Data Insights

Which ASX stocks have the best fundamentals and technicals?

Tue 09 Jul 24, 2:45pm (AEST)
fundamentals vs technicals
Source: Shutterstock, Market Index

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cmm
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cda
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evo
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emr
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flt
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hub
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iag
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tlx
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Key Points

  • Fundamental analysis considers a company's financials, management, and market positioning, whereas technical analysis considers a company's share price performance, including trends and price action
  • Combining fundamental and technical analysis is widely considered as an effective method in identifying potentially strong investment opportunities
  • Experienced investors Chris Conway and Carl Capolingua apply their favourite fundamental and technical criteria (respectively) to ASX companies

Chris Conway and I have been friends for nearly 20 years and colleagues for many of those. So, when he suggested we collaborate on a regular fundamentals plus technicals scan I jumped at the chance.

No need to guess who is going to be responsible for which! Chris has put together a list of 6 of his favourite fundamental scanning criteria – which he calls “Factors”. He’s used this Factor list for many years to identify companies with strongly growing earnings.

Whilst we’re attacking this from different ends of the spectrum – we certainly agree on this point: Companies with the strongest earnings growth almost invariably are those with the strongest corresponding share price appreciation.

Here are Chris’s 6 Fundamental Factors:

  • Sales growth 1-year forward greater than 15% - the lynchpin of any growth company; it must have strong sales growth from one period to the next

  • EPSg 1-year forward greater than 10% - always want to see strong earnings per share growth to complement the sales growth

  • EBITDA margin 1-year forward greater than 10% - expanding margins are important for growth companies as they scale up

  • ROE 1-year forward greater than 10% - ROE is a quality filter, measuring how efficiently a company generates its profits

  • FCFg latest greater than 10% - Free cash flow is super important - lack of cash flow can cripple any business, let alone one trying to grow

  • Cash flow return on invested capital greater than 5% - How effectively a growth company uses its invested capital to generate cash is critically important

Using a fancy bit of software, Chris scanned every stock on the ASX to come up with a list of just 23 companies that fit his Factor criteria.

_

Company Name

Ticker Code

Company Name

Ticker

Austin Engineering

ANG

Codan

CDA

Close the Loop

CLG

Capricorn Metals

CMM

Emerald Resources

EMR

Embark Early Education

EVO

Flight Centre

FLT

Goodman Group

GMG

Helloworld Travel

HLO

Hub24

HUB

Insurance Australia

IAG

Jumbo Interactive

JIN

Kelly Partners Group

KPG

Otto Energy

OEL

Pacific Smiles Group

PSQ

ReadyTech Holdings

RDY

ResMed

RMD

Ramelius Resources

RMS

RPMGlobal

RUL

Seven Group Holdings

SVW

Telix Pharmaceuticals

TLX

Technology One

TNE

Wisetech Global

WTC

 

 

Chris Conway's Factor Scan list (generated using Halo Technologies)

So, with the fundamental hard yakka done, now it’s over to me! I studied the chart of each of the 23 companies identified in Chris’s Factor Scan and did my usual trend, price action, and candlestick analysis. I also considered the other two tent-pegs of my technical methodology – volatility and volume.

I won’t bore you with the details of my approach, because I assume you’re familiar with it from my regular ChartWatch articles in Evening Wraps, and in my ASX Daily Scans.

Obviously, anything in the list that showed both short and long term downtrends is out. So, nixed straight away are: HLO, OEL, RDY, and RMD. The long term trend on SVW has switched to neutral and there’s a well established short term downtrend there, so that one’s out also.

PSQ is gone as it's most likely going to be delisted at some stage due to an impending takeover.

Omitted on a ‘needs to see an improvement in the short term trend’ basis are JIN, KPG, RMS, and RUL. I’ve included in the omissions table below the price point / key point of supply above which these start to become interesting again. Remember, I like to see a close above the relevant point of supply. RMS is the most interesting of this bunch:

Company

Code

ST/LT Trends

Watch close >

Close The Loop

CLG

⬇️/⬇️

$0.37

Helloworld Travel

HLO

⬇️/⬇️

$2.50

Otto Energy

OEL

⬇️/⬇️

$0.015

Readytech

RDY

⬇️/⬇️

$3.40

Resmed Inc

RMD

⬇️/⬇️

$32.16

Seven Group

SVW

⬇️/➡️

$40.44

Jumbo Interactive

JIN

⬇️/⬆️

$17.00

Kelly Partners Group

KPG

⬇️/⬆️

$8.40

Ramelius Resources

RMS

⬇️/⬆️

$2.04

Rpmglobal

RUL

⬇️/⬆️

$2.63

Chris’s Factor Scan vs technicals omissions table

Always remember with my analysis: It’s not that these are bad companies, honestly, I don’t know, and I care even less. It’s just that good or bad, the market doesn’t appreciate them at the moment. In my experience, zero appreciation of the fundamentals equates to zero appreciation in the share price.

I scan every stock on the ASX every day of the week. This means I sleep very easy each night in the knowledge that when a previously underappreciated stock is finally starting to be appreciated – I will see this reflected as a change in its trend.

Until then…tree falling in the forest…one hand clapping sort of stuff!

This brings me to the Most Prospective Fundamentals + Technicals List. I’ll do the chart of each below. Let the fundamentals and the technicals come together in perfect harmony! 🤗

Austin Engineering (ASX: ANG)

Austin Engineering (ASX-ANG) chart 9 July 2024
Austin Engineering chart

Plenty to like here. Well established short and long term uptrends, great price action (rising peaks and rising troughs, and predominantly demand-side candles.

Very little downside volatility if on the rare occasion it occurs.

This is a picture of excess demand and of total demand-side control.

There’s nothing in the price action or volume to suggest the prevailing trends cannot continue.

No major points of demand to worry about as this is trading near all time highs.

Short term trend remains intact until a close below the 1 July point of demand at $0.55.

Codan (ASX: CDA)

Codan (ASX-CDA) chart 9 July 2024
Codan chart

Ditto: Picture of excess demand and of total demand-side control.

There’s nothing in the price action or volume to suggest the prevailing trends cannot continue.

No major points of demand to worry about as this is trading near all time highs.

Short term trend remains intact until a close below the 4 July point of demand at $11.52.

Capricorn Metals (ASX: CMM)

Capricorn Metals (ASX-CMM) chart 9 July 2024
Capricorn Metals chart

Disappointing candle today. Will be interesting to see where demand steps back in. I’d prefer to see the price not close below the 21 June point of supply at $5.04 (should now act as a point of demand).

Otherwise, the re-emergence of a strong short term uptrend definitely has this one on the radar. The long term uptrend ribbon appears to eventually have done it’s job of providing dynamic demand.

Watching nowfor a shallow pullback within the current short term uptrend to end with strong demand-side candles (i.e., long white-bodies and or long downward pointing shadow). After which would be the safest entry.

All time high set on 4 April at $5.55 likely to be a major point of supply going forward.

Emerald Resources (ASX: EMR)

Emerald Resources (ASX-EMR) chart 9 July 2024
Emerald Resources chart

Very strong technical picture here. Short and long term uptrend, rising peaks and rising troughs, and predominantly demand-side candles indicate strong demand-side control.

All time high set on 22 May at $3.96 likely to be a major point of supply going forward – but suggest we’re now in the process of probing that supply.

Watch for continued printing of demand-side candles around current price and down to the short term uptrend ribbon as an indication demand continues to build towards a potential break to new highs.

Embark Early Education (ASX: EVO)

Embark Early Education (ASX-EVO) chart 9 July 2024
Embark Early Education chart

Modest short and long term uptrends here, but likely still robust excess demand working in the system.

The short term uptrend remains intact as long as the price continues to close above the short term uptrend ribbon. A close beneath it, and the 28 June point of supply at $0.68, indicates the supply-side has likely grappled control.

Flight Centre Travel Group (ASX: FLT)

Flight Centre Travel Group (ASX-FLT) chart 9 July 2024
Flight Centre Travel Group chart

I would have said this one was in big trouble at the start of June. But the reversal since then has surprised me, and has demonstrated a swift return to demand-side control in the short term at least.

The March high of $22.10 should offer stiff supply, and the last couple of days down perhaps suggests it already is.

Like with CMM, if FLT can log only a short and sharp pullback here, particularly of terminated with strong demand-side candles, it augers well for a vigorous test of $22.10.

A close above $22.10 would confirm a resumption of the long term uptrend.

Lower peaks around here, and or a close back below the short term uptrend ribbon, would likely consign this one to an extended sideways trading range at best.

Goodman Group (ASX: GMG)

Goodman Group (ASX-GMG) chart 9 July 2024
Goodman Group chart

Overall very strong trends, but I note that in the very short term this one is losing a little upside momentum and is beginning to trend sideways. Demand and supply have likely moved closer to equilibrium in the short term.

But, the pedigree is unquestionable here, so there’s every chance the demand-side takes over again and pushes the price higher.

I could give this one some extra wiggle room, and say that as long as it continues to close above the 27 June point of demand at $33.75 the short term uptrend remains intact.

Hub24 (ASX: HUB)

Hub24 (ASX-HUB) chart 9 July 2024
Hub24 chart

Ditto on ANG and CDA. Immaculate short and long term trends, price action, and candles.

Just so little downside volatility if and when it occurs – smacks of total demand-side control.

There’s nothing in this chart at the moment that suggest the prevailing short and long term trends cannot continue.

As always, and with any of these, watch for the usual tell-tale signs of increasing supply-side control: falling peaks and or falling troughs, and supply-side candles (i.e., those with black bodies and or upward pointing shadows).

Insurance Australia Group (ASX: IAG)

Insurance Australia Group (ASX-IAG) chart 9 July 2024
Insurance Australia Group chart

Nothing goes up in a straight line, and IAG is experiencing what so far looks to me to be a health pullback from 28 June’s news inspired spike.

Overall, demand-side control is clear, as per the otherwise impeccable short and long term trends, price action, and candles.

There’s nothing in these or the volume that suggests the prevailing short and long term trends cannot continue.

Telix Pharmaceuticals (ASX: TLX)

Telix Pharmaceuticals (ASX-TLX) chart 9 July 2024
Telix Pharmaceuticals chart

Another that has demonstrated strong short and long term trends for long period of time. I put this one a little more in the GMG category, though, as there’s just the slightest hint of sideways consolidation.

Such consolidation is not unusual though when it occurs below a major point of supply – as is the case here below the clear point of supply set on 6 June at $19.06.

I suggest the demand-side remains in control while the price continues close above the short term uptrend ribbon.

Technology One (ASX: TNE)

Technology One (ASX-TNE) chart 9 July 2024
Technology One chart

Fewer issues with sideways consolidation here as there really isn’t any major points of supply to contend with.

If I squint, there’s the slightest stagnation here, but even then we’re still seeing rising peaks and rising troughs.

There’s nothing in the trends, price action, candles or volume that worry me, and therefore I can’t see any reason why the prevailing short and long term uptrends can’t continue.

Wisetech Global (ASX: WTC)

Wisetech Global (ASX-WTC) chart 9 July 2024
Wisetech Global chart

A very strong and well established long term uptrend, but just as clearly more of a sideways short term trend.

As suggested prior, nothing goes up in a straight line, and periods of consolidation to remove pesky (non-believer) supply are necessary to eventually perpetuate a long term uptrend.

Here, I suggest the round number of $100 is playing a role. It is common for investors to get caught up on such flippant things. But as the belief WTC’s valuation lies far in excess of this round number grows – so too will demand.

Eventually, potentially leading to excess demand and a break of supply-side resistance.

Price action (rising troughs) and solid recent demand-side candles are consistent with building demand. Nothing in the volume is throwing up red flags.

My tip is you might not have to wait too long for $100 to go.

A close below the 2 July point of demand at $94.35 would indicate something isn’t quite right with the demand-side’s faith and endeavour!

Written By

Carl Capolingua

Content Editor

Carl has over 30-years investing experience, helping investors navigate several bull and bear markets over this time. He is a well respected markets commentator who specialises in how the global macro impacts Australian and US equities. Carl has a passion for technical analysis and has taught his unique brand of price-action trend following to thousands of Aussie investors.

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