A Tale of Two Halves - Three to buy with updates

by , 05 July 2017
A Tale of Two Halves - Three to buy with updates
The JSE's Top40 index closed the first half of the year slightly positive at 0.8%. The Industrials were the leaders of the pack as the only major sector to rack up a positive return of 6.4% while resources were underwater by 9.6%.

The entire market has been propped up by a handful of top performing shares like Naspers, Richmont, BATS, BidCorp, Mondi and Capitec. The interesting thing to note is that with the exception of Capitec all these shares have significant offshore earnings and the Rand is stronger.

Global prospects are improving even with monetary policy tightening on the cards. The ECB and BOE will soon join the FED in reducing monetary stimulus and usher in higher interest rates. The only caveat is, the improving dynamics must look strong enough. We've recently seen an improvement in economic growth, higher business and consumer confidence and marginally higher inflation.

Second quarter earnings season is due to start globally, improving earnings will be the boost the markets need. This period is usually more volatile.

Oil rebounded strongly, with a weekly gain of 7.3% as US production decreased by 100,000 barrels a day for the previous week. Add to that, US Oil rig counts fell, snapping a 23-week streak of increases. This saw traders buy back short positions as the oil price rose.

Last week's movers and shakers…

• Best Performers: Adcorp 22.8%, Kumba 17.3%, Assore 16.4%, Torre 12.9% and Anglo American 9%.

• Worst Performers: Transhex -20.3%, Sibanye -7.1%, AngloGold -6.6%, PanAf -5.6%, Goldfields -3.7%.
Gold shares lost ground last week with Sibanye, AngloGold and Pan-Af hitting fresh 52 week lows on Friday. Precious metal prices were weaker while base metals were firmer, this pushed Kumba, Assore and Anglo American higher. Stronger than expected PMI numbers from China is supportive of base metals bur Iron Ore stockpiles in China are at the highest level since 2004.

On the data front, there are several major economic releases due this week. We have unemployment data from the US on Thursday and Friday, the FED monetary policy meeting minutes and monetary policy report due to be released on Wednesday and Friday respectively. The G20 are meeting for three days from Thursday.

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Three to Buy
 
Glencore – Cashing in on Commodities
 
A highly diversified commodity house that provides offshore exposure. Its recently failed bid to acquire thermal coal assets from Rio Tinto highlights that Glencore’s Glasenberg isn’t afraid to be aggressive when it comes to buying an asset at a good price. It sold off some of its marginal assets to ensure profit margins are maintained. Strong cash generation is expected when it releases results in August. This has been our preferred mining investment for some time and is shielded from much of the impact of the Mining Charter. Buy below R52.50.
 
Buy DBX EU – Investor Confidence on the Up
 
European stocks have seen corporate profits increase steadily, with second quarter profits expected to increase by 12% from a year earlier. The Economic outlook has improved and further growth is expected in earnings reports to be released over the next few weeks. Buy the DBX EU ETF below R52.50.
 
Wescoal – Consolidating Coal Players
 
The recent acquisition of Keaton will provide critical mass to this coal miner, although the company’s last set of results saw a sharp decline in earnings, run of mill production is on target, Elandspruit has secured new contacts and earnings should recover in the next set of results. An interesting long-term Buy!
 
No Sells this week
 
No glaring sells, market remains oversold / depressed after the June sell-off. The market was down close to 10%, we expect a bounce over the coming weeks as companies publish earnings releases.
  
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Update      
  • Famous Brands: Oversold – add Below R125.
     
  • Naspers: Support building at R2,500. Hold.
     
  • Tongaat: The pullback continues. Hold – Target R170.
     
  • PSG: Still bullish, buy below R235. Target R260.
     
  • Sasol: Oil has bounced and the Rand is weaker, a recipe for a rally. Target R407.50.
     
  • Sibanye Gold: Trading a little higher than the post rights issue lows. Hold.
     
  • MediClinic: Carving out a higher low, buy below R130.
     
  • Richemont: Maintain Long Position at R108.
     
  • Massmart: Add at current levels. Buy below R110.00.
     
  • Tiger Brands: Trading at support. Hold for a Rally.

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Prodigy Asset Management’s global portfolio provides clients with direct access to offshore investment markets. A common theme this year has been the outperformance of companies with offshore operations and the US Tech Sector.
 
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(This article is an extract from Prodigy’s weekly Investor Digest. For more information contact Gavin McCarter on gavin@prodigyam.co.za.) 
 
 

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