Income Report / Income Report; Are we concerned about any of our stocks in the Income Portfolio? (ECX, FMG, PPT, TLS, GMA, SUN, NCK, CBA, NAB, ALF and IGL)

By Market Matters 11 July 18

Income Report; Are we concerned about any of our stocks in the Income Portfolio? (ECX, FMG, PPT, TLS, GMA, SUN, NCK, CBA, NAB, ALF and IGL)

Market Matters Income Report 11th July 2018

In today’s trade, Trump’s tweets this morning caused a stir in equity markets as the trade war continues to escalate. Global growth leveraged stocks were impacted the most while consumer facing stocks performed best – in line with any trade war expectations.

Turning to interest rates, Australian 10-year bond yields have been subdued since 2017, especially compared to the US, as economic risks around local housing prices and personal debt levels persist. This has translated to the local “yield play” stocks holding up far better than their American counterparts, this is clearly illustrated by the respective real estate sectors over the last year:

  • Australian Real Estate +11.4% but US Real Estate up only +0.1%.

While we believe interest rates have bottomed both globally and locally until we see signs that the RBA will consider lifting rates our “yield play” sector is likely to remain strong but as the US real estate sector shows when this sentiment changes it is likely to turn ugly quickly.

Hopefully this explains the logic behind the lack of traditional utilities / real estate stocks in our income portfolio.

Australian and US 10-year bond yields Chart

In terms of the MM Income Portfolio, it was up 0.22% over the past week while the ASX200 added 0.77%. Since inception (5/7/17), the portfolio is up 6.9% versus its benchmark (RBA + 4%)  which equates to 5.575% - the first year of the income portfolio has now passed, with reasonable outperformance and consistent returns, we are very happy with the progress. To view all past activity on the Income Portfolio – click here

Today we are going to look at the 9 stock holdings in our Income Portfolio from a purely technical perspective to enable subscribes to get an understanding on the portfolio without taking into account fundamentals.

1 National Australia Bank (NAB)

NAB’s had a tough year falling over 7% in a rising market but the current 7.1% fully franked dividend is obviously appealing. We have spoken about our views on the banks and their dividends in the past – read our most in depth analysis here.

  • We need a close clear above $28 to turn us bullish NAB technically but would only consider buying weakness if it materialises back below $25.

National Australia Bank (NAB) Chart

2 Suncorp (SUN)

Suncorp has followed our technical picture perfectly over the last few years and hopefully will give us the icing on the cake in the coming months.

  • MM is looking to take profit on SUN between $15.50 and $16.

Suncorp (SUN) Chart

3 Nick Scali (NCK)

Nick Scali (NCK) has been a standout in the Australian retail sector over the last ~3-years and its 5.5% fully franked dividend clearly is attractive to local investors.

  • We remain optimistic NCK targeting the high $7 region but a break back below $6.40 could easily see weakness back below $6. We are sitting on a reasonable profit in NCK and would not like to see this dissipate.

Nick Scali (NCK) Chart

4 Commonwealth Bank (CBA)

CBA has enjoyed a stellar rebound over the last 5-weeks clearly breaking back into its old $69.22-$87.74 trading range.

  • We are bullish CBA eventually targeting the mid $80 region but volatility is expected to continue.

Commonwealth Bank (CBA) Chart

5 Genworth (GMA)

Mortgage insurer GMA has had a tough few years as the Australian property landscape evolves into a clearly fresh phase i.e. prices have been falling.

  • Technically GMA looks bullish targeting over $3, will the technical lead the worrying fundamentals?

Genworth (GMA) Chart

6 Telstra (TLS)

Nobody needs an explanation on TLS over the last few years its unfortunately been a vehicle of financial destruction. However we actually like it around current levels at least targeting a rally back over $3, very attractive when combined with its current healthy although not sustainable 9.6% fully franked yield.

  • We are bullish TLS targeting $3 and then $3.20.

Telstra (TLS) Chart

7 Perpetual (PPT)

Wealth manager Perpetual (PPT) has rallied ~15% from its panic January lows taking our position back into profit after clearly being painful earlier in the year.

  • MM is bullish PPT targeting around $46 where we may consider liquidating our position.

Perpetual (PPT) Chart

8 Australian Leaders (ALF)

The ALF has been pretty boring in 2018, however we expect this to change when dividends are re-instated. We discussed this last month, responding a subscriber question on the topic – “ALF is a listed invested company trading at a ~20% discount to the value of its assets – so it’s cheap…. Just before we bought it, signs were that retained earnings were building and that would result in dividends re-commencing. My thesis was that when they did, we’d get dividend flow and that in turn would force the narrowing between NTA and share price plus, they traditionally perform well in weak markets, and my view was that markets were susceptible to weakness.”

  • We remain bullish ALF targeting around $1.10, around 8% higher, we expect the dividend to be reinstated in the result in August. Our view will change if this doesn’t occur.

Australian Leaders (ALF) Chart

9 Fortescue Metals (FMG)

Fortescue has been on a roller coaster ride as it follows the resources sentiment / iron ore price closely.

  • Technically we are neutral FMG needing a close back above $4.55 to lift the bullish flag. Fundamentally it is in reasonable shape providing scope to pay reasonable dividends.

Fortescue Metals (FMG) Chart

10 Eclipx (ECX)

ECX is the new addition to our Income Portfolio and the fleet leasing / management stock is holding support nicely at present.

  • Technically we need ECX around $3.20 but failure to hold here will target sub $3.

Eclipx (ECX) Chart

11 IVE Group (IGL)

The advertising and marketing company has basically traded sideways for the last year but the low valuation of 9.4x 2018 earnings and 6.4% fully franked yield remains attractive, especially to local investors who benefit from franking credits.

  • Technically IGL remains neutral which is no great surprise with support around $2.15 and resistance¬$2.35.

IVE Group (IGL) Chart

Conclusion (s)

Above is the MM technical opinion on the 11 securities in the MM Income Portfolio, fortunately nothing is scary at this point in time but a few we are obviously monitoring closely.

**Watch for alerts**

Have a great day!

James & 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.

Disclaimer

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