THE MARCUS TODAY MORNING MEETING - Wednesday 20th July

Anyone who has been in broking will tell you that the Morning Meeting is how all brokers start the day.  The format is to have a quick look at the overnight markets, consider what's coming up in the day ahead, hear from the analysts, share ideas and get set up for the day's stock market activity

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Transcript

DISCLAIMER:

Marcus Today offers information that is only general in nature. It does not take into account your personal financial situation, needs or objectives. Nor does it take into account the financial needs of any specific person. You should consider your own personal financial situation and needs or seek financial advice before making any decisions based on this information. For more information please see our Financial Services Guide.

*PLEASE NOTE: Transcripts are autogenerated and may contain errors, especially Stock Codes and Names.

SPEAKERS

Henry Jennings, Tom Wegner, Chris Conway, Layton Membrey, Marcus Padley, Ben O'Leary

Ben O'Leary  

Good morning everyone is Wednesday the 20th of July morning Marcus what happened overnight. You've go  t a smile on your face...

Marcus Padley  

Morning Ben, I've always got a smile on my face. Actually that's not true... Dow Jones up 754 and closing near its highs as well futures up 79 Nasdaq up 3.1% s&p 500 up to 2.76%. We are going risk on the barometer of irrational exuberance and risk on feelings Bitcoin up 8.7% And doubtless a few people having a bit of a crack at some of the technology stocks this morning in the wake of that NASDAQ bounce some of the chatter going around includes the fed only raising rates by 75 basis points rather than 100 basis points next week read reduced inflation risk and reduced recession fear also talked about the European Central Bank has its meeting I think this Thursday are going to raise rates by 50 basis points not 25 basis points and on the back of that the Euro has picked up so you've actually seen now the US dollar down 2.64% In three days that is a massive move for a currency in just a few days. It is the barometer of recession fears. In other words, it's the safe haven currency. The more people are worried about recession the higher the US dollar is gone. And now it's coming off the top so it is one of those indicators that we will see at the top the US dollar will come off when the market starts to bottom and it has come off for three days but early to say that's it. But an interesting indicator. There's also with the US dollar going down a bit of relief in metal prices. Although they haven't done much today. Copper is up 6.8% In two days nickel 13% aluminium 5% You can see a few people will have a hair trigger on the resources sector buying and may pull a couple of things today. Otherwise banks had a solid night in the UK we were talking this week after the ANZ purchase of Suncorp where there's some value appearing in that sector with 9% Gross yields on a N Zed for instance. And banks generally doing well across the board us results overnight Twitter up 2.8% Netflix 5.6 and a few others as well generally ok results. The other bit of news is that Gazprom are talking about turning on the pipeline, which they cut to 40% capacity going into Europe, and it is due to come back on July the 11th. According to a news wire coming out of Russia, which is interesting that might reduce inflation fears a bit the oil price has actually gone up overnight, but the gasoline price in the US is below $4.50 For the first time in a while Ukraine war doesn't get any better as Putin meets the Supreme Leader Ayatollah Khomeini in Tehran and that is probably it all eyes on the FOMC meeting next week. Well they do 75 or 100 basis points and on the ECB tomorrow night.

Ben O'Leary  

Very nice. Thank you Marcus. Tom. How's it going locally today?

Tom Wegner  

Thank you Ben our market having a good day. 81 points to the good when I took my notes tech and consumer discretionary outperforming block up 5% As q2 Zero up 6% and JB Hi Fi up 4% consumer staples just slipping into negative territory and healthcare underperforming Kohl's down 0.3% And CSL down 0.4%. We had Philip Lowe speaking this morning, he was saying that there are more rate rises to come. That's not really new information. But the bank was going to act now to avert a sharp slowdown so that I guess front loading of rates theme playing in there Megaport MP one up close to 30% on a maiden quarterly EBIT, profit all cam was up and now it's down 3% on its q4 update, BHP and Rio both higher the big four banks minus a and Zed because it's in a training hole. They're all up around 1%. And we have China loan prime rate fixing due today so be interesting to see if they want to stimulate the economy a bit more or keep things the same. 

Ben O'Leary  

Thank you,Tom. Layton, What have you got from the markets?

Layton Membrey  

Thank you, Ben. I've got a couple of go through this morning bhp group their June quarter update which was in line with expectations. The brokers note that the update showed strong copper production numbers but lower than expected prices. The broker recommendations were a little bit mixed this morning but they're either neutral or overweight recommendations. And despite the solid results Macquarie says it expects near term pricing headwinds for the average target price from brokers is around $43.50 Which implies about 19% upside and also JB Hi Fi Marcus, you will touch on this a bit later in your strategy. I believe you're sort of pacing there Yeah, most of the brokers this morning bullish This comes after their preliminary results. As I said most of the brokers bullish is an ad from Morgan's and outperform from Credit Suisse and Citi has upgraded to a by Macquarie is more cautious for FY 23. Given the rising inflation and interest rate outlook, they've got an underperform recommendation and a target price 2% below the current market price, but the average target price from the brokers that have updated this morning is $47.32, which implies about a 13% upside. Thank you, Ben.

Ben O'Leary  

Very nice. Thank you, Layton. Morning, Henry. What are you writing about today?

Henry Jennings  

Morning, Ben, just talking about something that we're talking about on USB is a lot which is the nibble, which is a bit of an accumulate. And the fact that I'm putting some money to work today in some of the lithium stocks, the resource stocks generally also in Bubs, which I've talked about good quarterly today and showing the effects of that operation fly infant formula to Joe Biden's house, which is obviously paying dividends for Bubs as well, noting that certainly there are some bargains around and playing the Hot Tub Time Machine with long short fund LSF, which does tend to lag a little bit and one specie lithium stock as well. That could be interesting. And lithium is still the word as far as I'm concerned. And we did see the chairperson of Tesla the other day, the Clean Energy Summit talking about the unique opportunity that Australia has, we are already the world's biggest producer of lithium, I for those of you have been watching Chile has just put a big super profits tax on copper in their jurisdiction. Chile is the second biggest producer of lithium. So you think if they're doing copper, it's only a matter of time before they look to lithium as well given the elevated prices. So we are in a unique position to be a supplier of battery materials and just listing the top seven producers of lithium around the world in terms of companies and the one that stands out which has the JV with the Chinese of course is igvault but too big for the small caps but Pilbara and aka on the list and I already own Pilgrim in the small caps for adding to Lyon town and also buying a gold stock today as well Desi in gold, which gives you an intro into Genesis minerals, which is run by a bit of a doyen of the gold mining sector, who's putting the band back together and we spoke about yesterday. So adding that one as well. So good market today putting some money to work risk off. It's time to nibble.

Ben O'Leary  

Good stuff as always. Thank you, Henry. Onto our fresh ideas today, Chris, you've got a chart of the day for us?

Chris Conway  

Thank you Ben. Like Henry, when I saw the market had rallied overnight. The first thing I thought about was lithium, it seems I'm back to perhaps the wrong horse at least at this point this morning. I've taken a look at all cam off the back of their activity report seemed to me to be pretty good. Obviously the market was wanting a little bit more but they had record production of spodumene concentrate at their mountain Catlin project. That's the big one. Of course, they also generated record revenues in the most recently completed quarter and had gross margins of 84%. And they went on to say that demand for spodumene remains robust and concentrate pricing in the September quarter is expected to be higher than in the June quarter. So it all went pretty well to me. The brokers like it as well target prices tend to 70% above the current market price. Like I said, it's down a little bit this morning 3%. But this is one that I still like and I think lithium is a good space conferring with what Henry was saying earlier.

Ben O'Leary  

Very nice, thank you Chris. Tom, you also have a fresh idea for us?

Tom Wegner  

I do ARB core, they make the four drive add ons that I'm sure Chris likes to put in his car. And this comes off the back of the JB Hi Fi really strong preliminary results. And the idea that Henry also talked about yesterday was that the consumer is really strong. And we had the RBA out yesterday reinforcing that idea household balance sheets are in a very good shape. They've built up solid buffers to combat that higher inflation and higher interest rates and looking more to ARB its dominant player in its category and while we do have higher costs and product shortages are expected to colour the results on August 23. There isn't a high bar for the company to beat management has a positive outlook believes it's well positioned brokers like the business the average target price implies upside of more than 26% technical picture is improving so I'm saying it is one to look at Ben.

Ben O'Leary  

Very nice. Thank you Thomas before we go on to strategy just quickly we've got our weekly income investors section in the newsletter having a look at the dividend portfolio over the last week no changes though we are maybe getting a little bit itchy feet as the market has a good day one of the main concerns is market bottoming question mark and what's got August reporting season coming up which will of course bring with it the dividend announcements which we will be very attuned to our performance last week lagged a little bit because that extra cash which is why that question is coming up a bit as well. No dividends on the radar at the moment. But looking at the calendar, Rio kicks things off with their results announcement next Wednesday and distribution announcement alongside that whilst Avi on the 10th of August industry on the 16th will be the most widely anticipated for the dividend portfolio going forward. We've also got our weekly look at the dividend portfolio X ray, which is not changing a whole lot at the moment, but we'll expect a bit of action come results and of all the numbers behind it. So it's to look in there for the income investors. Marcus, yowhat have you got for strategy?

Marcus Padley  

Worth saying this is the moment isn't it for income investors to wonder whether to top up ahead of results. And I would say that we're of course talking on a good day like shocker tomorrow, but there is definitely value appearing in some stocks. As Tom pointed out on Monday with things like JB Hi Fi on a 9% yield, there is value appearing, the banks seem quite settled Michelle Bullock yesterday talking about household debt and how we have asset prices underwriting debt at the moment. In other words, there's very little mortgage stress the bank seem reasonably comfortable, we only have the CBAS dividend coming up. But I can see that we are at a good point to think about buying rather than at the top of the market ahead of the results. Isn't that the game of course, I would just tell everybody the game of course with results is that if you are looking to buy for a dividend or strip a dividend, you can wait for the results to come out and then decide after the results once the company has been de risked with results, then decide after that to buy for the dividends. So the technique for the nervous income investor is to wait for the results have a look at what the brokers have to say about it. The next day, you have to wear whatever the share price knee jerk reaction is on the back of results. But after that you can buy safely with the dividend coming up. And the stocks effectively do risk sell for three six months. So that might be the technique for nervous income investors have a stage in the game otherwise strategy today I've had a look at a few charts and the obvious message is that there is no technical or there's far too early to decide to buy anything on a technical basis. If you have a look at the NASDAQ, s&p, the banks resources sectors, there is no technical improvement and material technical improvement to say you should go and buy something. But having said that, you can see the market this morning with a NASDAQ up over 3%. The sentiment improving the US dollar in particular coming up two and a half percent in three days. metal prices ticking up a bit. There are a few people who will not wait for the technical evidence and will pull the trigger on buying a few things. So the game for us is to say investors relax. It's only one good day. But for anyone who does want to buy stuff, there are a few ideas. I would say Macquarie is the obvious stock market stock which has got good gearing to recovery in the market, consumer discretionary as we've seen JB Hi Fi ARB Nick scali, Breville, you can name a lot of these companies, they've got results coming up and JB Hi Fi are telling you that the Australian consumer is not contrary to rumour dead. And that in fact is alive and well. And spending in which case, although this may be as good as it gets, some of these results are likely to be less risky than we thought. And as the market goes risk on again, they are stocks that have been absolutely pummelling. So might now see a bounce. And in the technology sector, obviously some of those stocks will bounce I'd stick to the quality and things like zero computer share Sicario a car sales Dhg, that sort of stuff, but plenty to buy if you want it to pull the trigger at this stage. At this point, it is only trading. I haven't done anything in the strategy portfolio yet still in cash, but I'm certainly thinking about it. And if you have a look at some of the ETFs that have started to move, you can see it's the obvious ones are the ones geared to the market geared to the NASDAQ have started to pick up it's a one or two day thing. But clearly some people will be interested in having a crack at this point in time. And that's about it. main message was a bit too early to go hard.

Ben O'Leary  

Very nice. Thank you, Marcus. Staying on that topic for our question of the day as if you were forced to buy stock for the bounce. What stock would you be buying Tom?

Tom Wegner  

Well, the way I'm approaching this question is looking at the companies that are oversold. And that's RSI below 30 For technical players out there and zip code is one of those and I think it's quite handsomely today so purely on trading and technicals buy something that's been knocked down the most.

Ben O'Leary  

I just looked up before zips performance over the last month or so because last time we had this question, I said it for the same reasons as you Yeah, it's up 16% Last month, I think but from the bottom 40% So it shows that where does that badly? It's in a sense down. It doesn't take a whole lot to move still on a long term chart. It's still right at the bottom but 40% of not much. It's like...Layton?

Layton Membrey  

I'd be looking towards the lithium stocks as has been mentioned by Henry and Chris I think they took a pretty big sentiment hit when the market turned had to pick one one town seemed to drop quite a lot to think there's a bit of upside there.

Ben O'Leary  

Turn yourself into the 12 million man. 

Layton Membrey  

Yep...

Ben O'Leary  

Very nice. Chris?

Chris Conway  

Mark has mentioned earlier, I'd be taking a look at zero up at seven and a bit present today just again talking about the technicals it has bounced off the lows around 75 and is now back up towards 90 and as it has been rallying off those lows volume has been picking up as well so more and more people interested in piling back into this one it seems.

Ben O'Leary  

Thank you Chris. Henry?

Henry Jennings  

Interesting. I guess the ones that will run hard and fast will be and we've seen this because volumes are still very very light I have to say when you look through the stocks that are moving and shaking the volumes are pretty pathetic volume on the ASX is pretty pathetic as it is in the US. There's more machines playing at the moment than there are humans I think zip is one we did highlight back under 50 cents with the big cash pile they've got so that's going quite nicely but I would look probably you want serious bang for your buck. I would go through the top shorted stocks and have a look there we saw light resources which got wallet with that J cap report a few days ago. That was up 13%. Yesterday there's 9.6% of the register shows it same with things like poly Novo even Cogan Mizo blast has been on a big rally at the moment that's 8% of that is shorted when you look at the big daddy of them all in terms of short position and that is Flight Centre 15.8% of that stock is shorted. And I'd also look at something like EML payments, which has got problems but also has got its attractions 10% of that one is shorted. So I would look through that top shortlist and if the market does rally substantially, that is where the robots will go because they don't want to get caught with their trousers down when the market does rally.

Ben O'Leary  

Some very good points there. Henry. Thank you very much, Marcus, what's stock are you buying?

Marcus Padley  

Well let me give you some ETFs the obvious ones and this is not based on anything other than terrible performances whilst the market has been going down so they're likely to have a decent bounce. Let me give you an ls l n a s which is the ETF ultra long NASDAQ then you've got G Gus which is the better shares good US equity ETF then you've got gear G AR better shares good Australian equity then you've got au Zadar which is ASX 200 resources and you've got Q Ari which is embedded shares as opposed to Spider resources ETF then you've got a small ordinaries SS O and that will probably do you there are plenty of others but those are the ETFs that have done the worst as the market has fallen over and will probably bounce the most should the market bounce. 

Ben O'Leary  

Very nice, thank you for that list. And mine would be a stock that has been sold off and sits within technology which has been warped but also has a good story behind it in wisetech I think regardless of what happens with the supply chain issues we've had are going to probably cause a significant change in that industry and wisetech seem fairly well placed to benefit from that so...

Marcus Padley  

Hasn't Wisetech already had some sort of trading update, do risks their results...

Ben O'Leary  

And it was upgraded guidance. And now 3% I think and they've popped on the back of that as well. So they're up a little bit already but in terms of having a story to fall back on even if the trend turns around...

Marcus Padley  

And the other one of course is Macquarie, which I have mentioned that there are three percent. 

Ben O'Leary  

Very nice thanks guy. See you tomorrow.

Marcus Padley  

I was playing golf at the weekend with one of my friends who has been listening to our morning meeting podcasts for free for the past year and he was looking a bit sad and the reason he was looking a bit sad is because from the first of August the Marcus today morning meeting podcast is going dark. We are putting it behind the paywall it will be for members only anyone who wants to continue listening to the Marcus day morning meeting podcast should do themselves a favour and do us a favour and subscribe and just to tickle you along. If you send an email to info at Marcus today.com.au and be very nice to will Chi Chi and charisma. They may just give you a bit of a promo code give it a go