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ASX nervous over 5000

Owen Raskiewicz — Fri, 24 May 2013 21:28:57 +0000

The S&P/ASX 200 (ASX: XJO)(^AXJO) has again been punished by Chinese manufacturing figures and mixed reactions to Ben Benanke’s message about US bond buying Thursday morning.

Yesterday afternoon, the benchmark dropped to 96 points below its open, sending it down a whole 200 points in two days. Today the banks were joined by Echo Entertainment Group (ASX: EGP) and Telstra (ASX: TLS) at the top of the loser board.

Following the U.S Federal Reserve statement about reducing its quantitative easing program in coming months, offshore selling has sent local shares below a four-week low.

The market has been in a state of flux as the dollar plummets and doubts over the resources sector weigh on consumer sentiment. In addition, banks and other high yielding shares, which have witnessed massive gains in recent months, have begun an inevitable fall downwards.

IG Strategist Evan Lucas said “The Aussie dollar is sliding against all its major peers” and “it looks like offshore selling of high-yield and defensive stocks continues”.

US markets haven’t been as hard hit by the news from China and the Fed, as a result the Dow Jones (^DJI) ended down 0.08% overnight.

It seems the culmination of all the news has made Aussie investors look forward to the weekend. Perhaps it’ll be a chance to catch our breath from what has been a volatile week.

Foolish takeaway

The markets rallied over the past four weeks and a correction was needed. Early in the coming week we should see a rebound from stocks like Telstra and perhaps even the banks. To quote the best investor ever (Warren Buffett) “Be fearful when others are greedy, and be greedy when others are fearful” or in other words, now is the time to bag a bargain.

The Australian Financial Review says “good quality Australian shares that have a long history of paying dividends are a real alternative to a term deposit.” Get “3 Stocks for the Great Dividend Boom” in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!

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The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Owen Raszkiewicz has no financial interest in any of the mentioned companies.

$23 billion wiped off market

Mike King — Fri, 24 May 2013 06:29:33 +0000

The S&P / ASX 200 Index (Index: ^AXJO) (ASX: XJO) has dropped by 1.5%, closing below the 5,000 level at 4,964.3 and losing $23 billion in value in the process. Today’s fall follows yesterday’s drop of 2%, as global markets were hammered overnight. Worries over global growth have raised their head, and mixed messages from the US Federal Reserve on quantitative easing appears to have affected investors’ confidence. The only sector keeping its head above water was gold.

Here’s why these three stocks are hot right now.

Echo Entertainment Group (ASX: EGP) has lost 12% to close at $3.03, after James Packer’s Crown dumped its 10% shareholding in the company. Investors may have expected Crown to launch a takeover bid at some stage, but that appears to have flown out the window, along with any takeover premium built into Echo’s share price. Investors may also see Crown becoming a direct competitor with Echo’s The Star casino, if the NSW government approves Packer’s plans for a VIP gambling operation at Barangaroo, on Sydney’s waterfront.

iiNet Limited (ASX: IIN) lost 8%, ending at $5.61. The junior internet service provider was hammered, along with the rest of the telco sector. Telco stocks, with their defensive qualities and relatively high yields have been in big demand over the past two years, which has seen their share prices soar, making them vulnerable to a pull back. Brokers have also been downgrading telco stocks after the price run up, which may have contributed to recent falls. Despite today’s falls, iiNet shares are still up more than 80% in the past year.

Fleetwood Corporation (ASX: FWD), the temporary accommodation and caravan maker, has seen its shares sold off for the fourth consecutive day. Shares fell 8.9% to close at $4.42, and are now down more than 50% in the past 10 days. Fleetwood is heavily reliant on the resources sector for revenue, and recently downgraded its profit forecast, as projects are cancelled and miners cut back on the spending. The company is also being hit by cautious consumers unwilling to lash out on big capital items like caravans.

In the market for high yielding ASX shares? Get “3 Stocks for the Great Dividend Boom” in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!

Westpac: The highest dividend yielding bank

Tim McArthur — Fri, 24 May 2013 04:21:10 +0000

It hasn’t been a great week for bank investors, with the major banks all seeing their share prices fall between 5% and 8% compared with the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO), which for the week was down 3.6% by midday on Friday.

The falling share prices have altered the forecast dividend yield for each of the “Big 4”. On estimates for the financial year 2013, Westpac (ASX: WBC) now leads the pack with a forecast dividend yield of 6.63%. This is substantially ahead of ANZ’s (ASX: ANZ) forecast yield of 5.66%, Commonwealth’s (ASX: CBA) 5.16% and NAB’s (ASX: NAB) 6.03% (source: Goldman Sachs estimates).

The forecasts are a reminder that investors should not rely on last year’s dividend payments when calculating yield. The ups and downs of the stock market, coupled with its forward looking nature make an assessment of bank stocks (or any stock for that matter) based on historic dividend yield alone unwise. For example, based on financial year 2012 dividends paid, the highest yielding bank today is National Australia Bank at 5.74% and in second place is Westpac with 5.68%. So a reliance on historic reported dividends would have investors purchasing NAB over Westpac, rather than the other way around if based on future expectations.

Foolish takeaway

Not all banks are created equally. Each has their own set of strengths and weaknesses. Given the inherent leverage in banks, it is most important to focus on the weaknesses as these can carry significant risks. As such, investors shouldn’t simply pick a banking stock based upon the highest yield. The yield is only one factor in estimating what you expect your overall return from an investment to be.

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The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

Looking for growth? Look to these small caps

Catherine Baab-Muguira — Fri, 24 May 2013 04:16:26 +0000

Investors could be missing the trees for the forest. While the large cap market is highly concentrated and in the case of many individual large companies, like Commonwealth Bank (ASX: CBA) highly priced, many ASX mid and small caps are trading at reasonable valuations given their more promising growth prospects — especially considering what looks to be this week’s indiscriminate sell off. Here are a few examples.

Spotlight on 1300Smiles

Take 1300Smiles Limited (ASX: ONT), a funny little business that could grow for years to come. The company, which has a market cap of just $142 million, aggregates dental offices in Queensland. In a newer initiative, the company also offers low-cost dental health plans.

When 1300Smiles listed in 2005, overall sales were $5.4 million. By 2012, sales had grown to top $36 million. And there’s little sign this growth will slow, given the first half of 2013 results — including earnings per share growth of 16% over the first half of 2012 — and the company’s relatively massive addressable market. Today, Queensland. Tomorrow, the rest of Australia?

Even better, management has a key objective to “grow profit, control number of shares” — music to a potential shareholder’s ears. 1300Smiles also has nearly $10 million in cash and no debt, and the shares, which trade for around 20 times earnings, pay a fully franked dividend with a yield over 3%.

A key theme: “The rise of the aggregators”

There are other companies also employing this “aggregator” business model that growth-minded investors will want to pay attention to, including Austbrokers (ASX: AUB), which does much the same thing as 1300Smiles does, only with insurance brokers, and G8 Education (ASX: GEM), which does it with childcare centres.

In general, it’s a profitable and highly scalable enterprise, given the persistent fragmentation in, respectively, the dental industry, insurance brokers, and childcare, in Australia. Take a peek at the chart below to see what a colleague of mine has called “the rise of the aggregators” — which is not a new action flick, but a theme to keep an eye on.

All three companies have smashed the S&P/ASX 200 index (Index: ^AXJO) (ASX: XJO) over the last five years. Of the three, 1300Smiles may be the one earliest along in its growth trajectory.

Want two more ASX investment ideas right now? Two of Australia’s most promising small companies are still flying under the radar. Discover these two exciting ASX investments in our brand-new special FREE report, “2 Small Cap Superstars”. Click here now, it’s free!

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Motley Fool contributor Catherine Baab-Muguira has no financial interest in any of the companies mentioned in this article. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Billabong takeover dumped?

Mike King — Fri, 24 May 2013 03:01:11 +0000

It seems surf, skate and ski wear group Billabong International (ASX: BBG) doesn’t expect any takeover offers to proceed, after the company has reportedly put its Canadian retail operation up for sale.

Should a takeover not proceed, many investors could dump their shares, with the company facing a potential equity raising to shore up its balance sheet. Billabong still has over $280m in borrowings, going by its latest financials.

According to The Australian, the West 49 chain, which includes 70 retail stores, 18 Amnesia branded stores, six Billabong stores and two Element stores and some other banners are up for sale. Billabong bought the struggling chain for CAN$100 million in 2010, but the acquisition is believed to have not met expectations.

Billabong CEO Launa Inman said in February, during an earnings conference call, that West 49 had reported negative comps each year since the company purchased it.

“The business cannot stand still,” a company spokesman said. “We have previously detailed our plans around transformation and global simplification including retail, and where and when appropriate we will action them.”

Billabong shares have been suspended from trading since May 9, and last traded at 45.5 cents. However, in the US, the stock is still trading on the over-the-counter market, and shares have risen from 46 US cents to 65 US cents. Billabong has been in negotiations with a number of parties, but a series of deadlines have passed with no concrete offer emerging.

Foolish takeaway

The longer this drama continues to drag on, the less it appears a takeover will eventuate for the business. After receiving several takeover offers in the past two years at lower and lower prices, Billabong’s best bet may be to get on with the job of turning the business around.

Coca-Cola Amatil’s dividend yield appeals as shares approach low

Tim McArthur — Fri, 24 May 2013 02:51:33 +0000

On May 7 at Coca-Cola Amatil’s (ASX: CCL) Annual General Meeting, long-serving and highly regarded CEO Terry Davis delivered a Trading Update that provided guidance for 2013 earnings before interest and tax to be flat year on year. Analysts and investors, who were used to consistent growth from the company, headed for the exits, sending the share price down from $15 pre-announcement to a 52-week low of $12.55 post-announcement.

After an initial bounce off of the lows, Coca-Cola Amatil’s shares are once again approaching their 52-week low. The shares are now providing a dividend yield of nearly 4.5%, which is in line with the market average yield. As arguably the best known brand in the world, Coke has a significant entrenched position in the carbonated beverage industry. Investors such as Warren Buffett refer to this advantage as a “moat”.

Although there are differences, as explained here, between the business models of parent company The Coca-Cola Company (NYSE: KO) and the Australian-based bottling arm Coca-Cola Amatil, Coca-Cola Amatil’s business is still very appealing. First, the company is exposed to a robust Australian economy with the potential to take significant market share as it expands into alcoholic beverages. Secondly, its exposure to Indonesia with its population of 242 million people provides significant volume growth potential as well.

Owning branded fast moving consumer goods (FMCG) and branded food and beverage manufacturers has often been a profitable way to grow your wealth. Finding brands before they are household names can be even better! For investors looking for domestic options in this space, a closer look at food and beverage producers Bega Cheese (ASX: BGA), Freedom Foods (ASX: FNP) and Patties Foods (ASX: PFL), and FMCG manufacturer Ansell (ASX: ANN) could be worth their while.

Foolish takeaway

For investors with a long-term time horizon, the next few months could offer an opportunity to purchase Coca-Cola Amatil, which is a high quality company and has a solid 4.5% yield, at a reasonable price.

In the market for high yielding ASX shares? Get “3 Stocks for the Great Dividend Boom” in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!

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The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

Victoria Bitter retakes the throne

Ryan Newman — Fri, 24 May 2013 02:38:07 +0000

Carlton & United Breweries’ (CUB) Victoria Bitter brand has reclaimed the title as Australia’s bestselling beer, giving parent company SABMiller plenty to smile about.

Since acquiring CUB – which was then known as Fosters – almost 18 months ago for $12.3 billion, it was reported last night that the Australian brewer had driven a 166% increase in earnings from its Asia-Pacific division, to a total of $5.92 billion for the 12 months to March 31. Meanwhile, group revenue increased by 62%.

Whilst Carlton’s sales by volume decreased by 13% across the year, this result was heavily impacted by the loss of the rights to foreign premium brands such as Corona and Stella Artois. However, two consecutive quarters of growth for its flagship brand Victoria Bitter aided the company towards an increase in sales volumes of 3% for the fourth quarter (excluding the loss of external brands).

Returning VB to “full flavour and full strength” saw the brand recover its position as the bestselling brew as sales of other core brands such as Crown Lager and Carlton Dry also increased.

CUB and SABMiller aren’t the only beverage companies smiling recently. Treasury Wine Estates (ASX: TWE) reported an increase in net profit after tax (NPAT) of 30.8% for the first half, which has resulted in the company’s shares climbing 17.1% since the beginning of March. The company is also expanding its New Zealand wine brand Matua Valley in Europe, with a number of retailers agreeing to stock the brand’s vintages, signaling further growth still to come.

Meanwhile, one of CUB’s much smaller competitors, Gage Roads Brewing (ASX: GRB), has more than tripled its value over the past 12 months to 18c per share with a total market capitalization of $71 million. In its half year report, the company announced an astonishing 736% increase in NPAT whilst total volume increased by 27%.

Foolish takeaway

VB’s retaking of the throne as Australia’s bestselling beer is a good sign for the brewer, but it’s only a stepping stone for the company in the long-term. With Coca-Cola Amatil (ASX: CCL) re-entering the beer market in December as part of a joint venture with Yellow Tail wine maker Casella, CUB will be faced with heavy competition. As such, the company is solidly focused on cutting costs – aiming for $180 million in annual cuts by 2015, according to The Australian – and in search of “sustainable top-line growth”, which it will need to prevent CCA from taking too much market share.

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The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned in this article.

What does Packer know?

Mike King — Fri, 24 May 2013 02:12:55 +0000

Just what does billionaire James Packer know?

Yesterday Mr Packer’s Crown Limited (ASX: CWN) moved to sell its 10% stake in Echo Entertainment (ASX: EGP), less than a week after he gained approval to raise his stake to 25%.

Both companies are locked in a battle to build new casino facilities in Sydney. The incumbent, Echo, already has the Star casino, but James Packer has plans to build a high-roller gambling facility as part of a six-star hotel and gaming complex at Barangaroo, on Sydney’s waterfront.

The sticking point was that Echo holds Sydney’s exclusive casino licence, which is not due to expire until 2019. Crown has applied to the NSW government for approval to include a VIP, invitation only gaming facility, while Echo has lodged plans to commit $1 billion expanding its current investment in The Star and the surrounding area. Premier Barry O’Farrell has so far indicated that only one proposal will be approved.

The question on everyone’s lips is why did Mr Packer sell his stake? Many had speculated that Crown would launch a takeover for Echo, which also owns the Treasury casino in Brisbane, and Jupiters casinos on the Gold Coast and in Townsville. With Crown selling out, that no longer appears to be Mr Packer’s “game-plan”.

It seems there are several options he may be pursuing.

#1
If he doesn’t get approval to build at Barangaroo, Mr Packer will walk away and concentrate on Crown’s other investments, including its joint venture in Macau with Melco Entertainment.

#2
Mr Packer is confident that his bid will get approved, meaning he has no reason to keep his investment in Echo.

#3
By selling Crown’s stake in Echo, investors may lose faith in Echo’s future, pushing the share price down even further, allowing Crown to buy back in at a lower price, and potentially launch a full takeover.

Foolish takeaway

Mr Packer’s decision to sell Crown’s Echo stake at a loss suggests he has more to gain from selling the stake, which suggests he’s very confident his plan for Barangaroo will get the nod over Echo’s proposal.

With share price cut this week, is Myer a buy?

Catherine Baab-Muguira — Fri, 24 May 2013 02:10:11 +0000

Shares of department store chain Myer (ASX: MYR) have fallen about 7% this week, as the company released data on its most recent quarter. By way of comparison, the S&P/ASX 200 index (Index: ^AXJO) (ASX: XJO) has fallen around 2%. What’s behind this significant dip?

Anaemic third quarter growth and outlook

Myer sales for the 13-week period amounted to $652.5 million an increase of less than one percent on sales in the third quarter of 2012. On a like for like basis — excluding results from new stores — sales grew by 0.4%, marking the fourth consecutive quarter of growth for Myer. The company opened one new store during the period, in Shellharbour, New South Wales, and three of its best-performing stores are currently being refurbished.

The retailer also moved to enhance its loyalty program, a key strategic objective, by launching a new “premium platinum tier” for 2,000 Myer one members. These customers are to receive “exclusive rewards and experiences”.

Chief exec Bernie Brooks gave an overall cautious outlook and said the company would continue to focus on strategic initiatives including “building a leading omni-channel offer”.

Market bearish. What about competitors?

With the price fall this week, Myer shares are trading for a little over 10 times earnings and less than one times sales. The read is: Mr. Market is fairly bearish on this company’s prospects.

Competitor David Jones (ASX: DJS), for its part, is trading for 16 times earnings, but has a significantly smaller debt load, while Premier Investments (ASX: PMV) has a strong net cash position, is diversified across a number of retail concepts, and trades for less than 16 times earnings.

The takeaway for investors

A good deal of pessimism is baked into Myer’s share price just now, reflecting widespread concerns about the business’s prospects. This isn’t to say the price (and/or the business itself) couldn’t possibly deteriorate further. Those looking for a deep value play may simply want to keep watching this stock. At around $2.50, the shares aren’t in screaming buy territory just yet.

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What your broker really means

Scott Phillips — Fri, 24 May 2013 01:40:42 +0000

For as long as humans have been upright and speaking, we’ve been developing words and phrases to help us communicate with each other. The investment community is no different. Investment jargon on the whole can be useful – we say ‘P/E ratio’ to avoid having to say ‘the ratio of the per-share price of a company’s shares to its per-share post-tax profits’ every time.

Short-cuts can also help muddy the waters or distract you, though – or can suggest that maybe the person using them doesn’t know as much as they want you to think!

We’re pretty optimistic people at The Motley Fool. We don’t have a lot of time for pessimism or cynicism. The stock market – despite its regular bouts of exuberance and despair – is one of the greatest wealth-building opportunities known the man.

Of course, being optimistic isn’t the same as accepting something in blind faith. One of the clues that you need to dig deeper is when you hear a lot of that investment jargon being used.

Next time you’re talking to your stockbroker, taxi driver or a mate of a mate at a barbeque, this guide might help.

Decoding the jargon

Can’t fall any further: Can fall further… possibly a lot

Ready for a pull-back: No one knows where the market is going, but I sound like I do

The market is ready to climb: See above

A good chance of finding oil: An average (read: poor) chance of finding oil

Working on a breakthrough new technology: Here comes another capital raising

Can’t be valued using regular techniques: There’s no way to justify the price

At a 5-day high (or low): That’s as long as my attention span can cope with

Leveraged for a recovery: Deep in debt and the recovery had better come soon

New business model: The others didn’t work, and we have our fingers crossed

Temporary lull: In a tailspin

Paradigm shift: I have no idea what’s happening either

New normal: I can’t remember back more than 5 years

A sure thing: Belly up in 12 months

Can’t lose: Belly up in 6 months

Now or never: Already belly up, but need to find a sucker to buy the shares

It was a black swan event: We didn’t do our research well enough

The trend is your friend: Until it ends

Just look at the chart: You can drive by looking only in the rear vision mirror, right?

Primed for a takeover: Nothing else will save it

Buy and hold is boring: I can’t wait to lose my money chasing ‘excitement’

Buy and hold is dead: Again? Seems to have had more resurrections than Lazarus – and going strong

Warren Buffett has lost it: See above

Shares are too risky: Don’t mention index-tracker who has increased his portfolio 30-fold in 30 years

Foolish takeaway

Of course, that’s all a bit tongue in cheek – and there are many wonderful brokers and analysts. Unfortunately, there are many others also looking to give you advice on how to invest… so it’s not as tongue in cheek as we’d like! As a general rule, the hotter the tip, the further – and faster – you should run.

Long-term, business-focussed investing can be boring – wonderfully, wealth-buildingly boring! And what’s more exciting than that?

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