Why you should be accumulating Dischem
Even though President Trump hasn't slowed down on his “Trade War” rhetoric, indicating he would levy tariffs against another $500 billion of Chinese goods, global markets are pushing higher. It's doing this on the back of positive earnings releases. We're almost a fifth of the way through Q2 earnings season and so far, 87% of US companies are beating analyst's forecasts.
When considering actual and forecasts for the remaining 80%, US companies are set to achieve the highest net profit margin of 11.6% in almost 10 years and are on track to achieve an earnings growth rate of 20.8%, the highest growth achieved since Q3 2010.
This positivity is on the back of Trumps, tax reforms which should help minimise the affects of rising interest rates and tariffs.
Friday's advanced GDP for the US will provide a clear indication of its economic health and if all the positivity is trickling down through the economy.
Last week we had SA inflation come out slightly below forecast, but above May's 4.4%. This signals that we've seen the low for inflation and it should start trending higher.
Since inflation is currently moderate, the MPC decided to keep interest rates steady but reduce GDP growth estimates to 1.2% from 1.7%.
As mentioned last week we still see pockets of value in the SA market.
You should be continuously buying the dips as they come.
If you already fully invested in the SA market, ask us about other investment solutions to diversify your portfolio.
The week ahead:
Local Data: Business Cycle Indicators (24/07); PPI (26/07);
Results Due: APH, AMS, ARA (23/07); HMN, KIO (24/07); AFE, CCO (25/07); ANH, AGL, BTI, ITU (26/07)
LDT (24/07): APF, ART, IVT, INL, INP, ISA, STP, VUN
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Other Economic data releases of interest…
One to BUY
Wednesday: CPI (AUS); Crude Oil Inventories (USA)
Thursday: Main Refinancing Rate, ECB Press Conference (EU), Core Durable Goods (USA)
Friday: Advance GDP (USA)
Dischem – Trading update and full year 2019 Guidance
Dischem share price is now at R27.75 down from R37 in April. In May we drew attention to the 25% fall after release of the 2018 results that were below market expectations.
Dischem’s recent trading statement clarifies management expectations for 2019, earnings per share are expected to grow between 16% to 24%. Now on a forward PE of 30.
We continue to believe this is simply another case of the market getting ahead of itself after the excitement of a popular listing. The business model remains sound and this is the type of company that investors should be accumulating after the recent volatility.
Buy below R28,00.
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Long Term Ideas
Discovery: Moving in the right direction. Hold
Coronation: Bottoming out, buy below R60.00 for a move back to R80
AB InBev: Results due Thursday. Leave stop loss at R1,350 to lock in 8% gain.
ARM: Back to Buying territory. Hold
Dischem: Positive trading update and earnings guidance. Add below R30.00
Shoprite: Bottoming out at R200, a long-term support level. Hold.
Aspen: Accumulate on weakness below R245.
Sygnia: Support building above R10.00. Add
Santova: Maintain stop loss at R3.10. Hold.
Merafe: Accumulate below R1.55.
Jubilee: Speculative buy below R0.50.
MTN: Accumulate for long term below R110.00.
Glencore: Still bullish. Hold
Wescoal: Long term buy. Add below R1.80
Naspers: Trying to break above R3,500. Hold