Question 1: Do you think CSL is a buy at the $270 level, and why has there been no growth in its share price for a while?
Answer: CSL has been under pressure for three reasons:
- No boost from Covid-19 vaccines;
- Disruption to the collection of plasma in the USA (due to lockdowns and other Covid-19 issues); and
- Ongoing strength of the Aussie dollar.
Of these, I think a stronger Aussie dollar (weaker US dollar) is the biggest dampener on its share price. The analysts remain reasonably positive, with target prices ranging from a low of $289.00 (Macquarie) to a high of $346.00 (UBS). The consensus is $312.39, about 15.3% higher than the current ASX price of $270.93.
CSL has a habit of surprising on the upside, and with analyst expectations having been peeled back a touch, it may well do this again when it reports its half year profit on 18 February. But if the Aussie dollar keeps rising (as I expect), this will limit market gains.
So, at $270, I am on the “buy” side, but not using all my firepower.
CSL
Source: Google
Question 2: I hold Argo (ARG) and Switzer Dividend Growth Fund (SWTZ). I am trying to work out if I should get rid of Argo and put those monies in SWTZ?
Answer: In regard to Argo (ARG), it is a little hard to understand why it is trading at a premium to NTA (net tangible asset) value. Officially, 4.5% on 31 December and I estimate around 5.4% today. Crazily, Australian Foundation Investment Company (AFI) was at a premium of almost 10% on 31 December!
Both are sells because their performance over time isn’t better than the index. In fact, Argo has underperformed over the last 1 year, 3 years, 5 years, 10 years and 15 years!. AFI is a little better, but that doesn’t support a 10% premium.
I am conflicted about SWTZ as I hold an interest so I won’t go there. Others to consider include the index ETFs – IOZ from iShares or VAS from Vanguard.
Question 3: As part of my SMSF portfolio, I hold Vanguard’s Aust Gov Bonds ETF (VGB) and Vanguard’s Australian Fixed Interest Fund ETF (VAF). What ASX indices should I use to track their performance? As the ETFs are passive, should I expect significant falls in value as official Interest rates rise in the future, and what signs should I watch to lighten these holdings?
Answer: There are no “ASX indices” per se in regard to fixed interest securities. Both products track industry benchmark indices, for example, Vanguard’s Australian Government Bond (VAF) tacks the Bloomberg AusBond Government Index. If bond yields rise, then there will be a fall in the value of VGB as it has a long duration of 6.6 years. VAF, which tracks a broader index that also includes corporate bonds, has a slightly shorter duration of 6.1 years. It will also have a limited exposure to credit spreads.
The main thing you should be watching is the 10 year government bond rate. We seem to be following the US bond market with a steepening yield curve – which means higher long term bond rates. I would be looking for opportunities to lighten my exposure.
Question 4: I have been watching Aurizon (AZJ) and cannot see why its price has not rallied over the past 12 months. I have some shares and think its dividend yield is good. I am considering buying some more. Is there something in the shadows keeping its price down?
Answer: Aurizon has been under pressure due to concerns that coal haulage volumes might fall if the trade tensions with China get worse. While most of the coal hauled is coking coal and any “ban” seems to be directed more towards thermal coal, the market has been concerned.
I am happy to stick with Aurizon as an income play – I think the prospective yield of 6.7% (fully franked) is attractive and provides a level of protection.
As for the analysts, according to FN Arena, target prices range from a low $4.53 from Macquarie to a high of $5.40 from Credit Suisse, with a consensus of $5.10, about 29.6% above the last ASX price of $3.93.
Aurizon (AZJ)
Source: Google
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