Question 1: I am considering adding Santos (STO) to my portfolio. There is rather mixed comment, and would appreciate your advice on whether they are a buy at current price of $4.39. I note from the Switzer Report on 9 April that their target price is $5, however I feel that could be a little low.
Answer: The brokers are favourably disposed to Santos (STO), seeing it as one of the energy stocks that can survive a tough and depressed oil market. According to FN Arena, of the 7 major brokers, there are 5 buy recommendations and 2 neutral recommendations.
Target prices vary from UBS with a low of $3.60, to Ord Minnett with a high of $7.00. The consensus is $5.32, 21% higher than today’s close of $4.39.
I thought that OPEC and the other oil exporting nations would do a much better job at “managing” supply to boost prices. My hunch says that the new agreement won’t be enough and there is more pain to come, so I can’t get excited by this sector.
Question 2: I see that automotive parts retailer Bapcor (BAP) has announced a capital raising today. How do I participate?
Answer: Bapcor is raising approximately $180 million from an underwritten institutional placement at $4.40 per share. You won’t be able to participate in this. There will then be a share purchase plan to raise a maximum of $30 million. This will be open to existing retail shareholders. You will be able to buy up to $30,000 of shares at a price no higher than $4.40 per share. If the offer is heavily oversubscribed, applications may be scaled back.
I think Bapcor is a really well-run company and despite having some misgivings about the automotive industry, $4.40 should be an attractive price. Interestingly, the four major brokers who follow the stock had (prior to the announcement of the capital raising) a target price of $6.31 on the stock. Each has a buy recommendation.
Question 3: I am being very pessimistic but if there were a run on the banks, as I believe has already happened to some small banks in the USA, would our money be any safer in a CommSec account?
Answer: I think you’re being very, very pessimistic. Bank accounts, up to $250,000, are guaranteed by the Commonwealth Government (see the Financial Claims Scheme, which is administered by the regulator, APRA).
A bank account is materially safer than a brokerage account.
Question 4: Do you think the stock market 5000 level is already indicative of the recession that we expect when we officially hit it (hopefully short) in the next 3-6 months? Or do you think that it is possible for the stock market to lower and then sit around the 4000 level for an extended time?
Answer: Peter wrote about this in Switzer Daily (see https://switzer.com.au/the-experts/peter-switzer/is-the-stock-market-sucking-us-in-will-it-crash-again/ [1]). While a second leg down is a possibility, we think there will be more dips, but unlikely to go below the previous low of around 4650.
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