Evening Wrap: ASX 200 fails to fend off early weakness + Morgan Stanley's post earning season picks

The S&P/ASX 200 closed 38 points lower, down -0.54%. 

The Index finished lower and near worst levels on Tuesday, led by weakness across miners, tech and real estate. Macquarie says the recent weakness in lithium may present a buying opportunity, Morgan Stanley views Lovisa as a key pick coming out of reporting season and Goldman Sachs is bearish on New Hope.

Let's dive in.

ASX 200 Session Chart

ASX 200 lower but off worst levels (Source: Market Index)

Markets

The ASX 200 finally caved in after fending off early weakness in the previous two sessions:

• Friday 22 Sep: +0.05% close from session low of -1.5%

• Monday 25 Sep: +0.11% close from session low of -0.65%

The risk off mood weighed on tech stocks, with broad-based weakness across heavyweights Wisetech (-1.7%), NextDC (-2.1%) and Xero (-2.6%). Materials was another key area of weakness as China's property worries return and the US dollar breaks out to fresh year-to-date highs. While names like BHP, Rio Tinto and Fortescue all opened around breakeven, they all finished around 2% lower.

It looks like all the breakeven efforts from the last two sessions was for nothing. The Index continues to trade down into no man's land. We've not far from the key 7,000 level. The market managed to bounce off that level last Friday, which was more of an oversold bounce. Let's see if we can hold onto this key level, otherwise 6,900 could come into play.

Economy

No major economic announcements.

Latest news

Interesting news and movers

Trading higher

• +13.5% Magnetic Resources (MAU) – Assay results

• +12.4% Pro Medicus (PME) – Contract award

• +3.6% WA1 Resources (WA1) – Drill results

• +3.0% Lake Resources (LKE) – DFS on track for December

• Drilling sector move: Mader (+7.7%), Perenti (+4.5%), DDH1 (+2.4%)

• Uranium sector move: Peninsula Energy (+12.5%), Lotus Resources (+6.3%), Deep Yellow (+6.2%), Elevate Uranium (+5.8%), Paladin Energy (+3.8%)

Trading lower

• -6.1% Lindian Resources (LIN) – Sales contract

• -2.6% Energy Resources (ERA) – Rehab costs to exceed estimates

• -1.7% Liontown Resources (LTR) – Hancock raises stake

Broker notes

Macquarie on lithium and rare earth miners:

• "The recent share price correction has created a purchasing opportunity, with many lithium miners trading at implied spodumene price of ~US$1,500/t."

• "The spot China LCE prices are trading below RMB170,000/t (US$23,000/t), which could be supported by non-integrated refineries ..."

• "In a spot price scenario, PLL boasts a valuation upside of >200% followed by AKE, MIN and PLS at 100-160%. IGO also enjoys an upside of ~60% using spot spodumene and lithium hydroxide prices."

• "To take advantage of the market trough, strategic investors could unlock value through business consolidation or offtake agreements, in our view."

Morgan Stanley's key picks out of reporting season #1:

• Key idea #1 is Lovisa

• "We recently upgraded LOV to Overweight based on a long runway for store growth, unique retail asset and small/mid-cap investors increasingly seeking exposure to consumer stocks on an improving macro backdrop."

• Store roll-out run-rate has decelerated by long-term store opportunity is expanding, with LOV opening in 12 new markets in FY23

• "We model -2% comps growth in FY24e after cycling multiple years of re-opening tailwinds and price increases ... comps get progressively easier from here."

Goldman's take on New Hope:

• FY23 results were pre-reported and in-line with Goldman and consensus expectations

• "Although NHC is growing coal production by ~90% over the next 4-5yrs, we rate NHC a Sell based on ... valuation: the stock is trading at 1.6x NAV and discounting a long-run thermal coal price of more than US$110 vs. our US$80 estimate."

• "Our global commodity team forecasts a ~40Mt surplus for 2023 and expects 6000kcal coal to trade in the range of US$110-140/t in 2H23 (vs. current index of US$165/t) as they expect China and India to increase domestic coal production and Indonesia and Australia to increase coal export ..."

Scans