THE MARCUS TODAY MORNING MEETING – Tuesday 19th 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

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

Ben O'Leary  

Good morning everyone, it is Tuesday the 19th of July Marcus Padley what have you got from overnight?

Marcus Padley  

Ben O'Leary, what I've got overnight is you got to call it disappointing session on Wall Street. It was up 356 points at the top which was right at the beginning. They just went down all day and I think we've got the same malaise here low volumes lack of direction. I got a chart in the strategy piece which shows a three month chart of the s&p 500 It was just looking like it might have been breaking up and it's just failed at the resistance level again, so going sideways low volumes. Goldman Sachs results overnight were pretty good up two and a half percent but talked about slowing hiring Bank of America results they were pretty much unchanged on results. I think IBM had results after hours and down 4% And Goldman Sachs had results last night pretty good up two and a half percent although they did talk about slowing hiring as deal flow dried up Bank of America and unchanged on results. IBM have had late results they're down 4% Not good. One of the main drivers overnight was Apple, there was an article in Bloomberg saying that they are slowing hiring and spending in anticipation of a potential economic slowdown. Well, I think it's an obvious there's going to be an economic slowdown, but the market didn't seem to like that a bit of Fed speak as well about the meeting coming up next week and 100 basis points not being necessarily 75 basis points more likely as inflation peaks and then just as we talk about inflation peaking Gazprom the Russian energy company says it can't guarantee supply to Europe and the oil prices popped 5.1% overnight and all the energy stocks going nuts again today so maybe after some hopes that the energy price was 20% of the job is now at 5% This could clearly accelerate we will see but maybe we haven't seen beat inflation after all US dollar drop point. 6% overnight might not sound like much but that is a heck of a lot for a currency lower US dollar means higher commodity prices most of the metal prices up overnight iron ore price up a couple of percent and resources doing okay today against the rest of the market doing not much. Morgan Stanley talked about the odds increasing that the US will avoid recession Chinese property market risks continue to bubble in the background. You've probably heard over the weekend. People saying that they won't pay their mortgages on unfinished apartments. You would say? Course you won't but then again, it's China. Otherwise things to look out for we got the FOMC meeting next Wednesday. Let's see if they talk peak inflation and raise rates 75 or 100 basis points and we've got the US results isn't continuing Netflix and Twitter tonight but some big results coming up next week in technology. The only other thing going on today is a and Zed in a trading halt. I think Tom will talk about that. 

Ben O'Leary  

Very Good Thank you Marcus. Tom, what else is happening?

Tom Wegner  

Thank you Ben. Well, SX 200 is down eight points. It was up eight points early but energy and miners are outperforming healthcare and tech stocks the worst performance CSL down 1% resume of 4% as Marcus said oil up more than 5% helping the energy sector Woodside doing well up 5% Santos up 3% bhp had production numbers out well received they are trading at 2.3% Higher although they did flag a soft year ahead for iron ore said production volumes will be lower for iron ore and coking coal in the next 12 months reo and Fortescue both nicely higher we had preliminary numbers out from JB Hi Fi they are trading up 3.6% hits record sales and an audited earnings for the full year 22 audited earnings will be out in August 15.

Marcus Padley  

Didn't you have a buy hold sell on JB Hi Fi last week?

Tom Wegner  

It was yesterday.

Marcus Padley  

Yesterday. Sorry.

Tom Wegner  

So take a look at that if you want to know a bit more Hob 24 Down 5% as fun slide over the quarter and ANZ Roy Morgan consumer confidence has steadied and that was due to the lower than expected employment last week. And we do have RBA minutes from the July meeting out today where the board lifted rates 50 pips to 1.35%.

Ben O'Leary  

Thank you, Tom. Good work as always. Layton, what have you got from the brokers?

Layton Membrey  

Thank you, Ben. So just on that ANZ and Suncorp deal breakers this morning, more so reacting to an Zeds third quarter trading update, which was pretty well received. The key point there is that net interest margins have risen by six basis points and all the brokers had bullish recommendations out this morning sitting in UBS. Both had buyer recommendations and Credit Suisse has an outperform recommendation. The average target price is 38% above the current market price from those three brokers and for Suncorp Morgan City and Credit Suisse are all bullish with ad buying outperform recommendations that's on the back of the sale of the banking arm to answered target prices ranging from $13 to $14. And that's about 10 to 20% above the current market price, but Morgan Stanley is underweight with a target price 13% below the current market price with concerns about long term growth options for the company. And one more I've got REO hadn't upgraded this morning to an ad recommendation at Morgan's after recent share price weakness broker expects a better outlook for metals in 2023. As Chinese growth recovers, the target price is down slightly to $113. That still implies a 19% upside. Thank you, Ben.

Ben O'Leary  

Thank you, Layton. Henry, what are you writing about?

Henry Jennings  

Today, I guess a question or a couple of questions from members one on gold miners. One member was puzzled, I guess why the gold miners have been absolutely smacked as opposed to the gold price itself, which is only off around 11% and Ozzie dollar terms and the reasons are many and varied but the major reason is the cost pressure the gold miners have got because they're remote locations they require an awful lot of diesel an awful lot of energy as well as an awful lot of labour, all of which have been going up in the canary in the gold mine was very much evolution, which did set off a train of events as evolution tends to be the poster child for the sector. But there will come a time when the gold miners are a buy now is one that has caught my eye at the moment which is a stock called Genesis G M D is the stock code there, which is run by a gentleman by the name of Raleigh Finlayson and rally was the man who ran Saracen and then was the MD of Northern Star, and he's kind of putting the band back together in some respects and trying to consolidate gold mines in the Leonora gold fields of Western Australia. And he is currently where they raised 100 million bucks pretty easily. It seems there's lots of money around still, but they raised 100 million bucks at $1.20 and a half. And they're merging with a company called Desi and gold, which has been a bit of a dog be honest. But there are some attractions with the Desi and mill and also bringing st Barbara into the fold as well now currently Genesis are merging with Dyson. And if you bought Desi in at 9.4 cents, which is where they closed last night, it gives you an intro into Genesis at about a 10% discount to the Genesis price of $1.22. So it's a little bit of an odd play and a little bit of a bottom picking play in a company that's got some pretty good management some good ambitions as well. Dacians actually jumped this morning by three and a bit percent. So that's a bit annoying, but something to think about there is a relatively low risk play with good management consolidation of a gold area. And all the benefits that we're rewriting that brings diggers and dealers starts on the first of August, and the Noosa mining conference kicks off in a day's time up in Queensland. So that is going to be a bit of a focal point as well. And both have links in the newsletter to how you can watch the presentations online. And they're free. If you're interested. Lots and lots of companies are presenting at both those events.

Ben O'Leary  

Very nice. Thank you, Henry. I think a conference in Noosa would be fairly popular at this time of year, especially from those of us down in the freezing state.

Henry Jennings  

Yeah, I was gonna go but unfortunately, events get in the way. Fair enough.

Ben O'Leary  

Thank you for that Henry under our fresh ideas today. And I'll cover them off quickly. Just a couple in there. Chris has his child of the day as Arca Oh, I make sure you check that out. And I have put in a look at a growth at a reasonable price screen from stockopedia. We've put a few of the screens in that we've built ourselves in the portfolio sections on the last couple of weeks the income one on Wednesday long term investors one on Thursdays. This is one of the preloaded screens that for PD habits called growth at a reasonable price is based on a book called Smarter stock picking by David Stevenson. And it has a combo value growth quality and momentum measures. It spits out for stocks, three rates, one resources, I won't give them away on the podcast, you have to check it out if you want to have a look. But it has been interesting. It's got 10 factors narrow in the fresh ideas as well is important to note with some of these things that all the factors in there are backward looking so it produces a good companies that have been performing very well recently and are cheap on a PE basis. Looking at their recent earnings. They're all 2.5 to four times here, which is very low considering with anything under 10 is considered cheap, but more research that just the screen is needed to figure out if they're going to be able to repeat their strong performances. I haven't gone to that next step today just showing the value of these screens and what they can produce. So make sure to check that out if you're interested in that kind of stuff. And Marcus before we get to strategy, there's a piece in the newsletter Today on A and Zed a little bit more in depth.

Marcus Padley  

Yes, Tom and I have done a piece on ANC just looking at the Suncorp deal. I won't run through all the details, but there are some positives as Leighton said the positives are in the trading update rather than necessarily the deal. There's quite a lot of criticism of the deal. And I answered strategic moves over the last four years, one of them pointing out that their loan book in 2016 was about 260 billion and their loan book after the Suncorp deal is about 260 billion, in which case they've gone nowhere. And so I put a chart in of the Ames edge share price since 2016. And indeed it is, I think up point four 9%. In other words, it's gone nowhere either. So there you go. A sideways stock and the conclusion on the ANZ deal or the ANZ eight update is that brokers love it. They have as Elaine said, target prices three of them have a target price averaging 38% above the current share price, but if you put all the brokers together average target price 26% of overcoming share price, the stock, we haven't seen the share price yet because the commander is training home and it's going to go down but even on the price it closed at it's on a 10.4 times PE and a 9.4% yield when they cut their dividends over the pandemic the yields were three to 4% and we're now back to yields and PE which we saw pre the banking inquiry. The conclusion is it is looking attractive on PE and yield but it's not a growth stock. It's an income stock. It's not a trading stock either income investors don't have any need to rush to buy it. There's no dividend until early November. But this was quite a good trading update it effectively de risks the stock ahead of the next set of results. And as an income investor whilst you would probably take up the REITs why not? There's nothing terribly wrong in the share price isn't exactly peaking. But in terms of new buyers of ANZ, you probably let the deal wash through let the indigestion from the big share issue watch wash through before looking to buy technically it's not bouncing yet wait for that maybe wait for a better tone on the market wait for a peak in bond yields wait for a bottoming in the housing market. There are a few headwinds for the bank sector at the moment but value is clearly peering and particularly in a in said after this deal. And when you see the share price fall tomorrow, it will look even better value but no rush and an income stock only and no rush ahead of November. And I suppose we do for strategy. Yes, strategy strategy is getting a bit thin at the moment because there's no real change still in cash. Disappointing night on Wall Street. We're all still watching inflation interest rates, the FOMC what the US results do doesn't look like they're doing much for the market at all. And the signposts coming up are big tech results next week, but particularly the FOMC and what they say about peak inflation if they say anything at all, whether they raise rates 75 or 100 basis points, but I've put in order to pass the time I've put some charts in weekly charts, which are a bit sort of stand back and have a look at the market rather than let's fiddle around day in day out. Just stand back have a look at the s&p 500 you'll see still firmly in downtrend, same sort of for the ASX 200 for the ASX 200 index is not really worth charting too much because it's the average of a couple of sectors in particular resources and bank so I pulled those out individually today to look at the banks and resources and on the resources sector. It's hard to really pull a trend out a statistics will pull a trend out I've put a regression line through the index today and you can see a trend and we're out the bottom end of the trading range at the moment but the reality is that this is a trading sector and if you have a look at some of the charts in the strategy section today I particularly pulled out bhp some people obviously hold bhp as an investment you will hear them talking about having bought it in pounds shillings and pence and how fabulous it's been but the reality is for an engaged Marcus today member who's active bhp is not a safe investment. It is a trading stock to give you in the last three years, some of the movements Up 68% Down 16% Up 61% Down 34% Up 51% and it's just dropped 24% This is a trading stock. It's not a safe low volatility investment. And if you think that or bhp is volatile, and I could just as well put up Rio have a look at the FMG chart and the oz minerals chart where oz minerals for instance, gone in the last two years and a bit 365% gone up down 26% Up 48% It's just gone down 45% There'll be a bottom on it as well. These things are trade. So the point I'm making in the strategy section today is that resources are fabulous long duration trades they don't move 20% In a day so they're actually lower risk than being in a no earnings sentiment driven tech style stock. The resources grind higher grind lower with large pivot points. We clearly have a large pivot point coming up so waiting for that before doing anything but anyone who tells you that bhp is a great long term investment hasn't really spotted the opportunity to make a full June picking the pivot points. And there are only one or two a year. We're coming up to one, I'm sure.

Marcus Padley  

Very nice. Thank you, Marcus. Our question of the day to day with results season approaching very rapidly name one theme for the upcoming results season. Could you please give us your theme

Tom Wegner  

Margin pressure. And I'll give you the example of bagel last week, which warned on higher costs. And this was going into FY 23. And their outlook was saying that they're getting higher costs, but they can't actually pass them on. So if you're a business that is not a price maker or can't pass on the cost to their customers, it's going to be an issue for you.

Ben O'Leary  

Thank you, Tom. Layton?

Layton Membrey  

Similarly to Tom, I'm gonna go with net interest margins. We've only got CBI results coming up, but we should get some trading updates from the rest of the banks. And I think we'll see some strong net interest margins there...

Marcus Padley  

As we did with ANZ. 

Ben O'Leary  

Yeah,thank you. Layton. Henry?

Henry Jennings  

I think the relative strength of the consumer we've seen JB Hi Fi out today with some pretty impressive results. So I know we've written off the consumer we've written off spending but the relative strength out there I think you know when we're out and about in the streets and in the shops, there's still a lot of money around so I think we might be surprised to the upside in some of the strengths that we've seen even Katmandu had some relatively good numbers coming out yesterday, JB Hi Fi the same. So maybe the death of the consumer has been greatly exaggerated. 

Marcus Padley  

Worth mentioning that some of the big moves that you see on results are often in those consumer stocks in retailers, things like Breville, Katmandu have often jumped 15 20% own results one way or the other, usually on the upside. And I think Emery is probably right that whilst we might be worrying about a recession in the US and Australia, people still have plenty of cash to splash.

Ben O'Leary  

Yeah, there's obviously a lot of cash on the sidelines in the market still so good results every chance to have particularly good response in the market. Marcus, what's yours?

Marcus Padley  

I think we will see a return to value in the sense of market focusing on value in the results season whilst the market was going haywire. Just straight up, it was all about who is clever enough to guess that zip would have great results or bad results. And it was absolutely a crapshoot. And I think hopefully, we will get back to fundamentals. We'll get back to believing some of the numbers and we'll get back to numbers rather than luck when it comes to results. Let's hope so anyway.

Ben O'Leary  

Fingers crossed, mine's probably a little bit more sour. I think the outlooks with inflation still rife, and the growth concerns, particularly outlook is going to be very cautious across the board. I think there's anyone that's any business that's really not going to be concerned about slowing growth in maximum inflation, one or the other, or both. So my prediction...

Marcus Padley  

Do you think the Australian economy is slowing?

Ben O'Leary  

Good question? 

Marcus Padley  

Why there's good question isn't it...The car prices are still ridiculous. Yeah, we're obviously still paying them. Yeah, we've still got we're still not travelling,

Tom Wegner  

Unemployment still really low.

Ben O'Leary  

The issue is that the interest rates are the tool to use against all of this and at some point, I don't know what number it's going to be but at some point, they're gonna start working and they're going to have impacts to growth.

Marcus Padley  

But with this results, Susan, I think we might just see a solid set of results. I think the numbers are probably run the Australian cyclicals house prices are still only 4% off the peak or something in Melbourne. It's no biggie.

Ben O'Leary  

Maybe I'll change my wording to good numbers bad outlooks. Yeah, thanks guys.

Marcus Padley  

I was playing golf at the weekend with one of my friends who has been listening to our morning meeting podcast 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'll be for members only anyone who wants to continue listening to the Marcus day morning medium podcast should do themselves a favour and do us a favour and subscribe and just a 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.