Morning Report / Look 6-months ahead, not into next week! (SSM, CTD, FLT, WEB)

By Market Matters 18 December 20

Look 6-months ahead, not into next week! (SSM, CTD, FLT, WEB)

Market Matters Morning Report 18th December 2020

The ASX200 soared to its highest level since February as over 80% of the market rallied led by the unusual combination of resources and IT with the later the standout led by Afterpay which gained 5% to breach $120 for the first time ever – its now incredibly a bigger business than both Coles (COL) and Woodside (WPL). Throughout Thursday the market rallied without taking a meaningful backward step, as we’ve trotted out almost at nauseam recently this time of year regularly delivers a dearth of sellers.

The markets gains were aided by both the Asian region and US futures getting in on the festive mood as “risk on” remained firmly in control, who would have thought equities would be so strong in the same year as the coronavirus became a major topic of conversation. Unfortunately, I’m sitting here on Sydney’s Northern Beaches flabbergasted that we now have a major breakout – we’re now told to stay at home for the next 3 days with Christmas Day just a week away, this year of change might easily now include Christmas.

While I’m hugely frustrated by the damage a couple of selfish people can inflict, from a markets perspective it might just throw up some opportunities if the travel and recovery stocks remain under pressure e.g. Corporate Travel (CTD) fell over 4% yesterday. Overnight the SPI futures were very subdued even as US stocks rallied with the troublesome COVID news likely to be weighing heavily on sentiment.

MM remains bullish the ASX200 into 2021.

ASX200 Index Chart

The Australian Dollar surged towards 80c yesterday after the governments Josh Frydenberg announced they were remaining “all in” to get people back to work:

1 – Until unemployment falls below 5.25-5.5% the government will not be focusing on stabilising debt i.e. they will keep stimulating the economy or put another way, spending.

2 – This coincides with the RBA who described unemployment as a national priority when justifying their current massive financial support.

Even as the economy improves faster than anyone dared to hope the government still believes this will be 4-year journey implying equities will enjoy a strong tailwind for years to come, this by definition is good for the $A.

MM remains bullish the $A with an initial target above 80c.

Australian Dollar ($A) Chart

The worst performing stock yesterday was a previous holding in the MM Growth Portfolio. The network servicing stock Service Stream (SSM) suffered after announcing it will be sharing a major NBN contract with 3 other providers hence smashing its forecasted revenue as analysts expected it to get all / more of the pie. However, SSM has paid a steady yield ~5% fully franked for many years making it a contender for our Income Portfolio, especially when it becomes obvious the selling pressure is starting to dry up – perhaps one for the new year.

MM has SSM on our radar for the Income Portfolio.

Service Stream (SSM) Chart

Overseas Indices & markets

Overnight we saw a strong session from US stocks with no standout sector, it was a simple solid “risk on” day with crypto currency Bitcoin setting the stage after popping another ~10%.

MM remains bullish US stocks / risk assets into 2021.

US S&P500 Index Chart

As we said a few days ago “enough is enough for gold” on the downside, MM is now bullish looking for 10-15% upside. Overnights $US30 rally aided by the Greenbacks continued weakness hopefully is the start of another leg higher for the commodities complex – MM is long the Resources Sector across all of our portfolios!

MM remains bullish gold.

Gold ($US/oz) Chart

Three stocks if we get the COVID wobbles.

This morning I will be watching the NSW COVID statistics carefully to see how much our Christmas will be disrupted which on reflection feels selfish when people’s life’s might be at stake, hopefully we will get this under control asap. On a positive note, I would say it really warmed me to see how many people are queuing up for a test, we’ve overcome this before as a state / nation and there is no reason why we can’t do it again.

As I sit here in what’s a surreal mindset, I’ve quicky looked at 3 stocks that were sold-off on the outbreak news yesterday, as todays title says we must look 6-months ahead as we know a vaccine is coming – the UK vaccinated more than 130,000 in its first week.

1 Corporate Travel (CTD) $17.93

CTD fell over 4% on the news yesterday but considering the stocks strong recovery since March its not too bad a result. MM like this corporate travel management business which remains down ~50% from its late 2019 high. However the current risk / reward is not exciting, a further 10% pullback and MM will be considering CTD as a recovery play.

MM likes CTD below $16.

Corporate Travel (CTD) Chart

2 Flight Centre (FLT) $16.30

FLT fell over 3% on the news yesterday, medium-term both the market and ourselves are not as optimistic towards FLT given the large increase in share count following their emergency capital raise, but again the risk / reward is interesting ~10% lower.

MM likes FLT below $15.50 with stops under $14.50.

Flight Centre (FLT) Chart

3 Webjet (WEB) $5.11

Similar to FLT we saw WEB fall over 3% on the news yesterday.

MM likes CTD below $5 with stops under $4.20 as an aggressive play

Webjet (WEB) Chart

Conclusion

MM likes the travel sector if it gets sold off another ~10% with our order of preference, obviously depending on price, being CTD, WEB and lastly FLT. 

Have a great day,

James & the Market Matters Team

Disclosure

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