the crude oil price chart
As a technical trader, my primary focus is price, and price is still waving a red flag. The world’s biggest diversified resource company still has major challenges ahead.
Here are four technical reasons to curb your enthusiasm…
1) The long-term trend in BHP is still down.
2) We are about to test the lower boundary of a three-year trading range for the fourth time – the more times a level gets tested the more likely it will break. The upper bull-line is at $39.00; the lower bear-line lies at $31.00.
3) The most recent sell-off has been fierce, against a deteriorating fundamental backdrop (namely, lower iron ore prices and low global growth).
4) The stock’s relative strength (RSI) is the weakest it’s been at this level, which has created a negative divergence – lower RSI and higher price.
NOTE: Consensus opinion isn’t expecting this but a failure at the bear-line at $31.00 targets the next major support zone between $20.00 and $24.00, which is a 10-year low.
Richard Lie is the founder of the hedge fund Crusader Capital Management, and the stock analysis service www.stockradar.com.au which is currently offering free trials.
Free Trial: Click Here
Australian Stock Report
Head of Research and Trading
Alumina Limited (AWC)
Alumina Limited (AWC) is an Australian resource company that produces alumina.
The Company owns about 40% of Alcoa World Alumina and Chemicals (AWAC) through a joint venture with Alcoa.
AWAC has sold its Jamaican bauxite mine and alumina refining stake for US$140m.
The expectation is that AWC will likely book a US$50-65m loss, but the sale is considered a positive as it will lower average group unit costs and net debt.
We expect Alumina Ltd's margins to triple to US$130/t over the next five years.
On the technical front, the recent pullback saw AWC gravitate towards the 125-period EMA, find support and print a bullish pin bar (candle with a long lower shadow, highlighting the bulls’ willingness to bid up lower prices) off this region.
The last two sessions have seen some follow through buying, creating for us in the process a signal to get set in longs.
We’re targeting a move to $1.90 for AWC.
Company Website: Australian Stock Report