Question 1: I am interested in getting some hydrogen and iron ore shares. Could you advise which companies would be worth looking at?
Answer: Iron Ore: BHP, Rio, Fortescue (FMG), Mineral Resources (MIN). Hydrogen: This is more difficult as hydrogen is still very much in the experimental/research stage. The companies are micro caps, such as Hazer (HZR), Hexagon Energy Materials (HXG), Pure Hydrogen Corporation (PH2) and Leigh Creek (LCK). Fortescue is also investing in hydrogen. Here is a link to a story we published in early March by James Dunn: https://switzerreport.com.au/5-companies-at-the-forefront-of-the-hydrogen-push/
Question 2: Is Telstra really a good buy?
Answer: I called Telstra a ”buy” last October, and then again in February (see https://switzerreport.com.au/telstra-is-it-still-a-buy/ ). I concluded:
“I am going to stick my neck out again and say that there is more upside with Telstra. The support from dividend thirsty income seekers, plus others expecting some form of distribution in relation to the sale of TowerCo, will keep a floor on the price. I am not looking for much, maybe over time up to $3.75. I do not see a lot of downside risk in the short term, which makes it a buy/hold rather than a sell.”
The broker analysts continue to like Telstra. According to FN Arena, of the 6 major brokers, there are 4 ‘buys’, 1 ‘hold’ and 1 ‘no rating’. The consensus target price is $3.79, about 7% higher than the last ASX price. Range is $3.35 to $4.05.
I think most of the upside with Telstra has already been had, but I also don’t see that much downside.
Question 3: What are your thoughts at current prices of buying RIO, and with AGL is this a buy or wait to see if management can fix the company?
Answer: Buy RIO if you want exposure to iron ore. If you don’t have any exposure through BHP/Rio/Fortescue, I would get some because these stocks are driving the market. If you are near market weight on these stocks, I would be inclined to hold back and let your profits run.
We are in a commodities super-cycle, but I have yet to meet any analyst/commentator/broker who can reliably forecast commodity prices. Iron ore has another challenge in that so much of the price increase is due to the production issues with the world’s largest producer, Brazilian miner Vale.
With AGL, I wouldn’t be in a hurry to invest. Time is on your side. You don’t need to catch a falling knife. (See my article of 19 March: https://switzerreport.com.au/if-you-buy-agl-will-you-catch-a-falling-knife/ Prefer others.
Question 4: I would appreciate your thoughts on Electro Optic Systems (EOS) a company I have owned for a couple of years. My concerns are:
1. Expenditures/operating cash flows continue to trend in the wrong direction;
2. Management commentary emphasises their technology and market opportunities (which never quite materialise) yet profitability rarely rates a mention; and
3. No institutions feature as substantial holders.
Answer: You have pretty well summarised the picture of aerospace and defence manufacturer Electro Optic Systems (EOS). The latest 4C cash flow statement reads, to an outsider, like a marketing blurb. Plenty of blue sky. In the March quarter, despite customer receipts of $51m, expenses were $64m and cash on hand ran down to $41m. The only major broker to cover the stock, Citi, downgraded as a result. Here is a precis of their report:
“Electro Optic Systems Holdings offers exposure to multiple long-term growth opportunities, highlights Citi, including counter drones and space communication. Despite this, Citi thinks the ongoing uncertainty about the timing of cash receipts from a major customer may put strain on short term liquidity. Over the longer term, the broker thinks the company would do well to diversifying its customer base and reduce exposure to a single customer.
Citi downgrades to Neutral from Buy with the target reduced to $5.28 from $6.60.”
Citi’s target price is still well above the last ASX price of $4.13.
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