ASX Weekly Wrap 18/7 - 22/7

Welcome to the ASX Weekly Wrap. A weekly email that will be sent out to clients, and also made available on my website, with a brief description of the events that moved the local markets during the week and also what I am watching on an individual stock level. Feel free to provide feedback and alert me to any topics that you may want covered.

In what was a fairly benign week for corporate and economic news the S&P/ASX 200 (XJO) looked to continue its winning streak of gains which stood at seven last Friday. Monday continued the positive trend to 8 days but that is where it ended as on Tuesday we had our first negative day in nine sessions. For the week the XJO added +68.6 points or +1.17% overall with little resistance. We hit a high of 5,531.90 and closed the week at 5,498.2.

As mentioned previously the markets had little economic data to guide them during the week. The RBA’s minutes, released on Tuesday, still suggested an easing bias which could see the cash rate cut again as early as August.

The US earnings season kicked off Monday night with several of the major banks beating estimates on the back of better than expected fixed interest division. Other companies such as Microsoft, General Motors & Amazon also beat estimates whereas the likes of Netflix fell well short. The Australian earnings season kicks off in a few weeks in August.

BHP & RIO released their production numbers and both fell short of Iron Ore production targets. BHP also missed its Oil Targets. The main takeaway is both companies have no further plans to increase Iron ore production at this time which may ease some pressure on the Iron ore price.

Woodside (WPL) & Oilsearch (OSH) also released their production numbers for oil and gas and both were pretty much as forecast. OSH withdrew their $2.2bill takeover offer for InterOil as it was trumped by a $2.5bill bid by Exxon Mobil.

Looking at the XJO from a technical perspective bodes well for the market. As you can see since dipping to the 4,800 level in February we have been trading in a definitive upward channel and have broken above small resistance around the 5,400 mark. It would be healthy for the market to come back and test this level again before its next move up. From here I would expect the XJO to test the next large level of resistance of 5,700 before the end of the year.

Drivers for our latest push and sub sequential Bull Run have come from a few areas. Firstly Resource stocks have been able to recovery from their lows due to the recovery in the prices of Iron Ore, Oil, Copper and Gold. Although this has been somewhat mitigated this week due to a strong USD. We have also seen strength in the big four banks as stability returned to Australia via an election result in the Liberals favor, which also means less likely hood of a Royal Commission into the sector. Healthcare and Infrastructure stocks have also seen solid gains as the AUD falls and rates are kept low. Make no mistake this rally has been via the heavy lifting from the top end stocks which suggests we may have some legs left in it yet.

Earnings season in a few weeks will be more important than ever. It’s now tough to find value in top end stocks in the market. If the earnings season provides some surprises to the upside and positive outlook we may see some value again. However it’s my belief that until the end of the year we will see the best performance in underappreciated small/mid cap stocks. Below are some stocks I am focusing on:

• Amaysim Australia Limited (AYS) - $2.00 AYS run a BYO mobile phone carrier business and already have close to 1mill users in Australia. They focus on cheap plans with large data bundles. They recently have acquired a Broadband/Optic Fibre company that will also help them break into the internet market. Only capped at around $360mill they paid out a dividend of 3c in March and another div is expected this coming earnings season. Earnings are expected to grow aggressively over the next few years.

• Shaver Shop Group Limited (SSG) - $1.16 this once family run company listed on the ASX only a couple of weeks ago. Management are prudent and smart operates delivering 14 consecutive quarters of like for like growth and providing the best revenue per sq. metre of any chain in Australia. They have distinct advantages of being able to get exclusive rights to certain products the big boys cant. Growth is to come from further expansion, franchise buy-backs and online sales expansion. Also small in nature as they are capped at roughly $140mill.

• Vocus Communications Ltd (VOC) - $8.60 VOC have been around a long time but have only just started to make up ground in the Internet, Fibre, Data Centre and telecommunications market. They recently have taken over Ammcom, M2 Communications and Next Comm. The later providing them with the Optic Fibre Infrastructure to compete with the likes of Telstra and Optus. Capped at $5bill+ they are larger than AYS and SSG but are expected to grow earnings at the same aggressive rate. They look undervalued when compared to peers such as TPG. Growth will come from increasing market share, cost synergies and new product offerings.

After a quiet week this week in terms of economic data next week heats up a little. Australian inflation numbers are released on Wednesday and US Q2 GDP and trade balance figures are released as well. The first earnings results are also out for Resmed (RMD), GUD and a quarterly for CYB plus a heap of production numbers from miners and energy companies.

Well I hope you all enjoyed the first ASX Weekly Wrap. I look forward to hearing your feedback and suggestions. Have an enjoyable and Safe weekend and as always Go Crows!

- Heath Moss

heath@hlminvestments.com.au

(08)82129632

Important Notice

Any advice in this article should be considered General Advice only and does not take into account your personal needs and objectives or your financial circumstances. You should therefore consider these matters yourself before deciding whether the advice is appropriate to you and whether you should act upon it. I am happy to assist you in this process. To do so, I will need to collect personal and financial details from you before providing my recommendations. Please note the author may own shares in the companies mentioned in the above email.