Reporting Seasons Wrap + Three Option Ideas

by Raymond Chan

This article is made without consideration of any specific client’s investment objectives, financial situation or needs. Those acting upon such information without first consulting one of RBS Morgans investment advisers do so entirely at their own risk. It is recommended that any persons who wish to act upon this report consult with an RBS Morgans investment adviser before doing so. This email does not constitute an offer or invitation to purchase/sell any securities and should not be relied upon in connection with any contract or commitment whatsoever. 

Weekly Commentary

The new year rally came to a grinding halt this week amid growing fears the US Federal Reserve will slow or cancel its QE3 programme after minutes revealed a divide amongst senior officials about the risks of persisting with the stimulus measures. The news spooked global markets, triggering a sharp fall in all major Indices as investors sold out of equities on the back of heightened concerns over US growth in an economic environment not supported by central bank stimulus. Poor economic exacerbated investor concerns as jobless claims increased and US manufacturing activity deteriorated. Ironically, the weak data is more likely to be viewed positively by equity markets as unfavourable economic indicators support the validity of QE3 and likelihood that the Fed will persist with the stimulus programme.

Despite Thursday's fall, our market did make up ground to close the week slightly lower. The best resilience was seen in the banking (NAB up 14 straight weeks) and insurance stocks such as IAG and Suncorp. The resources sector continues to drag on the market with the sector again under pressure as commodity markets followed negative leads in equities, causing many mining equities (ex BHP and RIO) to forfeit much of the gains to date in 2013. Base metals fell across the board while the bullion dropped below UD$1,600 to hit the lowest level since July last year. Oil prices eased slightly whilst iron ore prices remained over US$150/t to be largely unaffected by recent sell off in commodities.
However, it was not all bad news for the sector with BHP Billton stating said it expects a recovering global economy to support commodity demand and prices in the short-term. The nation's largest publically listed company reported a 57.8% fall in net profit over the half ending December 31, with the company joining other local and overseas majors such as Rio Tinto, Newmont, Paladin, Kinross, Anglo America and Barrick to be affected by large write-downs.

We also saw half yearly reports from some of our major energy stocks with Origin Energy missing market expectations whilst Santos and Woodside provided mixed results which showed enough promise to support current prices.
Amongst a deluge of earnings results reported this week, industrials companies reporting resilient growth in this environment are being rewarded while those that disappoint are quickly punished. Seek rallied on the back of the strong result, following peers such as the REA Group and The same couldn't be said for the Breville Group as the share price plummeted as results failed to meet investors' lofty expectations and concerns arose around a key Canadian distribution contract.  

From Our Trading Desk this week...

Position One: Buy-write NCM - Buy stock at $22.13 and Sell NCM March $23.5 Calls at 30 cents
Current Share Price: $22.13
Research Target Price: $27.90
The Newcrest share price has been having a tough time post an ordinary (in-line) interim result and a weaker gold price.
The recent volatility in the Dow Jones should mean that gold stocks find some support.
Position Two: Sell QBE June $13.75 Puts at 155 cents
Current Share Price: $12.75
Research Target Price: $11.96
QBE shares closed down 2% yesterday after missing earnings again, the dividend was cut to $0.10.
This trade hopes the turnaround in the stock is getting closer, break-even entry point into the stock is $12.20/share
Position Three: Sell WOW April $34.16 Calls at 72 cents
Current Share Price: $33.94
Research Target Price: $30.20
Woolworths now trades on a yield of 3.9% and a PE of 18 times FY13. We like the stock but feel it is expensive at current prices. 


Information/strategies/trading ideas in this blog is provided for general information purposes only and is not intended as an offer to enter into any transaction. Information contained in this blog is not necessarily complete and its accuracy cannot be guaranteed. Information/strategies/trading ideas here have been prepared without consideration of the investment objectives, financial situation or particular needs of any individual investor. Before a client/investor/reader makes an investment decision, a client/investor/reader should, with or without RBS Morgans' or the author’s assistance, consider whether any advice contained in this blog is appropriate in light of their particular investment needs, objectives and financial circumstances. It is unreasonable to rely on any recommendation without first having spoken to your adviser for a personal recommendation. The use of options may not be suitable for all investors. Potential investors are recommended to seek professional advice before embarking on any strategies mentioned in this blog. The information/strategies/trading ideas contained in this blog have been taken from sources believed to be reliable. Neither the author nor RBS Morgans Limited represent that the information is accurate or complete nor should it be relied upon as such. Any opinions expressed reflect the author’s judgment at this date and are subject to change and is not necessarily that of RBS Morgans'. RBS Morgans and/or its affiliated companies may make markets in the securities discussed. Further, RBS Morgans and/or its affiliated companies and/or their employees from time to time may hold shares, options, rights and/or warrants on any issue included in this blog and may, as principal or agent, sell such securities. The Directors of RBS Morgans Limited and Grosvenor Sydney office advise that they and persons associated with them may have an interest in the above securities and that they may earn brokerage, commissions, fees and other benefits and advantages, whether pecuniary or not and whether direct or indirect, in connection with the making of a recommendation or a dealing by a client/investor/reader in these securities, and which may reasonably be expected to be capable of having an influence in the making of any recommendation, and that some or all of our representatives may be remunerated wholly or partly by way of commission. Information in this blog is proprietary to its author and may not be copied as your own or used for any other purpose without the prior written consent of the author. RBS Morgans Limited (ABN 49 010 669 726 AFSL 235410) A Participant of ASX Group Principal Office: Level 29, Riverside Centre, 123 Eagle Street, Brisbane QLD 4000

Subscribe to our Daily Newsletter?

Would you like to receive our daily news to your inbox?