Afternoon Report / ASX whacked for a second day – growth stocks feel most pain (COH)

By Market Matters 09 October 18

ASX whacked for a second day – growth stocks feel most pain (COH)

Market Matters Afternoon Report 9th October 2018

WHAT MATTERED TODAY

Another pretty aggressive day of selling for the ASX with most of the pain targeted towards the high valuation growth stocks in the market. Asian markets held up well today with Japan the only major regional market to see a drop, while US Futures were also fairly lethargic during our time zone. In other words, Australia was the ugly duckling of the region once again today. Turning back to the growth area of the market for a moment, this has been a clear momentum trade in the past 12 months or so – and it’s been a good one, however it seems obvious that the momentum has turned towards stocks that are tarred with the growth brush. That said, it’s hard to throw all growth stocks into the same basket - comparing CSL to Appen (APX) or Wisetech (WTC) is like comparing peas and carrots – sometimes they sit in the same bowl but that’s about it.

Worst performing stocks in the ASX 200 over the past week

 

Looking at the table above tells an interesting story. The majority of these are high valuation – lots of blue-sky style stocks that attract hot money but when markets turn these stocks get hurt. That’s not to say these companies are not strong businesses, or have not been great investments over the past 12 months, many certainly have been, however by looking at where the selling is being focussed in any market decline tells a critical story. Hot money is coming out of hot stocks but that’s about it. The more mundane parts of the market, the areas that have struggled, the boring blue-chips we’ve written about in recent times have in large part outperformed into this recent weakness.

I put out a quick Direct from the Desk Audio version just before market close today which covers some of the day’s trade – click on the image below to listen.
 

Overall, the index closed down another -59 points or -0.97% today to 6041.  Dow Futures are currently trading down -0.11%/ -29pts  Hang Seng (Hong Kong Futures) are up  +0.32%/84pts.

ASX 200 Chart

ASX 200 Chart

CATCHING OUR EYE

Broker Moves; Credit Suisse reckon that it will be a one horse race for MYOB with KKR the only logical buyer of the business, largely given the legacy issues around MYOBs platform.

 RATINGS CHANGES:

·         NextDC Upgraded to Hold at Deutsche Bank; PT Set to A$6.30

·         ANZ Bank Upgraded to Add at Morgans Financial; PT A$28.50

·         Beach Energy Upgraded to Hold at Morningstar

·         InvoCare Upgraded to Neutral at JPMorgan; PT A$12

·         Oil Search Upgraded to Buy at Shaw and Partners; PT A$10.50

·         Temple & Webster Group Upgraded to Buy at Bell Potter; PT A$1.36

·         Decmil Upgraded to Buy at Hartleys Ltd; PT A$1.25

Cochlear (COH) $191.88 / -5.19%; Cochlear is a hearing implant manufacturer and distributor whose product is near enough unrivalled in quality and market share. The drivers for COH are similar to CSL, global population growth, as well as the rise in the Asian middle class has seen demand for healthcare grow at consistently high levels for the past decade. This trend is set to continue, opening up more markets for these two big healthcare companies to move into.

We’ve targeted a pullback down to ~$190 in COH and CSL for some time, and the 15-20% decline we’ve seen in both stocks now presents an opportunity.  

Cochlear (COH) Chart

OUR CALLS

We added CSL & COH to the Platinum Portfolio today, both with a 3% weighting below $190

Have a great night

James / Harry & the Market Matters Team

Disclosure

Market Matters may hold stocks mentioned in this report. Subscribers can view a full list of holdings on the website by clicking here. Positions are updated each Friday, or after the session when positions are traded.

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