Toll tales but true and breaking news on Greece

Founder and Publisher of the Switzer Report
Print This Post A A A

A week of reporting and we put on four lousy points but the fact we didn’t lose any might be a noteworthy sign. Let’s keep it all in perspective. Since January 16, when we saw the year’s low of 5267.40, our market has slammed on 614 points (or 11.6%)! It definitely is time for the market to take a breather and that ride up is a big reward for those who backed my positivity and believed in my “buy the dips” recommendation.

That said, it wouldn’t surprise me to see some resistance, if some shock developments come from Europe via the Greek debt bailout negotiations. So far, however, the Europeans seem to be handling it all well, with their shares hitting a seven-year high during the session on Thursday, though it ended a tad lower by the close. Even better, from the great omen department, the German Dax is in all-time high territory, rising 40 points on Thursday to 11,011.94, even as the Greeks look like they could do something that could spook the market, such as leaving the Euro zone!

This all comes as some surprisingly good economic data has come from some of the more worrying economies this week. More on that when I get into my “likes for the week.”

Tales from Corporate Australia

I have to say it was a week of shocks, with Japan Post seeing Toll as being worth $9.04 per share when the market said it was a $6.08 company! So much for the share market being a weighing machine! Japanese posties must have a weird set of scales but good on Toll share holders, including our own Paul Rickard, who had the company in his recommended portfolio for Switzer subscribers. (I’m starting to see why Paul was installed in the Stockbrokers’ Hall of Fame in 2005! He won’t like this praise but I do like to wind him up.)

My TV buddy, Shane Oliver of AMP Capital, has summed up reporting season so far and it’s largely a good news story. Until Friday, 57% of results had beaten expectations against a norm of 45%. Some 68% have seen profits rise from a year ago, 54% have seen their share prices outperform the day when the results were released and 62% have increased their dividends.

That’s not bad considering the economy was seen as being weak enough to need a rate cut last week and money markets think another is due pretty soon. Westpac’s Bill Evans looked at his leading index numbers this week and said March would be a good time for the next cut!

By the way, our share market is now trading on an above average forward PE of 15.5 times, so it will need some really great news, or another rate cut in March, to see us close in on the 6000-level.

Morgan’s chief economist, Michael Knox, sees it at 6000 reasonably soon and 6300 around mid-year. Remember, as the cash rate and bond rates fall, people like Knox, who calculate fair value for the stock market, push up their numbers.

Provided nothing weird happens (read a Greek default that rocks the financial system, which, by the way, is not expected by experts right now, in case that worried you), when people like Knox are seeing a higher fair value target, it becomes virtually self-fulfilling.

What I liked

  • The German stock market closed up again overnight – 0.44% higher – despite the finance ministers meeting in Brussels, discussing giving Greece a six months’ extension on its debt bailout. Any decision has to be unanimous and Greece exiting the euro talk is being taken seriously. And in BREAKING NEWS, it looks like the Greeks have been given a four month’s debt repayment extension.
  • UBS’s Art Cashin’s take on the Greece negotiations and potential market effects: “I’ve seen the movie before and no one dies.” (CNBC)
  • Andy Penn to be the new CEO at Telstra replacing David Thodey. Penn won’t stop the telco busting $7 this year.
  • After some softer economic data in the US, the Markit PMI Manufacturing flash numbers came in at 54.3 for January, up from December’s 53.9, though the 2014 average was 55.9. The Yanks are doing OK but not going gangbusters.
  • For the week ending 18/2/2015, the American Association of Individual Investors Sentiment Survey showed 47% were bullish, while the long-term average is 38.93%. Some 35.1% were neutral and the rest bearish – 17.9% against a long-term average of 30.33%.
  • Japan’s Nikkei Index went to a 15-year high this week, with January exports up 17% on what was achieved in the same month a year ago.
  • Positive economic data in the UK this week sent the pound to a seven year high, so a London stop for a 2015 European escape will be a little more expensive this year but it’s more good news for the global economy.
  • David Bassanese’s 7600 possible call on the S&P/ASX 200 index. I’m wary of precise calls nowadays but I’m certainly in the “stocks will go higher” camp over 2015.
  • In case you’re wondering, Warren Buffett’s Berkshire Hathaway A (BRKa) shares were $221,549 overnight, up $54 or 0.02%, after buying a mid-cap motor cycle equipment retailer in Germany. Even Warren wants to invest in Europe, which is significant but what about that share price!
  • Dick Smith’s CEO, Nick Abboud and Super Retail Group’s Peter Birtles both telling me that their retail numbers in the first seven weeks of 2015 were miles better than the ones we saw in the December quarter. Could low petrol prices plus lower interest rates and a low dollar be working for retailers and even consumers?

What I don’t like

  • The pre-Budget talk from Canberra making retirees worry about part-pensions and the value of the family home. We get it Joe, the deficit has to come down and the debt has to be repaid but let’s get the economy growing faster in 2015 and then start changing tax and welfare rules, as well as cutting into government spending.
  • A J.P. Morgan paper saying our economy is sliding over the precipice. Unhelpful un-positive assessments to grab media headlines masked some positive aspects of the suggestions from the research, such as it’s OK to increase the Budget Deficit for infrastructure to boost productivity.
  • Emails telling me that the stock market is “built on a house of cards.” Yep, I get it, there is too much debt. It happened in the 1980s, we had a recession, we changed and we’ve had 23 years of continuous economic growth. And while people have been stressing about the debt, the stock market has gone up about 120%, if you include dividends over six and a half years. The doomsday merchants one day will be right, as they always are eventually, but they have stopped a lot of people making up for the losses they copped in 2008!

One last like

This is one week late but I heard that the Bronco’s footie coach, the legendary Wayne Bennett, has banned smartphones at football training! He apparently said to his players that they don’t need them at work. Don’t you love an old-fashioned guy with common sense values, who has the guts to take on modern day excessive distractions?

Top stocks – how they fared

The week in review (click the blue text to read more):

  • This week, I told you how long I think this bull-market will last – and I’m confident 2015 will be another good year for stocks!
  • After a stellar run for the banks, my colleague Paul Rickard said it might be time to lighten your holdings and return to index weight.
  • James Dunn gave a run down on earnings season – so far, so good!
  • This week, the brokers upgraded Boral and CSL and downgraded AGL. In our second broker report for the week, Macquarie received two downgrades and Challenger was upgraded.
  • We revealed our favourite finance apps here at the Switzer Super Report and CommSec was the clear winner!
  • We shone the spotlight on Seek’s CEO, Andrew Bassat. He gave us his growth plans for the year ahead, which includes international operations.
  • Tony Negline showed how the self-employed can get their super tax deduction claims right by playing by the rules.
  • And Penny Pryor revealed the ATO’s new approach to contraventions as part of its new penalty and compliance system.

What moved the market (click the blue text to read more)

  • Japan Post’s huge $6.5 billion takeover bid for Toll Holdings sent Aussie shares to a new post-GFC high this week.
  • The US Fed confirmed a “slow and steady” approach to raising interest rates.
  • Investors who took profits from the rally caused by Toll’s takeover offer and those celebrating Chinese New Year took a little off the Aussie market this week.
  • And the RBA minutes cooled market expectations on a second rate cut, causing the Aussie dollar to inch higher.

The week ahead:

Australia

  • Tuesday February 24 – Weekly consumer sentiment
  • Wednesday February 25 – Wage price index (Dec Quarter)
  • Wednesday February 25 – Construction work done (Dec quarter) growth
  • Thursday February 26 – Private business spending (Dec quarter)
  • Thursday February 26 – Average weekly earnings (November)
  • Friday February 28 – Private sector credit (January)

Overseas

  • Monday February 23 – US Existing home sales (January)
  • Tuesday February 24 – US S&P home prices
  • Tuesday February 24 – US consumer confidence (February)
  • Tuesday/Wednesday – US Federal Reserve testimony
  • Wednesday February 25 – China “flash” manufacturing (February)
  • Wednesday February 25 – US new home sales (January)
  • Thursday February 26 – US consumer prices (January)
  • Thursday February 26 – US durable goods orders (January)
  •  Friday February 27 – US economic growth (Dec quarter)
  • Friday February 27 – US pending home sales (January)

Next week the local spotlight will be on the latest business investment data. The ABS releases their Private Capital Expenditure and Expected Expenditure publication on Thursday, while data on private sector credit – or loans outstanding – will be released by the RBA on Friday.

Overseas, investor focus will be on China’s “flash” manufacturing gauge – out Wednesday – which paints a picture on how their economy is going. There are also a few important US releases in the pipeline, with data on the housing market, economic growth, and inflation. Guaranteed to be closely watched is the testimony on the economy by Fed Chair Janet Yellen over Tuesday and Wednesday.

Calls of the week (click the blue text to read more):

  • David Bassanese said the market could get to 7,600 – I do hope he is right, but I’ve had enough of making big calls!
  • Charlie Aitken is at it again with his “Applestra” predictions and has upgraded his medium-term Telstra price target from $7.00 to $7.50.
  • And when questioned on ABC’s Q&A about why he didn’t walk into the party room with Tony Abbott and the rest of the Liberal party before the leadership ballot, Minister for Communications Malcolm Turnbull quipped, “I feel quite safe in Parliament House, and I’m quite happy to wander around the corridors by myself!”

Food for thought

Don’t find fault, find a remedy

– Henry Ford, American businessman.

Last week’s TV roundup

The issue of what Aussie stock will reach $100 first in 2015 has become subject of a sporting bet challenge. CBA and CSL are equal favourites, but how do others on the field stack up? Former CEO of CommSec and Switzer Super Report expert, Paul Rickard, shared what stocks are on track to reach this target.

CEO of Seek, Andrew Bassat, told us why the market marked this great company down. Could it be another buying opportunity?

CEO of Dick Smith, Nick Abboud, said investors shouldn’t be wary of their modest half-year results because full-year profits are headed north!

MD of Wesfarmers, Richard Goyder, told us the story behind the company’s half-year earnings report.

My colleague Paul Rickard and I also answered the question “Is it time to sell?’’ and shared our game plan for the year ahead in the latest Super Sessions update.

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, some of the biggest movers were Myer Holdings and Whitehaven Coal – their short positions both increased by 0.53%, to 20.04% and 8.37% respectively. Another big mover was Orica, with its short position increasing by 0.51% to 8.50%.

Source: ASIC

My favourite charts:

Australia leads the field!

Source: Yahoo!7 Finance, 20 February 2015

The Aussie market has had a stellar run, up over 8% year-to-date, and that’s well ahead of the rest! The chart above compares the ASX/S&P200 to the Dow Jones (red), England’s FTSE 100 (green) and the German DAX (brown).

Top five most clicked on stories

Peter Switzer: How long will this bull market last?
Charlie Aitken: Applestra: upgrading price target again
Paul Rickard: Time to lighten bank holdings
Charlie Aitken: ASX/S&P 200 in 5550 – 6000 trading range and more high-conviction stock picks
Penny Pryor: Shortlisted – High conviction stock picks

Recent Switzer Super Reports

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.