Category: Technical Picks

Well it is very important to look at the momentum, price action and volume weighted average price of a stock other than fundamental screeners.

This is what our team has come up with another important feature for selecting the stocks on the basis of more than 10 technical screeners, which can help our investors & members to look for short term positional investing, short term trading and identifying the long term price action trends of their favourite stocks.

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Dividend Stocks Technical Picks

Rio Tinto Ltd- Shares Remain Overvalued

Aluminium should constitute a substantially larger share, given the USD 40 billion that Rio Tinto controversially paid for Alcan in 2007, but Rio overpaid. Rio Tinto and BHP have the lowest operating costs of the iron ore players, but despite this being the bulk of company earnings; adjusted excess returns were destroyed by procyclical overinvestment during the China boom.

Key Investment Consideration

  • Rio Tinto is only mildly diversified. Iron ore generates most of the company’s value, and aluminium and copper nearly all of the rest. It’s highly leveraged to China’s steel demand.
  • Rio Tinto’s procyclical capital investment was poorly timed. The invested capital base grew from USD 16 billion in 2005 to USD 105 billion in 2015, after adding back write-offs. Subsequent cost deflation, and lower commodity prices, exposed the folly.
  • Rio overpaid for Alcan and the large acquisition was the first in a number of serious missteps. However, current management is rebuild Rio’s reputation and is favouring cash returns to shareholders.
  • As a commodity producer, Rio Tinto is a price-taker. The lack of pricing power is aggravated by the cyclical nature of commodity prices. Rio Tinto lacks a moat, given that the bloated invested capital base doesn’t permit returns in excess of the cost of capital. The firm’s assets are large, however, and despite being overcapitalised, generally have low operating costs.
  • Rio Tinto is one of the direct beneficiaries of China’s increasing appetite for natural resources. ORio’s cash flow base is somewhat diversified, and is less susceptible to the vagaries of the market than single-commodity producers.
  • The company’s operations are well run and are generally large-scale, low-operating-cost assets. OCapital allocation is likely to be significantly improved following the China boom. Competition for inputs will reduce substantially, while the reduction in cash flow available for investment will mean only the best projects are approved.
  • Mining is seen as a sin activity, and governments may use it as a source of tax revenue to plug shaky budgets.
  • The global economy is cooling. Demand for natural resources in China has peaked, and commodity markets are starting a painful structural decline.
  • Rio Tinto is being viewed as a high-yielding income stock, but resource companies are notoriously unreliable dividend-payers, with cyclical commodity prices often bringing attractive yields undone. ORio Tinto’s investment track record through the boom was woeful. The company paid too much for acquisitions and expanded when it was expensive, permanently diluting returns.

 (Source: Morningstar)

Disclaimer

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Dividend Stocks Shares Technical Picks

“Can Lives Here” Is No Marketing Gimmick for Commonwealth Bank

Amber markets itself as a provider of cheap electricity, which Commonwealth Bank will promote to its mobile banking customers. Little Birdie will help the bank provide rewards and exclusive offers for Commonwealth Bank customers, probably a way of winning back share from the likes of Afterpay. The initiatives will not appeal to everyone, with these product enhancements likely appealing more to younger demographics who in the future become more profitable home loan customers. Generating annual profit north of AUD 8 billion, the bank has the luxury to: 1) invest in new and even unproven products; and 2) respond to consumer preferences.

It’s hard to say if recent investments will lead to material revenue windfalls, but we think the bank’s relatively small investments make sense as it attempts to build more engaged and satisfied customers. Our buy now, pay later analyst expects the market to grow materially over the next 10 years, but the incumbents will lose share, partly due to the major banks rolling out their own offerings. Commonwealth Bank shares are up over 50% in the last 12 months, and while we agree confidence in the earnings and dividend outlook is warranted, shares trade at a 30% premium to our fair value estimate. The fully franked dividend of AUD 4 per share, or 4% yield is likely attracting retail investors, but we caution against chasing shares for income. It is not hard to imagine the share price falling more than AUD 4 in a tough year, or even a month for that matter. Hopefully the earnings share price volatility of 2020 has not already been forgotten.

Commonwealth Bank’s consumer lending business, less than 2.5% of loans but we estimate around 8.5% of operating income, includes credit cards which are being impacted by growth in the buy now, pay later, or BNPL, sector. It’s not a surprise the bank is fighting back. It owns 5% of Klarna (50% of Klarna Australia), has the CBA BNPL offering, and a no-interest card called Neo.

Company Profile

Commonwealth Bank is Australia’s largest bank with operations spanning Australia, New Zealand, and Asia. Its core business is the provision of retail, business, and institutional banking services. An exit from wealth management is ongoing, with the bank still holding a 45% stake in Colonial First State. The bank has placed a greater emphasis on banking in recent years.

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Technical Picks

Sonic Healthcare– Earnings To Retrace

Key Investment Considerations

  • Sonic has a strong market position in a consolidating industry. As a result, and in line with its strategy, we expect ongoing acquisitions to boost organic growth
  • Pathology labs benefit from scale, however, we expect operational efficiencies to be offset by a combination of pricing pressure and constrained volumes and thus limited improvement in underlying operating margins OFree cash conversion of net income is healthy and we forecast 95% of earnings result in free cash. After paying dividends, this gives Sonic the capacity to acquire 1% of revenue growth annually from free cash resources which we factor into our valuation
  • Sonic’s “medical leadership” model recognises the importance of the relationship with the referring doctor as the company seeks to differentiate itself on service levels rather than purely price. Evidence of the success of the model is the organic growth rate ahead of the market, suggesting market share gains. In an industry where absolute volumes are an important component in achieving cost advantage, Sonic’s source of moat, the organic growth supplemented by acquisitions continues to add value for shareholders.
  • Sonic has a leading market position in most of itsgeographies and as a result is well placed to take advantage of a consolidating industry.
  • Demographics and the focus on value-based based healthcare support the ongoing global volume growth in preventative diagnostics such pathology and imaging.
  • There is potential upside to margins in both Laboratories, from synergies and operational efficiencies, and Imaging from re-indexation of prices.
  • Organic growth is potentially slowing and acquisitive growth is more expensive to achieve. OPricing pressure is not over. Anatomical pathology, which is a strategic growth area of Sonic in the U.S., is a targeted area for cost savings by large private health insurers.
  • Returns on invested capital including goodwill of approximately 8% are only marginally above the 7% weighted average cost of capital suggesting the company is paying full prices for its acquisitions.

 (Source: Morningstar)

Disclaimer

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Expert Insights Philosophy Technical Picks Trading Ideas & Charts

Orissa Minerals and Development Co. – Breaks Through Its Strong Long Time Resistance and is Ready for a Fresh Upside Move

Statistics chart on laptop display and trader analyzing the data

Daily Candlestick Chart

Source: Tradingview

Technical Rationale

  • The stock of Orissa Minerals and Development Co opened the day’s trading session strongly at INR ₹2789, after which the stock made a high of INR ₹2987. The stock also made a low of INR ₹2770 for the day.
  • The stock has been gaining continuously in back-to-back trading sessions with a substantial increase in the volume. The Volume of the stock for the day is 43.625K. The stock seems to be in a price and volume breakout. The stock has formed a strong bullish candle on the daily charts indicating a huge buying interest in the stock and a further upside for the stock.
  • As we can see, after a long consolidation phase the stock has strongly broken above the its long-time resistance at INR ₹2750. The stock now seems to be ready for fresh upside movement.
  • The stock with its successive bullish candle formation has completely covered the previous consolidation phase and also has broken above its 10 Day and 20 Day Moving Averages, indicating a further upside movement for the stock.
  • The MACD of the stock also indicates a bullish crossover for the stock. The Relative Strength of Index of the stock is currently valued at 69 which is on the higher side and it indicates that the stock is gradually moving towards its overbought zone. The length of the RSI is 14 periods. Altogether the stock still has some upside potential left which can last for 4-7 days.
  • General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.