Question 1: Could you please nominate current “buy” prices for ANZ, NAB and WBC? Would you buy before the profit announcements, or wait until the time comes?
Answer: I don’t have “buy” prices for the banks. I think the sector looks reasonable value following the collapse of SVB, but it is a volatile and in “panics”, markets and people do strange things. While the Australian banking system is entirely different to the USA and there is no risk of contagion, if the US market continues to get the wobbles on banks, the Aussie market will follow and head south. Right now, I would stay with the “strength” and focus any buying on CBA. If it is of help, this is what the broker analysts think on upsides/downsides with the three banks: ANZ 21.6% upside; NAB 10.4% upside and Westpac 22.1% upside (source FN Arena, difference between target price and current ASX price). In terms of timing, normally if you were bullish, you might buy ahead of the profit announcement rather than post it, however how the global banking “crisis” plays out will be more significant a factor in the short term.
Question 2: We saw reports of a low lithium price coming out of Shanghai, which drove the lithium stocks to plummet today. Should we be getting out of this sector, or do you feel that better days are yet to come? Many analysts are still advising to buy lithium stocks.
Answer: There are wildly divergent views about lithium. Everyone agrees that the demand for lithium will increase due to electric vehicles (this has been known for years), the question is: how will supply meet demand? Will there be a demand gap (as some analysts foresee), or a potential over-supply? I missed the lithium boom, although I did really like Pilbara Minerals (PLS) last June when they got back to a little over $2.00. Over $5.00 they look really “frothy”, around $4.00 I really don’t know. I guess I remain wary of the lithium boom because the history of commodity markets over decades and decades is that when the price surges, new supply eventually comes on-line to meet the demand. If I had great profits on my lithium stocks, I would cash some in and let the rest run – be patient. But I wouldn’t get in at these levels – it looks frothy and is high risk.
Question 3: What’s your view on Charter Hall Group (CHC)? It has pulled right back to sub $13. Is this a good buying opportunity, or should I just add to my Goodman Group (GMG) holding?
Answer: It looks like Charter Hall’s earnings guidance for FY23 of 90c per unit underwhelmed the market, and this is one of the reasons (together with higher interest rates and uncertainty around property valuations) that the stock has pulled back. The analysts are moderately bullish on CHC – a target price of $14.88 compared with a last ASX price of $11.98. Range from a low of $14.00 through to a high of $16.20. With Goodman Group (GMG), the analysts have a target price of $21.85 compared to a last ASX price of $19.09. Both Goodman and Charter Hall are good companies, but the sector that is out of favour and facing the headwinds of higher interest rates, property valuations and changing usage by tenants. Charter Hall is cheaper on multiples and favoured by the analysts, but I prefer Goodman Group.
Question 4. I am a pensioner looking to increase my direct holdings of mining companies. I currently only have two direct holdings BHP and WDS. I have been following South32 (S32) and Newcrest (NCM). Although I know one shouldn’t buy mining companies for dividends, I want a company that provides a fully franked dividend and over time will increase in value. I am generally a buy and hold investor. I like S32 best because of its greater diversity of products and better dividend. What do you think?
Answer: If you want exposure to materials, and already own BHP and WDS, S32 is not a bad place to head. S32 has an interesting set of exposures to aluminium, copper, nickel, zinc, coking coal and manganese. I rate S32 higher than Newcrest, which despite having some exposure to copper, largely gets caught up in the gold price. I am not a gold bug, and if I do buy gold, I would rather buy the gold outright (which can be done very efficiently through an ETF), rather than a gold miner. The brokers seem to like S32. According to FN Arena, a target price of $4.97 compared to the last ASX price of $4.21, trading on a multiple of 8.3 times forecast FY23 earnings and 7.6 times forecast FY24 earnings. The prospective dividend yield is 5.7% for FY23 rising to a forecast 6.5% in FY24.