** 11/02/11 - 8.37am - by James Gerrish**
The US market proved to be resilient again overnight with the DOW JONES pushing off session lows to close down just -10 points or -0.09% at 12,229. In London the FTSE 100 lost -32 points or -0.53% to close at 6020. Locally, FUTURES are pricing a drop of -5 points when trading kicks off this morning.
There was some early concern resurfacing about political instability in Egypt overnight however the move by the Egyptian President Honsi Mubarak to delegate authority to his Vice President was seen as a short term positive and buying came back into the market.
It seems pretty clear that the Egyptian people want him out and the resistance to leave at the moment will ensure that this issue remains in focus for the next few days at least. He did make a comment that he would not leave Egypt Alive which is a little unsettling to say the least.
TELSTRA
I'm actually finding it quite hard to write this however given Telstra's result yesterday I'm suggesting that investors looking for some yield and potential upside step into Telstra. One of my main rules when trading/investing is not picking up stocks that are in a downtrend - both in price and in earnings momentum. We've started to see Telstra find some price support over the last few weeks and the results yesterday suggest that earnings have now bottomed.
There are certainly still risks for Telstra and the main one here is the large overhang of the Future Fund who still owns 6.8% of the company. The Future Fund have been very transparent in their intentions to sell down that stack and in my view this would have given international hedge funds a reason to short the stock. This is now a more questionable prospect when we consider that earnings are gaining momentum and there is more clarity in its role with the NBN.
The stock continues to yield 10% FF which has been confirmed for the next two years. If the Future Fund does come out and say their 'selling has stopped' this should prompt a rally in the stock. We're also seeing a repositioning of Telstra with a rejig of its product offering and pricing points which should drive customer acquisition.
SEE TELSTRA CHART HERE
RIO
In other company news, RIO TINTO released results after market yesterday booking full year profit of more than $14 billion - slightly below expectations but broadly inline. They also announced a $5 billion buy back (Against expectations for $10 billion buy back) and increased their dividend by 20% to $1.08 full year which beat expectations. There were some murmurs before the result that they may also announce a special dividend (similar to Oz Minerals did this week) but this didn't occur. The UK market sold down the stock as did US investors - expect it to open weaker this morning.
SEE CHART OF RIO
James Gerrish
(02) 9375 0117
