Question 1: How about Macquarie Group (MQG) over $180 – time for a bit of profit taking?
Answer: Profit taking – yes, but only to buy back in.
Macquarie didn’t say much in their trading outlook on Wednesday except that first half profit would be “slightly down on the 2H21”. But because 1H21 was a little weak, and they had a very strong second half, this implies that 1H22 will be well up on 1H21. Further, FY22 should be up on FY21 (this is contrary to what most of the broker analysts thought).
Macquarie is one of those companies that tends to surprise on the upside (it doesn’t over promise). That’s one of the reasons that it is rated so highly.
What do the analysts think? Going into the announcement, they had a target price of $161.86, which compares to an ASX price of $179.13. We will probably see some upgrades to the target prices in the coming days.
Question 2: Wesfarmers (WES) has been sold down in the last few days. Do you think it’s a buy?
Answer: Although I have been a huge fan of Wesfarmers and tipped that it would get to $60, I didn’t expect it to get to over $67. Now, it is trading at $57.32.
That’s despite its full year profit result generally considered to be a “beat”. Covid is having quite an impact on Bunnings with store closures in NSW and supply chain disruptions, and the logic of a 200c capital return (rather than a share buyback, special dividend etc) was underwhelming.
The analysts still think Wesfarmers is over-priced (they have been wrong on Wesfarmers for some time). According to FN Arena, the consensus target price is $56.75. Range is a low of $49 from Citi through to a high of $62 from UBS. There are no “buy” recommendations – 6 “neutrals” and 1 “sell”. I think this is a reasonable entry point for long-term holders. For traders, I think it might head a little lower – there is value under $55.
Question 3: I read about the rebalancing of ASX 50/200/300 coming into play next week. Some stocks drop out, some come in. Apart from ETFs and investment vehicles, does it matter to retail holders or the stock itself?
Answer: The quarterly rebalancing of the indices can have an impact on stocks – either by creating short term demand or short term supply. Clearly, the major index ETFs and other index funds (which typically track the ASX/S&P 200) may have to buy or sell. The impact tends to be more significant when the entry or exit is unexpected.
Some active fund managers also have to take action because their mandates don’t allow for stocks outside (say) the ASX 200 or ASX 100. Again, it is a case by case proposition – and the more unexpected the entry or exit, the more the impact.
Does it matter to the companies? Yes, because it increases the marketplace for their shares. Also, you are more likely to have broker research. Because it matters to the companies, it should matter to retail investors.
September’s rebalance takes effect on September 20. It was announced (after market close) on Friday 3 September. The changes to the S&P/ASX 200 are: Lifestyle Communities, Pinnacle, Sealink and Tyro coming in; out goes G8 Education, NRW Holdings, Nuix and Westgold Resources.
Question 4: The buzz word with mining at the moment appears to be uranium. Do you agree, and what is your opinion of Boss Energy (BOE), Paladin Energy (PDN) and Peninsula Energy (PEN)?
Answer: There is a lot of “hype’ about uranium………but I don’t see why. I can’t see nuclear power ever getting the go ahead in Australia, and I think major expansion overseas will be challenged. I also can’t readily see an expansion of mining in Australia. We can’t even get a very low grade nuclear waste dump approved in Australia, despite being the safest place in the world (from a seismological point of view) to have one.
Of the stocks, they are all speculative. Instinctively, I would probably say Paladin because it is a little more established. No major brokers cover these stocks. Beware the hype.
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