Likes
This week CMC Markets’ Michael McCarthy likes Flight Centre (FLT) after it recently reported strong numbers and an increase in net profit after tax of 14%.
“The current share price pressure is related to media reports around staffing issues,” he says
“While there may be reputational damage, the reports look to me more like a disgruntled ex-employee than a company wide issue.”
He’s hoping the current selling will bring Flight Centre back to around $54.
Our chartist this week is David McCulloch from Share Wealth Systems and his pick is Wesfarmers (WES).
Since breaking out of a sideways channel earlier in the year, Wesfarmers has moved steadily higher, rising approximately 15% since the middle of May. As can be seen on the chart, Wesfarmers experienced a period of consolidation from June to August, where the price spent a deal of time negotiating the key $50 level. That level was challenged numerous times before finally breaking through and “gapping up” convincingly on August 16. Since then, the stock has re-tested the zone of consolidation and on Friday bounced strongly from that level, indicating that the $50 level is now a zone of demand in the market.
Wesfarmers has significant price strength when compared to the market and has outperformed consistently over the past four months. For protection, trailing stops can be placed below the consolidation level at around $48.50.
[1]
Bell Direct’s Julia Lee’s pick is Nanosonics (NAN), a company with a product called Trophon, which is used to disinfect sensitive medical instruments. So far, sales of this product have mostly been in the US.
“Sales in the last financial year were impacted by the launch of Trophon 2, and earnings growth is yet to come. New infection prevention products are expected to be launched by the end of FY20. This is a company with the bulk of earnings growth yet to come,” she says.
Dislikes
But Julia does not like Nufarm (NUF), with the drought in Australia expected to impact its business.
“In addition, heightened competition from imports are likely to impact on margins,” she says.
The safety of the herbicide glyphosate is also in focus after a US case that ruled Monsanto liable for causing cancer through its glyphosate-based weedkiller.
“There is the risk of loss of contracts and sales related to the court case,” Julia says.
Michael doesn’t like gold miner Northern Star (NST).
The gold miner has delivered for investors in the past with a record operating profit and a positive outlook.
“However Northern Star is now priced for perfection and any missteps could have serious share price ramifications. Time to take profit,” Michael says.
Chartist David doesn’t like Origin (ORG) after its strong performance.
Origin had performed strongly after hitting a low of $3.44 in October 2016. Since hitting a low of $3.44 in October 2016 the stock has risen by just under 200% and along the way bounced consistently to establish a clearly defined trend line.
Each time the stock retraced from its upward movement, it found support at each point (red circles) demonstrating that there was still plenty of demand for the stock.
More recently however, the stock has breached the longer term trend line and, as is often the case, has bounced to re-test the under-side (black circle) of the longer term trend line and at that point failed, subsequently moving lower. This is a significant indication that the market view of the stock has shifted and that a zone of what had previously been support is now a zone of resistance.
The stock has since had a rapid decline falling through two levels of support and has only recently stalled at an old support/resistance zone formed during 2017. At this point, look for the stock to bounce and test a potential resistance zone at around the $8.50 level, where it is probable that it will encounter further supply, putting downward pressure on the stock.
[2]
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regard to your circumstances.