The 10 most overbought and oversold ASX 200 stocks – Week 42

Gold rallied past US$2,700 an ounce with ease, powered by a long list of drivers including rising tensions in the Middle East, uncertainties around the US elections, global central bank easing and capital flowing back into gold ETFs.

Soaring gold prices has tipped a number of local gold names, including Regis Resources, Northern Star and Gold Road into overbought territory.

The 14-day Relative Strength Index is a momentum indicator that measures the magnitude and speed of recent price changes to assess whether or not a stock is overbought or oversold.

An RSI of 70 or above is considered to be overbought, which means the stock is rising too quickly and likely to experience a pullback. Meanwhile, an RSI of 30 or below is considered to be oversold, which means the stock is falling too quickly and is likely to experience a rebound.

Most Overbought ASX 200 Stocks

Data as at Friday, 18 October 2024

Gold Miners Play Catch Up

As the below chart indicates, gold miners have consistently struggled to keep up with the performance of bullion. This may be due to a number of reasons, including:

• Cost inflation: The all-in sustaining costs (AISC) for miners has soared in recent years. For example, Northern Star reported AISC of A$1,853 an ounce in FY24, up around 25% compared to FY21 levels of A$1,483. It isn't cheap being a gold miner.

• Capex costs: As the saying goes, you need to spend money to make money. Several gold miners are in the midst of heavy capex cycles. Northern Star has a forecasted capex of $1.3 billion in FY24, $1.9 billion in FY25 and $1.9 billion in FY26, up from $1.0 billion in FY22. Such large capex commitments can weigh on free cash flow and the company's ability to pay a larger dividend.

• Hedging: Commodities are a risky game, and most miners try to manage price volatility by incorporating some level of hedging. The challenge is that if gold prices soar, these hedges can work against them, potentially costing the company.

• Production risks: Gold miners have several production risks including extreme weather events (e.g. WA faced major floods in March this year), labour shortages and sovereign risks.

But gold miners can only ignore soaring prices for so long. The All Ordinaries Gold Index has rallied around 15% in the past two weeks, soaring past July 2020 highs to record levels.

Gold price (orange) vs. S&P/ASX All Ordinaries Gold Index (blue) year-to-date comparison | Source: TradingView

Most Oversold ASX 200 Stocks

Data as at Friday, 18 October 2024

Travel sector softens

Local travel names are under pressure following a series of trading downgrades from key names like Flight Centre and Web Travel Group.

Flight Centre shares tumbled 20.4% on Thursday, 17 October after flagging lower-than-expected growth in total transaction value (TTV), margins and profit, all of which were only marginally ahead of the prior year. The result fell short of analyst expectations and raised concerns regarding the company's ability to deliver double digit year-on-year earnings growth and its 2% PBT margin target.

Concerns were also raised about the sustainability of corporate travel growth. While Flight Centre has gained market share through new client wins, the broader corporate travel market remains flat, with some companies cutting back on travel budgets amid macroeconomic uncertainties.

The average target price among 17 sell-side ratings was cut by 5.5% to $23.09 following the announcement.

Similarly, shares in Web Travel Group nosedived 35% on 14 October after downgrading its revenue margin guidance to 6.5%, largely due to weakness in Europe margins. It was only six weeks ago that the company downgraded its margin outlook to 7.0-7.5% (from 7.5%). The stock has struggled to bounce after the selloff, down a further 5.4%.

The stock suffered steep downgrades from analysts, with Macquarie cutting its 2024 earnings estimates by 33% and target price by 41% to $4.48.

"Longer term we expect WEB will successfully grow TTV; however, lack of visibility concerning revenue margins and OPEX/ CAPEX outlooks makes us cautious on its ability to drive operating leverage as it scales," the analyst said in a note dated 16 October.