I hate to be a namedropper but it has been that sort of week for yours truly. Monday, it was a morning tea interview with Gerry Harvey and the tight so-and-so has never ever offered me a cup of tea! That said, he does occasionally invite me for a game of tennis followed by a glass of rare red. He was probably popping champagne with his wife and CEO Katie Page after his earning’s report saw his stock, the electronics retailer, Harvey Norman, as the best-performing share, up 6.8% to $3.79. Profit after three years will do that. After my interview with him, I think he suspects the worst is behind Harvey Norman – here, in Ireland and over in Asia.
Regular readers know I’ve been a Gerry fan but he has over-achieved on this one. Don’t miss this interview [1]. He’s a hoot.
And what about Qantas? Flying high, up 11.2% to $1.54 since it fessed up to a $2.8 billion loss – accountant-created admittedly on paper. For anyone who took Charlie Aitken’s tip on Qantas and held solid, they’d now love him after a bit of hate!
And on love, hate and Charlie, some subscribers have tried his risky call on a smaller miner and are pondering “what just happened?”
I asked Charlie for his position as of Friday afternoon and he sent this through to me: “The iron ore price had fallen more than I expected in quick time. The stock is ex dividend and it appears sellers are capitulating. I still think it’s a cheap stock and the logic of the IOH merger has merit. Like all single commodity stocks, it is volatile. While in hindsight my timing was premature, I remain of the view it is a cheap stock.”
It has been a bad week for iron ore and my colleagues at the SMH tell me Fortescue dropped 6% this week and is down 32.7% since June.
If you’re crying, think of Twiggy Forrest. They reckon he has dropped $2 billion but he still has $4 billion left!
In fact, only yesterday, I did a speech for listed travel company Helloworld and met the company’s CEO, Elizabeth Gaines, who happens to be on the board of FMG. I guess she hopes my positive view on China works out. All iron ore shareholders will be praying for a lower dollar and that could be closer than you think.
Bigger miners – BHP and Rio – with lower costs will do better than smaller players and that’s why BC Iron dropped 19.7% to $2.24. I hope Charlie knows something I don’t know.
On the celeb theme, Tuesday I emceed a launch in Queensland for their Small Business Week and Campbell Newman impressed me, despite he has cheesed off a few Queenslanders. You have to respect a guy who would weigh 70 kilos, wringing wet if he’s lucky, who’s sticking it to bikie gangs!
By the way, I think Queensland is turning around, as I did another speech in Port Douglas on Wednesday (I know it’s tough stuff but someone has to do it!). They’ve been doing it hard in Cairns but confidence is coming back. There I was joined by an A-team – Tom Potter, who founded Eagle Boys Pizza, ex-army officer Matina Jewell, who has been bombed in Lebanon, had her back broken and is so inspirational that the ABC’s Australian Story dedicated two weeks to her tale of heroism. To round off the team, there was that fitness fanatic female cum international business builder, Michelle Bridges. After listening to her for 10 minutes, I hit the pool and did 30×25 metres on the 30 seconds, to justify the red wine I had on the plane!
Inspirational stuff and here she’s forcing a bloke in the audience to get motivated with gloves!
What I liked this week
Try these:
- ECB’s Draghi cut rates and opted for QE and this happened: the German Dax went up 1.02%, the French CAC 40 put on 1.65% and the Spanish IBEX was 1.96% higher!
- The words “Putin” and “peace” got together in newspaper headlines. If it happens, it will be good for stocks added to Super Mario’s bazooka.
- The ISM manufacturing index rose from 57.1 to a 3½ year high of 59.0 in August, well above forecasts of 56.8. And construction spending rose by 1.8% in July, above forecasts for a 1% gain and to a 5½ year high. Go the Yanks!
- Chinese tourists in the year to July at 780,000 – up 11.7% – and yes, it’s a record high.
What I didn’t like
- Moody’s suggesting our banks are too exposed to a housing bubble. I’d back the RBA and APRA before any of the debt ratings agencies.
Why? I have a memory! - The $A ending the week here at 93.54 US cents. I want to see it go down.
- Only 142,000 jobs showing up in the US over August when 225,000 were expected. Don’t ever trust one month’s figures and August has a history of being dodgy for economic stats.
- This perceived economically weaker US economy – which is wrong – pushed our dollar up to 93.7 US cents on Saturday morning on the idea that it might mean the first interest rate rise could be pushed back. That’s why stocks went up. By the way, unemployment fell to 6.1%.
- Iron ore prices falling for five days and that damn dollar going up! We’re at a five-year low $US84.30 a tonne and Goldman Sachs is forecasting an average price of $US80 a tonne next year, while CLSA has warned it will hit $US75 a tonne! But these guys can get it wrong – history is on my side on this one.
Top stocks – how they fared
The week in review
One of the main pieces of feedback from subscribers is that there just isn’t enough time to stay on top of all of the emails and information they receive each week. That’s why we’ve introduced a new section of our Saturday newsletter The Week in Review. Here, I’ll give you a very brief review of the key take out of each story from the past week, with a link to read more if you’re interested. So here goes:
I’m buying the best yield stocks [2] despite what the pundits and journo’s are saying, like the banks and Telstra!
James Dunn looked at the dividend darlings [3] to come out of reporting season.
Paul Rickard recapped on the performance of our growth and income portfolios [4] over August.
We took a look at the brokers’ views [5] after local reporting season.
In this week’s Shortlisted we revisited calls on Cover-More and Qube [6].
Charlie Aitken says Woolworths shareholders can expect a return of +15% [7] over the next 13 months.
Tony Featherstone explained why frequent flyer loyalty points are so valuable [8] to businesses like Qantas.
We revisited our calls [9] on Telstra, Resmed, NAB and Ardent Leisure.
Tony Negline presented a neat case against those pesky SMSF attackers [10].
Our Fundie’s Favourite explored the strong growth potential of Oil Search [11].
Paul Rickard answered subscribers’ queries [12] on investment properties and how invested you should be in shares right now.
Numbers that moved the market
The Australian economy expanded by 0.5% in the June quarter [13], following a 1.1% increase in the previous quarter.
Retail trade rose by 0.4% in July [14], showing an encouraging lift for the second straight month.
The Reserve Bank Board left the cash rate at 2.50% [15] – interest rates haven’t been this stable in eight years!
The week ahead
Australia:
Monday September 8 – Job advertisements (August)
Tuesday September 9 -NAB business survey (August)
Tuesday September 9 – Housing finance (July)
Wednesday September 10 – Consumer sentiment (September)
Thursday September 11 – Employment/unemployment (August)
Friday September 12 – Credit & debit card lending (July)
Friday September 12 – Lending finance (July)
Overseas:
Monday September 8 – Chinese trade data (August)
Monday September 8 – US Consumer credit (July)
Wednesday September 10 – US Wholesale Inventories (July)
Thursday September 11 – Chinese inflation data (August)
Friday September 12 – US Retail sales (August)
Friday September 12 – US Consumer sentiment (September)
Saturday September 13 – Chinese economic data (August)
The steam train of economic data continues to ride into the upcoming week, with job advertisements kicking off the week providing some insight into how employment is fairing. Other key economic indicators for Australia include the National Australia Bank business survey and housing finance data, both released on Tuesday. Employment and unemployment figures are due to published by the ABS on Thursday, and the Reserve Bank releases its monthly lending finance figures on Friday.
Further afield there is also plenty of data on the way. In the US, we’ll see consumer credit, retail sales and consumer sentiment, while Chinese figures due out include data on trade, inflation, and GDP.
Calls of the week
If Tony Abbott wants to buy duty free at the Vladivostok airport in Russia, he can forget it! According to news.com.au, Abbott, along with four other Western leaders, has been outlawed from a shop at this very airport – and there’s a swanky sign to prove it. Those Russian’s are definitely sticking it to those Western sanctions!
[16]Source: Sydney Morning Herald [16]
The Coalition made the call to broker a deal with Clive Palmer to abolish the mining tax [17], but this means that further increases to the super contribution rate of 9.5% are now on hold until 2021/22.
Charlie, Charlie, quite contrary added another stock to his contrarian pick list [18] this week. He made the call that Woolies (WOW) will deliver a +15% total return over the next 13 months.
And some big news out of Europe – European Central Bank’s Mario Draghi cut rates to record lows and announced a bond buying program [19] which is Europe’s version the Fed’s QE, or quantitative easing.
Food for thought
To be ignorant of what occurred before you were born is to remain always a child.
Roman philosopher Marcus Tullius Cicero
Last week’s TV roundup
Harvey Norman experienced their biggest profit gains in five years, but what does the future hold for retailers, as consumers increasingly move to the online realm? This week, I discussed this very issue [1] with the Chairman of Harvey Norman, Gerry Harvey.
There are those that think ‘playing the stock market’ is really punting, but when you get a company that’s consistently described as a reliable dividend payer, people might start to change their tune! CEO of Tatts Group, Robbie Cooke, visited Super TV to remind us why his company is a good pick [20].
And don’t miss Part 1 [21] and Part 2 [22] of my interview with former News Corp CEO, Kim Williams.
Stocks Shorted
ASIC releases data daily on the major short positions in the market. These are the stocks with the highest proportion of their ordinary shares that have been sold short – which could suggest investors are expecting the price to come down. The table also shows how this has changed compared to the week before.
This week the biggest mover was Whitehaven Coal, with its short position closing by a solid 3.82%. On the other side of the spectrum, NextDC’s short position increased by 2.38% to 9.91%, suggesting some investors could be banking on a share price pullback.
Source: ASIC
My Favourite charts:
Inventories do the heavy lifting
Source: ABS
The above graph shows that inventories – followed by household consumption and then non-dwelling construction – did the heavy lifting to ensure our economy expanded this quarter.
Charlie likes WOW!
And here’s a look at Charlies WOW graph from Thursday’s report, which shows why he thinks it’s a winner – he also thinks we should accumulate the stock on dips.
Top five clicked on stories:
- Charlie Aitken – Champagne Charlie toasts WOW [7]
- Penny Pryor – Short n’ sweet – Telstra buyback, NAB and Ramsay [9]
- Staff Reporter – Buy, Sell, Hold – what the brokers say [23]
- Tony Negline – It’s time to do something about the SMSF attacks [10]
- Questions of the week – Investment properties and market outlook [12]
Recent Switzer Super Reports:
Thursday, 4 September 2014: Drink and be merry [24]
Monday, 1 September 2014: Keep your head [25]
Have a great weekend,
Peter Switzer
Founder and publisher of the Switzer Super Report
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.