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The JSE targets record highs as interest rates are cut - Two to buy and two to Sell

by , 21 September 2017
The JSE targets record highs as interest rates are cut - Two to buy and two to Sell
Last week's interest rate cut of 25 basis points (0.25%) has boosted retailers and shares with high debt levels. Improving sentiment and the prospect of a boost to economic growth provided support for the Rand.

Earning season is in full swing, as of Friday, 19% of the companies in the S&P 500 had reported results for Q2 2017 and 73% had beaten earnings and sales expectations.

In the week ahead:
• Local PPI will be released on Thursday and is key to maintaining positive sentiment; YoY expectation is for PPI of 4,6%.

• Global companies release results; Alphabet (Google) tonight, Facebook on Wednesday, and Amazon on Thursday.

• Local company results due: Amplats, Kumba, AECI, BATS, AB InBev, Barclays, Liberty, Anglos, RB Plat and Nedbank.
Last week's movers and shakers…
• Best Performers: Northam 9.3%, Murray & Roberts 8.9%, Foschini and Massmart 7.4%, Imperial 7.1% and Mr Price 8.7%

• Worst Performers: Transhex -13.8%, Assore -4.6% and Anglos -4.1%
Mr Price and Murray & Roberts were among the top performers for the second week, while Northam rallied 9.3% from a very oversold level, there could still be further upside from here.

Other Economic data releases of interest matter…
• Tuesday: CB Consumer Confidence (USA)

• Wednesday: CPI q/q (AUS), GDP q/q (UK), Crude Oil Inventories, FOMC Statement and Federal Funds Rate (USA)

• Thursday: Durable Goods and Unemployment Claims (USA)

• Friday: GDP m/m (CA), GDP q/q (USA)


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Two to Buy
 
Ascendis Health  - organic growth on the cards
 
The Healthcare sector has been under pressure for a while, (review our Buy calls on Medi-Clinic and Aspen’s in the recent past). Ascendis hasn’t been spared either in the sell off, down to below R21 since it’s R29.39 high last year.
 
Since listing it’s done over R9 billion in acquisitions and undertaken significant restructuring, to lay the foundations for future growth and improved cash flows. Buy below R21.00
 
Holdsport – A cheaper entry into the popular Long4Life
 
Investors looking at jumping onto the Joffe and Hedderwick gravy train – L4L, should consider an entry through Holdsport, which offers a discounted entry of around 17%.
 
On 3 July, both companies put out a joint cautionary indicating L4L intends acquiring the Holdsport for 10.44 L4L shares for one HSP share.
 
At a closing price of R65.55, you are effectively buying L4L at R6.28 and not R7.80. The discount is due to the transaction risk. Speculative Buy below R66.50
 
Two to Sell
 
BidCorp – Overbought and demanding valuations
 
At a share price of R310.00 Bidcorp is trading on a historic PE of 27x. BidCorp was unbundled out of Bidvest last year; Bidvest has been a stalwart of the strong performance in the Industrial sector on the JSE over the past 5 years.
 
However, current valuation levels are extremely demanding and the margin expansion that we have seen in recent results is expected to slow. Sell Bidcorp at R310.
 
You can replace it with Compass Group for international portfolios on a PE of 22x, or Steinhoff in local portfolios on a PE of 14x. 
 
Vodacom – share price has gone stratospheric!
 
Vodcom’s share price rally in the last two months has been quite remarkable. The share is now more overbought than any of the stocks we cover. Results were in line with expectations and the dividend yield remains attractive.
 
We expect a retracement of 10% to R165. Sell at R184. Short positions should have a stop-loss of R192,40. 
  
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Update
 
Shorter Term Ideas
  • Sasol: Increase stop loss to R370. Target to R407.50.
  • PSG: Target of R265 reached for a 12.64% gain. Move Stop loss to R260 to lock in the gain.
  • Sibanye Gold: Trading sideways. Buy below R15.00.
Long Term Ideas 
  • MTN: Sentiment improving in anticipation of better results. Buy below R125.
  • Coronation: Accumulate below R65.
  • Invicta: Buy Below R52.50 and wait for a rally.
  • HyProp: Sell at R120. Increasing vacancies in malls is negative.
  • Glencore: Buy below R52.50.
  • DBXEU: Improving sentiment in Europe. Accumulate below R52.50
  • Wescoal: Long term buy. Add below R2.15
  • Famous Brands: At support – add below R125
  • Naspers: Responded nicely, Making record highs. Take profit at R3000!
  • Tongaat: Bounced nicely, longer term target of R170.
  • MediClinic: Buy below R130.
  • Richemont: Maintain long position at R108.
  • Massmart: Accumulate below R110.00
  • Tiger Brands: Moving in the right direction. Hold. 
(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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The JSE targets record highs as interest rates are cut - Two to buy and two to Sell
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