THE MARCUS TODAY MORNING MEETING – Wednesday 1st June

Anyone who has been in broking will tell you that the Morning Meeting is how all brokers start the day.  The format is to have a quick look at the overnight markets, consider what's coming up in the day ahead, hear from the analysts, share ideas and get set up for the day's stock market activity

Why not sign up for a free trial? Get access to expert insights and independent research and become a better investor.

Transcript

DISCLAIMER:

Marcus Today offers information that is only general in nature. It does not take into account your personal financial situation, needs or objectives. Nor does it take into account the financial needs of any specific person. You should consider your own personal financial situation and needs or seek financial advice before making any decisions based on this information. For more information please see our Financial Services Guide.

*PLEASE NOTE: Transcripts are autogenerated and may contain errors, especially Stock Codes and Names.

SPEAKERS

Chris Conway, Ben O'Leary, Layton Membrey, Marcus Padley

Ben O'Leary  00:00

Good morning everyone, it is Wednesday, the first of June morning Marcus, what have you got from overnight for us?

Marcus Padley  00:20

Good morning, Benjamin. Well, we're the end of the month, aren't we and our market go ASX 200 down 3.01% And that is now for 2022 so far down 3.14% So bit of a nothing year so far wall street outperform but didn't go anywhere. Can you believe that over the month we've been talking about a big correction and the Dow Jones was actually up a touch so the s&p 500 or over NASDAQ was down a couple of percent.

Ben O'Leary  00:45

I looked up this morning a week ago. The NASDAQ was down 10% for the month.

Marcus Padley  00:48

Oh, there you go. And you bounce 9.93% In four days or something. Yep. And what else other features France down 8.73% hate see the French losing money and sector wise we've seen banks down 2.4% In the month energy sector down point seven property down 8.7 resources holding up plus 0.6% and the Alltech sector down 8.9%. And if we were to analyse this recent correction in our market, it really hasn't been material right honestly and gone from top to bottom of the range and bounced again. And we're only a few percent off the top but in the tech sector it dropped 40% and hasn't really bounced that much. At this point. The US the NASDAQ has seen a much bigger bounce because that's because tech sector is dominated by afterpay or block or SQ two. Anyway, Aussie dollar has been going up recently as well this month at 1.5%. It's a barometer of global economic growth. I'll get to that in strategy. Otherwise the notable thing was oil price up 9% on the month coal price up 15% on the month right sorry, back to what was happening this morning. Dow was down 223 Our futures were down 26 And we opened this morning up 27 We're only up seven at the moment lithium stocks taking a pounding. There is a piece of Goldman Sachs research which says they expect to see a sharp correction in the lithium price over the next two years and the bull market in battery metals is over for now on the back of an outsize supply response well ahead of the demand trend that's for the next two years more optimistically, they say after 2024 Prices for battery materials may still soar again May May i right? Notice the use of the word may other words that work in research that absolve analysts from all responsibility whilst retaining the right to say I told you so include may perhaps may be could should expect possibly probably conceivably, feasibly. Might end likely.

Chris Conway  02:44

And Marcus, I think you've taught all of us to never use those words. We're writing for Markets Today...

Marcus Padley  02:50

I did a sales course at UBS confidence sells. So if you were to say, I think you should buy this managed fund and they were to say because the average return on the stock market is 9% per annum and clients said Well, yeah, but what about next year? Is it? Is it gonna go up? 9% per annum? Is that what you're telling me? And if you say Well, I'll tell you the truth we don't know they won't buy it. But if you say confidently Yeah, absolutely will go up 9% they'll buy it so confidence sell so never use those words, guys, because nobody will believe you. Not that what you're writing is any more believable because you don't use them. But sorry. Anyway, I ramble today. Otherwise we'll do a bit of strategy today about the China trade and the GDP numbers at 1130. Today forecasts consensus is around 3.0% Shane Oliver's 2.8% There was some numbers yesterday which suggests the number has risk to the upside not the downside otherwise not too much going overnight European inflation number at a record high but after the UK inflation number recently not surprising and Powell and Biden met last night I thought that Biden might just get behind the get on top of inflation bandwagon because his approval ratings at the lowest ever and apparently inflation is the biggest issue but he said we will endeavour not to influence the Fed so Biden staying in the background and that's about it.

Ben O'Leary  04:08

Good thank you Marcus. No Tom today so I'll step into his shoes as you said Marcus would did open a little bit higher financials industrials and real estate are leading the way with gains of around a percent each utilities are the big laggard down four and a half percent thanks to a 12% Fall in origin energy on the back of a disappointing update on operating conditions under withdrawal of their guidance declaring that they have a high degree of uncertainty around the range of earnings as you mentioned as well markers lithium stocks are in the barrel today outcome which is aka and lion town resources. ltr are both down around 7% Is that research from Goldman Sachs you mentioned with the word sharp correction and over for now seemingly the focus for investors on the stock Front National Australia Bank NAB have completed its acquisition of Citi groups Australian consumer business they're up 1% On the back of that helix pharmaceuticals TLX have had their CFO and COO step down effective at the end of July down 3%. On the back of that mesoblast MSB have reported their third quarter earnings per share number of three cents, which was in line of expectations, revenue of 2 million was a bit shorter 3.6 expected but they are 1% on the back of that Wally's have given a trading update announcing they expect improved revenue and earnings during the second half and are up 2% there and just one ex dividend today in United Mulk group with the ticker UMG, though it is a 0.4% yield on the dividend so it's not one that I think the income investors would be getting out of bed for on the economic front. As Marcus mentioned, the GDP number 1130 is the big one today with expectations for a 3% annualised number, as you said, and the AI group Australian performance of manufacturing index PMI number fell to 52.4% in May from 58.5 in the previous month, and that reading indicates the slowest growth in factory activity since a contraction in January. So plenty on today. Layton anything coming out of both? 

Layton Membrey  06:00

Thank you, Ben having a look at some McQuarrie research this morning. There's some downgrades and upgrades out for some of our bigger growth stocks and it's based on their strategy team now forecasting a 60% probability of a mild recession. The Broken notes that medium multiples are the canary in earnings coal mine are currently pointing to 20% reductions in Sector earnings, and McQuarrie has upgraded car sales to outperform but lowered the target price to $20 down from $23 which is slightly below the current share price. They stated that car sales is generally more resilient, gaining higher listings with reduced demand and therefore remains the preferred sector pick perhaps that one's just the best of a bad bunch because we've got a group that's alright yeah is the ticker code and seek which is S E. K, they've both been downgraded to underperform. So Macquarie says apart from monetary tightening raa group faces real estate specific headwinds, the target price drops 31% to $90, which implies a 20% downside and sake is the most cyclically exposed with EPS forecasts to fall in the coming years total price drops 41% to $19, which implies a 22% downside. Thank you, Ben.

Ben O'Leary  07:13

Nice work. Thank you, Layton . Chris, what have you got in trading today?

Chris Conway  07:16

Thanks, Ben. Just leveraging that news item about Wally and the improved expectations of improved revenue we hold it as a trade I in the trading ideas section. So nice to be gaining the benefit of that upside today. The chart of the day is cuantas. Just interestingly, two travel related stocks Qantas and Webjet. Stock code QA and for Qantas popped up on my momentum scans this morning. I think that's telling us something people are obviously moving back into travel names and they're starting to gather some momentum. Qantas has been in the news lately trying to acquire fly in fly out specialist Alliance Aviation Services who would give them some synergies and exposure to the resources sector. But there is some speculation that the deal won't go ahead, particularly given the a triple C's previous objections. All of that aside whether or not their deal happens. The post pandemic pickup in flight bookings and willingness to travel are the sentimental winds that are lifting the flying kangaroo chart looks pretty good. Obviously. That's why it's charted the day it's currently trading around 550. And there's a natural upside target towards $6. So for anyone taking the trade or the opportunity there, that's what I'd be aiming for. Just interestingly, there's a host of brokers out there that like it, UBS being quite bullish with a target up towards 665. Morgan Stanley, the most bullish with a target towards $7.10, implying about a 30% upside. So there's my chart of the day.

Ben O'Leary  08:30

Nice work. Thank you. Chris Henry is busy getting himself into the Osby studio as we speak. So he's not with us this morning. But he has got a big addition of Henry's take. He's added a few ETFs yesterday and Tolga which is to GE into his small cap portfolio, make sure to check it out to see what those ETFs are he also has a look at the banks with a bit of air coming out of the sector yesterday plus he has some thoughts on oil and inflation with a nasty hurricane season in the US potentially spilling even higher oil prices and he responds to a member question on whether the market is rigged for instance over retail have a look at that and we're also going to come back to that a little bit later. But before we do that, Marcus, what do you got in strategy today?

Marcus Padley  09:08

Also just make the point in the media I was on the business last night and we haven't found the video yet have we got rather good at protecting their video ABC knowing and we also have Henry on the equity mates podcast on Instagram they're quite good but their social media anyway so if you want to see Henry talking on a podcast images on a podcast don't get it but there you go. Isn't that video go to go to Instagram and we'll try and post the link right a few strategy things today. The first one is bit of a disappointment obviously that there wasn't a follow through on the bounce yesterday but after 9.9% In four days I suppose the NASDAQ was always going to have a bit of a pause I'm holding on in hope others might not the best loss of course is a small profit if you've already got one otherwise a few issues today was that up for banks is my clickbait headline in the strategy piece today, the AFR summit at a Deloitte partner saying if interest rates go up to 3%, the property market rally was over a 15 to 20% corrections on the way in life as we know it was going to hell and the banks fell over yesterday think it's a bit unnecessary to call the top on the banks. But you can see that may be we're moving themes from higher interest rates are good for banks to watch out for the property market. And that and you've also got all the major banks except the CBA have just gone ex dividend. You don't need to hold them for income for the next five months. So maybe some people just back away CBA has dividend coming up in August. I don't think it's necessarily the top for banks, but it's hard to see them going anywhere with the property market weakness in the background. Otherwise, I've got a chart of the market peas and there is this rule of 20. Henry wrote about the other day that the markets are fairly valued when the some of the P E ratio and the inflation rate equals 20. So the PE of the Australian market according to data stream at the moment on this chart is 15.14 times inflation is 5.1 times in other words, we're back to fairly valued instead of overvalued and the trimmed mean which is the inflation number used by the RBA and Treasury to fudge the real inflation number is 3.7%. Add that 15% 15 times and you can see on the rule of 22 might be even a little bit undervalued whereas the US is on the P E of 21.28. Inflation is 8.3. So they're only about 50% overvalued. But if you look at the chart, you'll see that PE is coming back to a more normal level but still elevated in the US ours if anything is possibly a little bottom of the trading range. Otherwise the China reopening trade I've written about today Shanghai coming out of lockdowns today manufacturers getting going again a 50 point plan from the Chinese government to stimulate the economy which includes subsidising electric vehicles. And I've got a chart of one of our lithium stocks which is up 68% From the bottom a couple of months ago and not helping obviously our lithium stocks today which are struggling with the Goldman Sachs research but some Chinese PMI numbers yesterday were better than expected. You've got the Aussie dollar going up again, which suggests growth concerns are diminishing. You've got the Chinese trying to stimulate their economy which is good for commodities All in all, it's good for the resources sector which outperformed in a falling market yesterday and I've got a chart of the resources sector It is generally in uptrend middle of the range, nothing to worry about at the moment and Macquarie has a bit of research out today saying high dividend yields should support resources as we approach reporting season in August so worrying about the banks and happy with resources was the strategy message today otherwise a few interesting charts in the strategy bit Bitcoin seems to be stabilising the barometer of irrational exuberance. And I've got a bit on the lithium stocks some lithium charts and by read yesterday the most shorted stocks which we do every Wednesday. Yep, that's today. Yeah, so we've got a list of the most shorted stocks very good a bit Flight Centre app and then earsonics and Cogan on the list as the most shorted stocks and I've got charts of them apart from Flight Centre app and Nana Sonics and Cogan have been disastrous investments for the last over a year 18 months or so. And although stocks on the shorting list tend to be good trading stocks are a focus for traders because the short positions make them much more volatile on the upside what investors should do, which is to say long term quality, the Warren Buffett way readers amongst you should take the most shorted list and just not hold any stock on it. Because these charts are terrible and trying to time the bottom is just folly. So there you go. Have a look at those charts in the strategy piece today. And that's that from me.

Ben O'Leary  13:47

Very nice. Thank you, Marcus. And our question of the day today following on from Henry's look into institutions is do institutions have an unfair advantage over retail Layton?

Layton Membrey  13:57

Yes, I think they do. And I feel like Tom will be spewing that he's not here for this because I think he's quite passionate about this. He always discusses that with me seems like they just get free money sometimes with capital raises, they get discounted shares and then goes on the market and they've just made money. So yeah.

Ben O'Leary  14:12

Chris?

Chris Conway  14:13

I have a slightly different take. I tend to go with Latin but the access I think there was somebody in the Facebook group the other day talking about a mining stock that had done a capital raising and it all went to the installers and didn't give the retail investors any opportunity to to participate. So from the perspective of an investor Yeah, that would be particularly frustrating. I would have thought.

Ben O'Leary  14:29

Marcus?

Marcus Padley  14:29

Do you really want to go here? I can be an arrow out. I wrote an article a while ago I'll republish it. I wrote an article about why it is better or smart money versus small money. I don't think you call it dumb money. I hate the word smart money but institutions supposed to have smart money which is they can do things inaccessible to mortal investors like accessing IPOs accelerated issues, placements, there is a saying amongst fund managers. If you're not on the inside, you're on the outside there is no doubt they have a bit of an information advantage over us because they talk to the brokers who are telling them what's happening. I would just say before brokers release research, they now know the moment they release research, it goes to everybody. So what they do, if they've got half a brain is not released, they research, they market their research to their best clients first. And then these days when they release it to the market, publish it in their morning notes, right, we've gotten all value out of it, let's let the rest of the world follow what our clients have already done, shoot me for telling the truth. But that is what happened. So yes, there is a bit of an information advantage. And the other thing which some big investors can do is write options where they they're adding one 2% to their overall market yield, which makes a difference if you're a fund manager, which small investors can't do. But there are a million advantages to being a small investor, I will list them in the newsletter tomorrow rather than running through them all now, but there are some of the obvious ones are you don't have liquidity issues, you don't have a mandate controlling what you do. You don't lose investors, when you're underperform, you can take a day off a month off a year off, you don't have to invest at all, and you don't have to answer emails from people saying, Why are you doing because you are basically a private investor. So lots of advantages of being a small investor over being an institutional investor, I can tell you.

Ben O'Leary  16:20

Very nice, plenty of good stuff there. And I'll actually agree with everyone. I think there's some easy money advantages and IPOs and cap raises. But there's plenty of good to being a retail investor and having the freedom to do whatever you want.

Marcus Padley  16:31

Well, I can tell you, there was an announcement about performance from one fund manager a few years ago, which they regret in hindsight putting out but they were talking about how fabulously they bombed and why they performed. And it was all things a private investor couldn't do, which was access to IPOs mostly, and it had significantly, especially in times like the tech boom, significantly enhanced performance of a fund manager relative to an individual investor. And these accelerated rights issues are an absolute wrought I won't go into that. But there are definitely some advantages for institutions. 

Ben O'Leary  17:03

Very good. Look forward to reading more on that tomorrow. Thanks, everyone. We'll see you back here. Same time, same place pretty soon.

17:09

Thank you.