Tyler Jefferson, Author at The Motley Fool Australia

Why is the Treasury Wine Estates share price up 3% today?

Tyler Jefferson — Fri, 25 Oct 2019 03:09:12 +0000

Treasury Wine Estates Ltd (ASX: TWE) shares are up 3.40% so far today, continuing an upward trend that they've been on since Tuesday this week.

The Melbourne-headquartered wine maker and exporter has been a market darling for years, having transformed itself from a loss-making distributor of cheap wines into a luxury brand, with a focus on the lucrative Chinese market.

Despite that, in the last 18 months the share price has been more volatile, bouncing up and down with little definitive progress either way. More recently we saw the share price plunge from $18.92 on Thursday last week to just $16.40 on Monday.

The recovery since Tuesday hasn't been as sharp as the initial falls were, but it has still been steep, taking us to $17.84 at time of writing.

So why the sudden fall and recovery? And are today's rises just a bounce from a too-sharp fall, on opportunistic buying, or is it a sign that Treasury Wine Estates could be returning to the strong performance of its past?

Shares plunge as leadership changes

The recent sharp share price drop, at least, is easy to explain. In an announcement to the ASX before the market opened on Monday, Treasury Wine Estates informed investors that CEO Michael Clarke would be retiring in the first quarter of fiscal year 2021.

Mr Clarke is often given much of the credit for Treasury Wine Estate's transformation, and share price rise, since taking over in 2014. Mr Clarke's performance as Managing Director and CEO had been exemplary, with the only real criticism coming from some public attention on his sales of some of his own Treasury Wine Estate shares in the last year and a half. The negative publicity surrounding his occasional selling of parts of his holdings could potentially be blamed for much of the share price volatility in that same time, which has marred an otherwise great stock.

Mr Clarke publicly bemoaned the media attention on his sales of stock, arguing that Australia's high-taxing environment left him little choice but to sell parts of his holdings to keep up with tax bills, and pointing to the fact that he still had significant 'skin in the game' alongside shareholders. A cynical investor might now view these arguments in another light, with the announcement of his upcoming retirement, but it has to be pointed out that even as he exits the position, he continues to hold well over $30 million in shares and rights.

Investing based purely on the actions of company insiders is an uncertain science. We can never be entirely sure what the true motivations are behind buying or selling by significant shareholders, only of the facts of their holdings that must be reported to the ASX. However, Mr Clarke's significant investment in Treasury Wine Estates is evidence that, even as he leaves the company, he remains confident about its future.

Not that much has actually changed

It's clear that investors weren't pleased to hear of the well-liked CEO's departure from Treasury Wine Estates, especially because of his public image as the leader that helped turn the company into the powerhouse it is today. However, the winemaker's position as a luxury brand provider, with strong sales in growing markets, remains. It has a respectable dividend yield of 2.13%, and aside from a new CEO to take over in the future, little has actually changed.

In my opinion, investors should seriously consider snapping up shares at the current, slightly suppressed price. If the company's recovery continues, you could benefit from the rise and be left holding shares in a profitable exporter.

The post Why is the Treasury Wine Estates share price up 3% today? appeared first on The Motley Fool Australia.

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Motley Fool contributor Tyler Jefferson has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Treasury Wine Estates Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Should you buy into the Origin Energy share price rise today?

Tyler Jefferson — Tue, 08 Oct 2019 05:41:13 +0000

The Origin Energy Ltd (ASX: ORG) share price has risen 1.54% today to close at $7.91. This is just shy of last Wednesday's closing price, before Origin shares tumbled sharply on Thursday morning.

Thursday's share price fall came on no news for the company, at the same time that the Australian market was falling generally on rising fears of a global recession. As our market has been recovering since Thursday, and Origin along with it, it seems safe to assume that Origin Energy's share price falls were a symptom of the ASX's woes, not a loss of investor's faith in the company itself.

However, this is simply a return to previous levels. Can Origin continue higher from here, and is it a good buy today?

A solid outlook for Origin Energy in 2020

In Origin's full year report a couple months ago, it announced a statutory profit of $1.211 billion for the 2019 financial year, a 333% increase on 2018. Underlying profit was up 42% to $1.028 billion. It also reported operating cash flow up 35% to $1.325 billion, and adjusted net debt $1.1 billion lower at $5.4 billion.

Origin also announced a final dividend of 15 cents per share, making its full year dividend a fully franked 25 cents per share. At 3.15%, Origin's dividend yield is solid but not outstanding. The company targets 'sustainable shareholder distributions through the business cycle', with a dividend payout range of 30–50% of free cash flow each year. Remaining free cash flow is instead dedicated to growth.

On the same day that the company released its results, Origin CEO Frank Calabria acknowledged that energy markets "faced headwinds, with a highly competitive retail market and regulatory intervention impacting electricity markets." However, the outlook remained cautiously optimistic.

Origin's own executives are clearly feeling some optimism towards the company, with none of them disclosing sales of their shares in the last year, and $263,000 of insider buying. We shouldn't read too much into that, as insiders aren't always right about the future, but it does tell us that those who know most about the company believe in it.

Foolish takeaway

Origin Energy is unlikely to blow the doors off with massive share price gains anytime soon. However, with a respectable dividend ratio of 3.15%, a positive outlook and a share price that keeps bouncing back from every setback, it's certainly worth a look for income investors.

The post Should you buy into the Origin Energy share price rise today? appeared first on The Motley Fool Australia.

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Motley Fool contributor Tyler Jefferson has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Why the Amcor and Brambles share prices could rise on a rate cut today

Tyler Jefferson — Tue, 01 Oct 2019 03:27:06 +0000

Both the Brambles Limited (ASX: BXB) and Amcor PLC (ASX: AMC) share prices are up in early trading today. Amcor was up more than 1.5% in the first couple hours of trading, and Bramble's share price rise wasn't far behind.

With both companies' share prices having declined over the last 6 months, and neither having released any particularly exciting news to the ASX recently, why today's rise? Is this the first hint of a turnaround, or just a blip?

Stand-ins for trade and growth

Brambles and Amcor are 2 companies that are highly dependent on external economic activity for their own revenue. Now, that can be argued about a lot of stocks, but it's particularly true for these 2 providers of packaging and shipping material.

Brambles specialises in management of pallets, crates and containers. The company provides pallets, reusable crates, produce containers and logistics software as a service in 60 countries, including the US, Australia and throughout the Asia-Pacific region.

Amcor, meanwhile, is a packaging company encompassing everything from food and beverage containers, to medical device and pharmaceutical packaging.

As you can probably imagine, given the only products produced by these 2 companies is the packaging used to ship or sell other companies' products, both are highly dependent on the fluctuations of global trade and economic activity.

Cautious optimism worldwide

With the Reserve Bank of Australia (RBA)'s Board meeting this afternoon, most investors are expecting an interest rate cut. If correct, this will likely take Australian interest rates to a new record low of 0.75%.

Low rates are a response to a sluggish economy, and with Australia's construction industry sluggish, lower rates make sense.

However, the horizon doesn't look entirely bleak. Property prices rebounded strongly last month, which could spell an end to the pain coming for the construction industry. Stronger than expected domestic consumption figures in China could be a positive sign for international trade, and the Dow Jones and Nasdaq indices in the US rose overnight.

The US and Chinese governments' rhetoric on trade conflicts remains antagonistic. However, investors seem to be betting that strong words now are at least partly for show, and that tensions will be relaxed as the two nations head back into talks on 10 October.

With both coming with a dividend yield over 2.5%, Amcor and Brambles could be good choices for income and growth if the RBA cuts interest rates again this afternoon.

The post Why the Amcor and Brambles share prices could rise on a rate cut today appeared first on The Motley Fool Australia.

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Motley Fool contributor Tyler Jefferson has no position in any of the shares mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

What's next for these 4 beaten-down ASX cannabis stocks?

Tyler Jefferson — Thu, 26 Sep 2019 00:08:44 +0000

Usually, when lawmakers take a step further on the road to legalisation, there's a flurry of speculation around cannabis stocks. However, despite positive news for marijuana enthusiasts from the Australian Capital Territory Legislative Assembly yesterday, Australian cannabis stocks fell.

Althea Group Holdings Ltd (ASX: AGH) was down 4.55%, Elixinol Global Ltd (ASX: EXL) fell 4.17%, Auscann Group Holdings Ltd (ASX: AC8) dropped 2.78% and Cann GroupLtd (ASX: CAN) lost 0.31%.

Why are these ASX-listed cannabis shares falling in price at the same time Australian lawmakers are flirting with legalisation? And does it represent a good buying opportunity for speculative investors, or should we be cautious?

Big opportunity but with big risks attached

Legal cannabis producers seem to have a wonderful opportunity ahead of them. We know, thanks to the persistence of the black market, that there are plenty of customers out there. Customers who would presumably much rather buy from legitimate businesses. However, that hasn't made cannabis investing a safe bet — far from it.

Progress towards legalisation may seem guaranteed, just because of the momentum that we've seen in places like Canada and the United States, but it's far from it. Many of the valuations of cannabis stocks are based on assumptions about easing restrictions and increasing access to markets that are speculated to exist, in places where cannabis is currently illegal. Many areas exist in a grey area of partial legality, which may or may not improve.

If you're dropping money into cannabis growers or distributors in the hopes that markets like these will soon open up to them, it's important to acknowledge that you aren't really investing, you're speculating.

There's a place for that, and the gains you could make are potentially huge if it pays off. But you shouldn't ever do so with money that you can't afford to lose if it doesn't work out.

For example, Elixinol Global reported a 19% growth in revenue in first half 2019 but saw a slight drop in profits as it invested heavily in developing new products, marketing, driving brand awareness and on market research. Elixinol is projecting massive growth in the hemp and CBD market in the US, with the CBD market size estimated to double from US$3 billion to US$6 billion, according to the company's FY2019 results presentation. If Elixinol is right, this spending could pay off massively for shareholders, especially anyone buying at yesterday's closing price of $1.96, down a long way from the share price peak of $5.31. However, you aren't just speculating that the company's heavy marketing spend will have been effective, but also that the estimated progress of legalisation and market growth in the US will continue.

Medical cannabis product manufacturer Althea hit major milestones this year in terms of patients receiving its products. However, it too has seen share price slides, with it closing yesterday at 74 cents, well down from highs of $1.23 back in mid-July.

Auscann Group and Cann Group have similarly fallen. The Auscann share price was at 35 cents when markets closed yesterday, a fraction of the speculative high of $1.74 it soared to in January last year. Cann group, meanwhile, saw the least of the share price falls in yesterday's trade of these four, but it too is well below its all-time highs. At $1.62 yesterday, it's significantly lower than the $4.01 it reached in January 2018.

ACT legalisation only a baby step

Why these falls, when yesterday's news seems at first glance to be a ray of hope? Well, the fact is that the legislation passed yesterday isn't the massive coup for marijuana fans that some headlines made it seem.

The new law allows for small amounts of personal possession, with adults able to carry up to 50 grams of dry cannabis and grow up to two plants per person. However, there is no provision in the law for buying or selling of cannabis, plants or of seeds. The law does nothing to address refined products such as CBD oils or edibles. These refined products and cannabis derivatives are the main stock in trade for medical cannabis companies like Althea Group Holdings, Elixinol Global, Auscann Group Holdings and Cann Group when they export to legal markets such as Canada and much of the US.

Finally, the new ACT laws may provide hope for the future, but they remain in conflict with Australian federal law. That leaves users in a very worrying grey area.

While legislation like this could be a small step on the path, there's still a long way to go before Australian companies like Auscann, Elixinol, Althea or Cann Group can sell the same products here that they're already shipping overseas.

Much of the early hype seems to have come out of marijuana share prices on the ASX, with these four all well down from their previous highs. You can view that as a speculative long-term opportunity, and with some of these companies, you'll likely be right, eventually. Just remember that this is a volatile industry, with plenty of ups and downs ahead, and don't expect an immediate turnaround.

The post What's next for these 4 beaten-down ASX cannabis stocks? appeared first on The Motley Fool Australia.

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Motley Fool contributor Tyler Jefferson does not own shares in any company mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Why the Oil Search share price is rising today

Tyler Jefferson — Tue, 24 Sep 2019 03:40:54 +0000

The share price for Australian energy producer Oil Search Limited (ASX: OSH) is rising today and is currently sitting at $7.74, continuing what has been a strong month of share price gains.

Oil Search has been putting in solid gains since the beginning of September, when the Papua New Guinea government released the results of a review into the Papua LNG Gas Agreement. This review removed a pall of uncertainty that had been hanging over the Oil Search share price. However, since then we've seen a month of gains, and Oil Search shares are now approaching their previous highs, from before the issues in Papua New Guinea began. Can Oil Search's share price rise continue from here, or will it soon stall?

Energy prices likely to rise

International events have conspired to support energy prices recently. The attack on Saudi Arabia's main Abqaiq oil fields and the escalating tensions between the US and Iran.

On Sunday, the Wall Street Journal (WSJ) reported that it could be 'many months' before full-scale operations can be restored at Abqaiq. The WSJ quotes one Saudi official as stating: 'We are still in a frantic search for spare parts. It is not really as great [and] rosy as you may think.'

All of this comes when, just a week before the attack, Saudi Arabia's new Energy Minister Prince Abdulaziz bin Salman had been vocal of his support for the 'OPEC+' agreement, between the OPEC nations and other oil producers, to keep oil prices high. Prince Abdulaziz bin Salman could not have known about the terrorist attack that would soon hit his country's oil infrastructure, but with Saudi Arabia committed to restricting supply before the event, its reserves may now struggle to compensate.

The OPEC members and other oil producing nations wanted higher oil prices, but now they could be set to get higher prices than they ever expected.

So why hasn't oil risen further?

With oil supply likely to be so restricted for months to come, why are prices only slightly higher now than they were weeks ago?

The trouble is wider concerns for the global economy. The US–China trade war continues to drag on, Brexit uncertainty remains, and overnight we saw purchasing managers index reports from Europe telling a tale of downturn in Germany's powerhouse manufacturing sector.

If the global economy stalls into a recession, slowed activity will see lower demand for oil. These concerns are likely the reason that oil prices haven't shot up, despite geopolitical events that should be driving the price higher.

Then is Oil Search a buy today?

With a rising share price, a dividend yield just slightly above 2.5% and renewed security in its major projects, Oil Search looks like an excellent way to play rising energy prices. The only note of caution is the potential for it to drop rapidly in the case of a global economic recession, but it certainly wouldn't be alone in that. So long as the global economy can continue to function, Oil Search looks like a good stock to own.

The post Why the Oil Search share price is rising today appeared first on The Motley Fool Australia.

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Motley Fool contributor Tyler Jefferson does not own any shares in the companies mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Why this beaten-down ASX cannabis stock is turning around

Tyler Jefferson — Mon, 16 Sep 2019 03:53:47 +0000

The Elixinol Global Ltd (ASX: EXL) share price has had a rough 2019, falling from highs of $5.69 on 9 April to as low as $2.12 on 12 September. However, EXL shares began to bounce last week. Today, the stock is up 2.71% at the time of writing, to $2.27.

Is this the beginning of a turnaround for Elixinol Global?

Background on Elixinol Global

First, let's look at what Elixinol is, as a hybrid of several companies. Founder and Chief Innovation Officer, Paul Benhaim, recently put it like this:

Elixinol Global was founded early in 2018 when it listed on the ASX to take over three companies that I founded. The first is Elixinol itself, which is based in Boulder, Colorado, and is one of the leading global hemp CBD producers.

The second company is Hemp Foods Australia, which was the first and the largest certified organic hemp foods producer in the Southern Hemisphere.

And the third, which is why we listed, was to raise funds for a startup medical cannabis company called Nunyara, which has applied for its cultivation and manufacturing license. It's got one of those already recently, a manufacturing license for medical cannabis.

These three differing approaches to legal cannabis products give Elixinol flexibility, but as we'll see, the company has been dedicating much of its attention, and money, to just one.

An expensive path to growth

Elixinol Global reported 19% growth in revenue in first half of 2019. It saw a slight loss in profits due to a spending spree to develop new products and drive brand awareness, and on market research and new staff.

Much of the marketing spend came as hemp products were de-scheduled from the Controlled Substances Act in the US. As Paul Benhaim explained:

When President Trump signed the Farm Bill at the end of last year, that really opened up the possibilities for industrial and hemp. In the US, we are now waiting for the FDA to give clarification of which markets and which end products will be appropriate for expanding CBD products in. So the regulatory changes have not yet finished and continue to expand and grow, but only in a positive manner so far.

Elixinol is expecting significant growth in the US hemp and CBD market. They estimate the CBD market size will double from US$3 billion to US$6 billion. With Elixinol's US sales now making up the largest portion of the company's revenue, and the main focus of its marketing, it should be well-positioned to benefit from this rapid growth in the market.

However, while this heavy marketing spend is building the company's long-term prospects, it severely hampered profits this year. That could be a large part of why the share price has fallen so hard throughout recent months.

So, is Elixinol a buy?

Investors should be warned, the legal cannabis industry is a volatile and speculative place to invest. Australian companies working in this sector find themselves in the strange position of growing and exporting products that either can't legally be sold on our own shores, or can be sold here but only in highly restricted ways.

As legalisation in various nations continues to expand, this could see new markets open up for companies like Elixinol. Being involved early could give the company a significant advantage; however, cannabis producers are also highly exposed to any delays or reversals in the trend of legalisation.

Elixinol's beaten-down share price and the groundwork the company has laid for future growth both make it an appealing way to get into this booming market. Just remember that it's a speculative investment, and don't put any money into the stock that you couldn't afford to lose.

The post Why this beaten-down ASX cannabis stock is turning around appeared first on The Motley Fool Australia.

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Why these 2 ASX gold stocks shot up this morning

Tyler Jefferson — Thu, 12 Sep 2019 03:16:56 +0000

Many of Australia's gold stocks rose sharply when the ASX opened this morning. The Newcrest Mining Ltd (ASX: NCM) share price flew out of the gates, up 2.14% in early trade, and Northern Star Resources Ltd (ASX: NST) shares opened up 1.32%.

Gold has long been viewed as a safe haven in times of uncertainty or chaos. Typically, the gold price rises when volatility does, or when faith in markets or economic institutions is shaken.

Geopolitical tensions have seen the gold price rise this year, with the yellow metal trading for US$1,493.21 per ounce at the time of writing, or $2,173.27 here in Australia.

Chaos and conflict driving the gold price

It's not hard to see why gold is on the rise, as Britain's on-again, off-again plans for Brexit threaten to topple yet another of their Prime Ministers, and the US and China exchange blows in a trade war that is sparking economic chaos for both countries and the wider world.

Meanwhile, US investment bank JP Morgan has recently launched a 'Volfefe' index, named for volatility and Trump's notorious late-night Twitter typo 'covfefe'. JP Morgan's new index is designed to track the effect that Trump's often bizarre Twitter activity has on US Treasury yields. According to JP Morgan, there is a strong and growing correlation between volatility in Treasury yields, and Trump's attacks on the Federal Reserve, the media, his political opponents, international trade partners, and members of his own government.

Whatever your opinion of the brash US president, you can't avoid the unpredictable effects of his often-bizarre outbursts. All of which is bad for stocks and bond investors, but should continue to be good for gold.

Low interest rates, meanwhile, can also be a driver of the gold price. Sustained low interest rates in much of the world have been good for gold, and with Trump angrily demanding that the US Fed cut rates further, this looks likely to continue.

Buying gold stocks to magnify your gains

Of course, you can try to benefit from this chaos by investing directly into gold. This can come with challenges and costs of its own, as you need to safely store physical gold yourself, or rent space in a facility to store it for you. You can find various exchange traded funds or other instruments that attempt to mirror the gold price, though often these don't do so perfectly, and can come with their own risks.

A popular option is to focus instead on gold producing stocks, which obviously can be expected to benefit from a rising gold price. Because of this, ASX gold stocks like Newcrest or Northern Star Resources can rise during times of volatility, while most other stocks are falling. In fact, gold stocks usually magnify changes in the gold price, rising three or four percentage points when gold rises only one or two.

Be warned though, those magnified changes work both ways! Falling gold prices, whether caused by rising interest rates, increasing geopolitical stability or a flood of supply, will see gold stocks falling as quickly as they rose.

Both Newcrest and Northern Star have pulled back somewhat from this morning's early rises, but if global volatility continues to drive gold price rises this year, both could benefit.

Northern Star and Newcrest are relatively stable and established, for gold stocks, with Northern Star reporting Earnings before interest, tax, depreciation and amortization up 8% in its recent FY19 financial results, and a strategy of growth through acquisitions. Newcrest reported a strong financial position, with a 22% increase in underlying profit and a similar strategy of disciplined acquisitions as the gold price rises.

If this year's unpredictable events continue to stress markets, these two Australian gold stocks could be perfectly positioned to see magnified gains from a rising gold price.

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Are the ASX big banks a buy again as housing prices bounce?

Tyler Jefferson — Wed, 11 Sep 2019 00:38:10 +0000

The big four banks, Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB), Australia and New Zealand Banking Group (ASX: ANZ) and Westpac Banking Corp (ASX: WBC), are some of the most talked about shares on the Aussie market.

All that ink is spilled about this handful of companies for good reason. Our biggest four banks make up a massive slice of our economy, and their shares a huge part of the ASX. In terms of large, relatively stable income investments, there's little else on Aussie shores that compares. But that rosy picture has seen some cracks lately.

Falls in real estate prices for much of 2019 have thrown up fears about the banks' collective dependence on the housing market. There are also some lingering concerns over the problems of culture and misconduct that such extended boom times have caused to creep into the system, as seen in the recent Royal Commission into the industry.

Australian investors can't afford to ignore the big four banks, but is now the right time to buy in?

Slow improvement

There's no denying that 2019 began as a nightmare year for the Australian banking sector.

However, while the Royal Commission certainly grabbed a lot of headlines, and can be blamed for some short-term volatility, the long term consequences for ANZ, NAB, Westpac and CommBank haven't been too punitive. Ultimately, one question will do far more to determine the big four banks' share price futures:

Could a real estate recovery save the big four banks?

To tell us where ANZ, Westpac, CommBank and NAB's share prices are headed long term, we must ask if real estate is headed back up sustainably, or if we're just seeing a dead cat bounce.

Industry experts and economists are cautiously optimistic. Auction clearance rates have gradually been edging upward, with Domain reporting that 82% of auctions cleared over the weekend in Sydney, and 76% in Melbourne. Adelaide, Brisbane and Canberra saw clearance rates of 79%, 64% and 69%, respectively.

These numbers are on lower volume than previous years, true, but if the trend continues that's likely to change. All of which will be good news for Australian bank shares.

The big four banks are a huge part of the Australian economy. Unless we see the kind of massive destabilising event that would be devastating for the entire economy, all four of ANZ, Commonwealth Bank, Westpac and National Australia Bank are likely to hang onto their leading positions in the ASX. Having suffered through a tough start to the year, they now look set to recover, making today a good time to top up your holdings.

The post Are the ASX big banks a buy again as housing prices bounce? appeared first on The Motley Fool Australia.

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Motley Fool contributor Tyler Jefferson has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of National Australia Bank Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Why these 2 Australian energy giants are on the rise today

Tyler Jefferson — Tue, 10 Sep 2019 03:21:16 +0000

Many of Australia's oil and gas giants are on the rise today, with the Oil Search Ltd (ASX: OSH) share price up 2.66% in just the first hour and a half of trading today, and the Woodside Petroleum Ltd (ASX: WPL) share price up 1.53% in the same time.

So, should investors be buying into ASX energy stocks this week?

Saudi Arabia signalling higher energy prices

Saudi Arabia's new Energy Minister, Prince Abdulaziz bin Salman, has recently given the world reason to expect rising oil prices.

Prince Abdulaziz bin Salman was part of the team that negotiated the 'OPEC+' agreement, also sometimes known as the Vienna Group. The short version is that the existing OPEC 14-member cartel is joined by 10 more oil-producing nations, including Russia, Kazakhstan and Mexico, to cooperate on global oil prices. Combined, the OPEC+ nations represent 90% of global oil reserves, giving them incredible influence over global prices — provided they can get along and continue to agree on limiting production.

With Prince Abdulaziz bin Salman, vocally supportive of the agreement he helped broker, taking control of the Saudi Arabian Energy Ministry over the weekend, oil prices have climbed to six-week highs.

That's good news for every kind of energy company worldwide, including Aussie giants like Woodside and Oil Search. Both companies have interests in oil and natural gas both, and while higher oil prices will benefit both, the news in LNG has been positive for both companies lately, too.

A new project on the table, and old ones shining again

According to a recent report in the Australian Financial Review, Woodside is in the running to develop a new gas resource off the north-west coast of Australia, currently owned by Thai oil explorer PTTEP. The Cash-Maple gas fields could be worth US$300–$500 million to the producer that develops the project, depending on PTTEP's share of the deal.

Woodside is already working on ambitious resources, with the US$20.5 billion Browse project and the US$11 billion Scarborough LNG project. Despite that, the experienced offshore producer could be the perfect candidate to finally bring the Cash-Maple resource to market after PTTEP has held it for years but failed to achieve much with it.

Meanwhile, Oil Search recently had some good news about a major project in Papua New Guinea. Last week the Papua New Guinea government released the results of a review into the Papua LNG Gas Agreement. The review had meant months of uncertainty for Oil Search. This all came as a result of Papuan political instability and had dragged the Oil Search share price down since April. Even good financial results in the company's half year report weren't enough to counter the instability.

With the new Papua New Guinean leadership's review into the LNG agreement finally completed, and the results good for Oil Search, the share price has taken off. Its gains last week and so far this week have already been significant, but there's still room to rise before it hits the highs from before the Papuan political chaos again.

As news continues to point to higher energy prices worldwide, high quality providers like Oil Search and Woodside look good.

The post Why these 2 Australian energy giants are on the rise today appeared first on The Motley Fool Australia.

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Is the Oil Search share price a buy?

Tyler Jefferson — Thu, 05 Sep 2019 01:44:41 +0000

The Oil Search Limited (ASX: OSH) share price is already up 2.32% in early trading today, on the backs of good news for the company out of Papua New Guinea and a generally rising Aussie market. Oil Search shares have been rising all week, but at $7.06 at time of writing it's still well below its high of $9.22 in October 2018, and its all-time high of $9.80 in June 2014. So, should you be buying today?

Good news from Papua New Guinea

On Monday, the Papua New Guinea government released the results of a review into the Papua LNG Gas Agreement. This review begun after the previous Papuan Prime Minister Peter O'Neill was forced to resign by turmoil in the country's parliament in May.

The review had caused months of uncertainty for Oil Search. This Papuan political instability is a large part of why the Oil Search share price has been falling since April, to as low as $6.31, where it closed on Friday.

Oil Search saw strong financial results in its half-year report, released 20 August. Net profit after tax was 105% higher than the same period of 2018, operating cash flows were up 72% as a result of both higher sales and higher LNG prices, and net debt 15% lower than first half 2018. These results should have seen a rise in the share price, but only caused a slight bump that was quickly reversed. We can likely blame that on the ongoing uncertainty hanging over Oil Search's Papua New Guinean assets.

So, should you buy Oil Search today?

With the new Papua New Guinean leadership's review into the LNG agreement finally completed, Oil Search's shares have taken off. The rise so far this week has already been sharp, but there's still plenty of room to rise if Oil Search is going to return to the highs it reached before this Papuan political chaos began to weigh on the share price.

With oil prices set to rise on generally good global economic news this week, particularly out of China's economy and the easing of Brexit concerns, all the signs are pointing to Oil Search continuing to perform well.

The post Is the Oil Search share price a buy? appeared first on The Motley Fool Australia.

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2 falling ASX cannabis stocks to watch closely

Tyler Jefferson — Mon, 02 Sep 2019 06:40:34 +0000

As the legalisation of cannabis has proceeded in fits and starts worldwide, it has created plenty of opportunity for investors. We've had the rare chance to get in early on an industry that didn't exist — or not legally, at least — just a few years earlier.

However, cannabis investors are reliant on legalisation continuing to progress. Many cannabis companies seem to be valued by investors on the assumption that more US states will hop on the bandwagon, along with other nations. Australian-based producers, meanwhile, are in the awkward position of exporting many of their products to the US, but only being able to sell a limited few at home.

All of that makes investing in the cannabis market a speculative game. We've seen in recent years that the gains on offer can be tremendous, for those willing to take the risk. Elixinol Global Ltd (ASX: EXL) and Althea Group Holdings Ltd (ASX: AGH) are two of Australia's leading cannabis stocks, and could be the perfect place to start.

Elixinol paying for growth

Elixinol Global was created when Aussie hemp food and cosmetics producer Hemp Foods Australia merged with the US CBD dietary supplement and topical treatment specialist, Elixinol LLC, in January last year. The combination has proved to be a potent one, with Elixinol Global reporting a 19% growth in revenue in first half 2019. It saw a slight loss in profits as it went on a spending spree to develop new products, drive brand awareness, and on market research and new staff.

This marketing spend has been enabled by hemp products recently being de-scheduled from the Controlled Substances Act in the US. Elixinol is projecting massive growth in the hemp and CBD market in the US in years to come, with the CBD market size estimated to double from US$3 billion to US$6 billion, according to the company's FY19 results presentation.

The company's heavy spending in 2019 curtailed profits, which may be the reason that the Elixinol's share price has been weak. Elixinol shares are down 4.76% for the day, at time of writing, to $2.20. That's significantly down from the all-time high of $5.31 on 17 May this year. However, the short-term pain could represent a fantastic buying opportunity if Elixinol's strategy pays off. Investors with a longer view who are willing to ride out these falls could be rewarded in spades when Elixinol's product development and marketing translates into a turnaround in profits.

Rapid growth for Althea

Althea Group is a much more tightly focused cannabis company, producing purely medical cannabis products. Althea's goal is to educate healthcare professionals on the benefits of cannabis-based medicines, and thus increase the number of its products being prescribed. For that reason, the company tends to measure its success in terms of the number of patients being prescribed its products, within its own reporting documents. In this year's annual report to shareholders, Althea noted that it had seen significant growth in this measure. In October 2018, the company first hit 100 patients. By 30 June 2019, that number was well over 1,000.

Althea's stated goals are to reach a 5,000 patient milestone in the short term. The company is expanding into the UK with its medical products, and through acquisitions into Canada, where it will broaden its focus to serve the recreational market as well as medical.

Althea saw significant share price growth this year, from as low as 19 cents in December 2018 to a high of $1.23 on 15 July. The Althea share price has since pulled back, falling to 75 cents on 16 August before bouncing somewhat. In today's trading Althea shares are down 1.21% at time of writing to 82 cents. The Althea share price could be stabilising from here, providing a good entry point, but with a market cap of just $191.4 million and in such a new, volatile industry, investors should be aware that Althea is a highly speculative investment.

The post 2 falling ASX cannabis stocks to watch closely appeared first on The Motley Fool Australia.

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Should you buy Fortescue shares on this week's dip?

Tyler Jefferson — Mon, 26 Aug 2019 08:18:05 +0000

The escalating trade war between the US and Chinese governments weighed on Fortescue Metals Group Limited (ASX: FMG) share price today. The FMG share price fell 5.28%, to $7.17.

Today's falls came despite positive results released by the company this morning. The company saw record earnings before interest, taxes, depreciation and amortization (EBITDA) of US$6 billion (AU$8.91 billion), up 90% on last year, and record net profit after tax (NPAT) of US$3.2 billion (AU$4.75 billion), 195% higher than a year ago. Shareholders will see a final dividend of AU$0.24 per share, bringing the full-year dividend to AU$1.14, 396% higher than last year.

Why did the FMG share price slump on such strong results?

It's fair to say that Fortescue's share price decline today, and in general since late July, comes down to one thing. The tit for tat war of tariffs between China and the US.

The two countries are Australia's largest two trade partners, and China is the number one customer for Fortescue's iron ore exports, so it isn't hard to see why.

On Friday, President Donald Trump announced tariff hikes on almost all Chinese imports into the US. This came in response to China raising tariffs on US goods and imposing other fresh duties, earlier last week. These are only the latest two moves in an ongoing escalation, but markets reacted with shock. The Dow Jones fell 2.37% Friday, the S&P 500 2.59%, the Nasdaq 3%, and our own All Ordinaries was down 1.26% today.

Many experts believe the volatility may not end quickly. CMC Markets chief strategist Michael McCarthy said,

'The economics of a trade dispute are very clear — a resolution would suit both sides. But it's the politics of it and the ability of both presidents to appear strong to their own populations that means it's likely to keep going.

'That means we can still be talking about the trade disputes until the US presidential elections in November 2020.'

So, is Fortescue a buy today?

Fortescue remains a fundamentally sound company, as its financial results show. The recent price falls, particularly today's, have been caused by external events that management can't control. In the short term, that's obviously bad. There isn't anything the company can do to stop US–China tensions from escalating. However, Forstescue isn't some tiny small-cap miner, surviving on a knife edge. It's unlikely to collapse in the face of short-term difficulties and should be well-positioned to recover when things change.

It could even benefit from growing market share as smaller rivals are less able to weather the storm.

We can't predict when international trade tensions will ease. If you're willing to withstand the volatility until things change, then these falls could be your chance to pick up shares in a healthy resources company like Fortescue Metals Group at a discount. Just keep in mind that shares could slip further before things turn around. Investors might consider averaging in gradually, rather than jumping in with both feet, when we can't know how long the falls will last.

The post Should you buy Fortescue shares on this week's dip? appeared first on The Motley Fool Australia.

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Why you should look at Sonic Healthcare shares for long-term growth

Tyler Jefferson — Fri, 23 Aug 2019 05:21:44 +0000

Sonic Healthcare Limited (ASX: SHL) is an Australian-based pathology and diagnostic company that has been growing through acquisitions for years. The company's full year results, released on Tuesday this week, showed healthy performance from its Australian assets, strong growth overseas, and plenty of cash in the bank for new growth in the year to come.

A closer look at Sonic Healthcare

SHL operates in Australia, the United States (US), New Zealand, Germany, Belgium, Ireland and Switzerland, with Australia and the US each providing 24% of SHL's revenue, and Germany 20%.

In January it completed the purchase of Aurora Diagnostics in the US, and the company reports that its integration is "proceeding to plan". This boosted revenue growth to 18% in the US, but even without the Aurora acquisition, the company's organic US growth was 5%. The US should be expected to represent an even larger portion of SHL's revenue in future, with CEO Dr Colin Goldschmidt mentioning to shareholders that the growth of the US business to match Australian revenue was exactly as forecast a year ago.

He stated:

Our US business will move clearly into the number one revenue position as our largest division in FY 2020 and beyond, because our expectation is that there is fairly significant growth ahead in that market.

Dr Goldschmidt also added that the company's pipeline for acquisition and hospital laboratory opportunities is strong and commented that it is "certainly in the midst of something very exciting in the US market in terms of potential growth."

Sonic's interest in other countries also performed well. There was similar 5% organic revenue growth here in Australia, 9% in the UK and Ireland, 3.5% in Germany, and 4% in Switzerland. Overall earnings before interest, taxes, depreciation, and amortisation were up 13%.

A final dividend of 51 cents per share was announced, up 4.1% on last year. This brings SHL's total dividends for the year to 84 cents, 3.7% higher than 2018. Dr Goldschmidt was careful to point out on Tuesday that the company's dividend has never gone backwards, adding that the "Board of Sonic remains very committed to this progressive dividend policy under which we aim obviously to increase the dividend per share each year."

Sonic funded the acquisition of Aurora Pathology in the US by raising $700 million from shareholders. However, growth in the foreseeable future shouldn't have to rely on further capital raisings, with SHL holding approximately $1 billion available for future growth by acquisition.

Sonic Healthcare's geographical diversification insulates it from any unexpected instability in any one market, and gives the company the flexibility to pursue growth wherever the best opportunities lie. Plenty of cash on the balance sheet gives it the ability to act on that without having to come to shareholders in another capital raising, and a growing dividend should earn the company consideration from any income-focused investors.

Foolish takeaway

The Sonic Healthcare share price rose sharply after the results were announced, from a close of $27.65 the day before the release to open at $29.64 on Wednesday. It has pulled back just slightly since then, currently trading at $28.66, but I expect to see Sonic Healthcare have a very good year from here.

The post Why you should look at Sonic Healthcare shares for long-term growth appeared first on The Motley Fool Australia.

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Motley Fool contributor Tyler Jefferson has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Sonic Healthcare Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Could strong results see the Origin Energy share price rise further?

Tyler Jefferson — Thu, 22 Aug 2019 21:09:43 +0000

The Origin Energy Ltd (ASX: ORG) shares price closed higher yesterday, reversing the downward moves the stock made earlier this week. Origin has largely fallen alongside the ASX recently, but full-year financial results released before the market opened on Thursday morning appeared to change investors' minds on the stock.

What's been happening?

Origin shares had slipped from $7.94 on 31 July to $7.08 on 6 August, while the Australian share market was suffering generally. A proposed government natural gas reserve for the eastern Australian states, based on a similar scheme in Western Australia, could have made investors nervous about Origin in early August. Resources Minister Matt Canavan announced that the government would consider the scheme, and bring forward a review of the Australian Domestic Gas Security Mechanism, which could be used to force producers like Origin to limit exports during an Australian domestic shortfall. However, these potential threats weren't enough to stop Origin shares rallying alongside the ASX. By 14 August Origin was back up to $7.44 per share, before again falling alongside the ASX to $7.02.

However, Thursday morning's financial results seem to have changed the story. The ASX 200 rose only 0.29% yesterday, while Origin shot up 2.36% to $7.37.

Strong performance in FY2019

Origin announced a statutory profit of $1.211 billion for the 2019 financial year, a 333% increase on 2018. Underlying profit was up 42% to 1.028 billion. Operating cash flow is up 35% to $1.325 billion, and adjusted net debt is $1.1 billion lower at $5.4 billion.

Origin also announced a final dividend of 15 cents per share, making its full year dividend a fully franked 25 cents per share. This isn't a huge dividend relative to Origin's performance, as the company targets 'sustainable shareholder distributions through the business cycle', with a dividend payout range of 30–50% of free cash flow each year. Remaining free cash flow is dedicated to growth.

Regulatory threats and cautious optimism

In a media release to the ASX, also published Thursday morning, Origin CEO Frank Calabria acknowledged that:

'Energy Markets faced headwinds, with a highly competitive retail market and regulatory intervention impacting electricity markets. In light of this, we have been focused on enhancing the customer experience, simplifying our Retail business by targeting cost savings of greater than $100 million by FY2021 and growing new revenue streams in centralised energy services, solar and storage and broadband.'

Potential regulatory issues were a theme in Origin's announcements, with the outlook guidance in the same media release careful to specify that:

'Origin provides the following FY2020 guidance on the basis that market conditions do not materially change and that the regulatory and political environments do not result in further adverse impacts on operations.'

However, with that said the outlook was positive, with energy markets earnings before interest, taxes, depreciation, and amortization expected to be $1.35–$1.45 billion.

These full year results, with strong profit and cash flow growth and positive guidance for the year to come, could see the Origin share price rise further.

The post Could strong results see the Origin Energy share price rise further? appeared first on The Motley Fool Australia.

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Should you buy Fortescue shares on this week's dip?

Tyler Jefferson — Thu, 22 Aug 2019 00:12:30 +0000

The Fortescue Metals Group Ltd (ASX: FMG) share price has fallen this week. The stock closed down 4.09% yesterday, at $7.27.

Could these falls be a good buying opportunity for quick-moving investors? Let's look at possible reasons for Fortescue's pullback, opportunities in iron ore this year, and whether now is the right time to pick up some FMG shares.

How has the Fortescue share price performed this year?

Like many Aussie resource companies, Fortescue's share price suffered in late July and early August. This could be put down to several factors. The iron ore price fell from US$117.14 per tonne on 30 July to US$93.61 on 9 August. Meanwhile, the company's June quarterly production report, released 25 July, included record quarterly shipments of 46.6 million tonnes of iron ore, and a 60 cent June dividend, bringing the total financial year dividend to 90 cents per share. This met forecasts but failed to exceed them, which it seems investors expected. Finally, the plummeting value of China's yuan hit all the Aussie miners in early August, FMG included.

From the high of $9.40 on 3 July, Fortescue shares fell as low as $6.97 on 12 August.

Since then the share price has bounced. On 13 August, Civmec Ltd (ASX: CVL) announced that they will deliver a Primary Ore Crushing and Processing Facility for Fortescue's new Eliwana Mine and Rail Project, in the Pilbara, Western Australia, thus moving that project forward. FMG's share price rose from the 12 August low of $6.97 to Wednesday's close of $7.27.

Monday also saw the announcement that Capital Group Companies, a US investment management organisation with US$1.86 trillion in funds under management, had become a substantial shareholder in Fortescue. The entry of such a massive institutional investor into the company may lend some substance to the idea that the recent price falls could represent a good opportunity to buy.

Outlook for iron ore

Much will depend from here on the health of the iron ore price. Since 2017, Fortescue has been making efforts to diversify into copper, gold, lithium and other resources. However, iron ore remains the company's lifeblood. Fortescue's share price often rises or falls based on expectations for iron ore. With BHP Group Ltd (ASX: BHP) admitting this week that some of its Pilbara iron ore shipments were lower grade than had been forecast, and Rio Tinto Ltd (ASX: RIO) having run into similar issues weeks earlier, FMG could benefit.

With the iron ore price itself still tied so closely to the health of China's economy, this means that FMG is also dependent on China's performance, and on the stability of China's trade relationships with the rest of the world.

So, is Fortescue a buy?

FMG has a relatively high price-to-earnings ratio of 17.51x, compared to its larger rivals BHP and Rio Tinto. Its dividend yield is only 3.6%, though it's worth noting that recent dividends have been significantly higher than is usual for the company. This could be a hopeful sign for income investors, but anyone buying FMG today is likely betting on future growth.

The company's full year financial results are due to be released on Monday 26 August. Doubtless more of the world's big institutional investors will be watching closely. If the recent record production numbers have translated into financial results higher than expectations, we could see FMG's recent share price falls quickly reversed next week.

The post Should you buy Fortescue shares on this week's dip? appeared first on The Motley Fool Australia.

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Is Treasury Wine Estates a buy?

Tyler Jefferson — Mon, 19 Aug 2019 04:15:42 +0000

The Treasury Wine Estates (ASX: TWE) share price has seen a significant rise today, up as high as 3.69% during morning trade and sitting on 2.81% time of writing. With the ASX 200 up less than 1% for the day, TWE's outperformance merits a closer look.

What's behind Treasury Wine's recent performance?

The $12.6 billion wine producer and distributor has operations in Australia, New Zealand, Italy and the United States (US), and exports wine globally. It has seen significant growth, particularly in exports to Asia. The growth of the middle class in China has been a boon for TWE, much as it has been for other food and wine companies serving the growing Chinese demand for high-quality imports in these areas.

This success in the Chinese market has boosted TWE's performance, but it also leaves the company exposed to any events that affect China and Chinese trade relations. TWE has seen some real volatility throughout 2018 and 2019. Much of this has correlated roughly with volatility on the ASX in the same time period, but it's worth noting that in early September 2018 TWE fell earlier and harder than the ASX did on fears of a US–China trade war. From a high of $19.85 on 3 September 2018, it sank as low as $13.52 on 21 November that year. At $17.56 at time of writing, TWE has yet to return to its highs.

With the US and China as Australia's two largest trade partners, Aussie shares are always likely to suffer when tensions rise between these two economic giants, but with so much of its recent growth having come from China and China's immediate neighbours, TWE could be particularly vulnerable.

Of course, this also mean that the inverse could be true. Any easing of tensions or hint of compromise between China and the US would likely be good news for TWE.

TWE's annual results, released Thursday last week, saw the best growth in constant currency net sales revenue in the company's history. Earnings before interest and tax grew in line with the company's expectations, up 25%.

TWE targets a dividend payout ratio of 55–70% of net profit after tax. With a full-year dividend for FY19 of 38 cents, it was firmly on target at 62.9%.

Foolish takeaway

Treasury Wine Estates remains vulnerable to a renewal of international trade tensions, especially as they affect China. Any potential investors should consider that risk before buying. However, with a healthy financial performance, a solid dividend payout ratio and a share price trending upwards towards its previous highs, it should certainly be on your watchlist.

The post Is Treasury Wine Estates a buy? appeared first on The Motley Fool Australia.

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Will the IAG share price continue to defy the market?

Tyler Jefferson — Mon, 19 Aug 2019 01:31:01 +0000

The Insurance Australia Group Ltd (ASX: IAG) share price was one of the few to rise on Thursday last week, in an otherwise bloody day of trading on the ASX. In fact, it was one of only three shares in the ASX 50 not to fall. IAG continued this strength on Friday, significantly outperforming the ASX even as the week closed on a more positive note.

Does this mean that the $18.16 billion insurer has put its recent falls behind it?

A closer look at IAG's recent performance

The ASX's falls last week came on the heels of woes in US markets. Thursday's one-day fall was the Aussie market's worst performance in 18 months, with most of the largest companies on the market dropping roughly in step with it. IAG was one of the few bright spots, with just slightly better than a half a per cent rise Thursday, and a 2.62% rise on Friday. The share price has continued its upward trajectory today, opening up 1.24% in morning trade.

This comes after weeks of suffering for IAG shares. The IAG share price began to slide in the last days of July, before falling in earnest from $8.31 on 5 August to close at $7.68 on 8 August. This slide was the result of disappointing FY19 financial results, with cash earnings down by 10%. It was only the sale of the company's interests in Thailand that allowed it to increase profits for the year.

IAG's dividend also fell to 32 cents, a 5.9% decline, and with many investors considering the large blue-chip company an income investment first, it's not surprising that the share price took a hit as a result.

So, why did IAG manage to stand strong against the tide of red in the market late last week?

IAG's new workplace flexibility technology

On 23 July, IAG announced a new system to support flexible work for its support staff and free up managerial resources. This came in the form of an app that allows employees to trade shifts in a virtual marketplace. Employees earn 'flexicoins' by switching to shifts that need covering. They can later spend these 'coins' to switch shifts to a more desirable time. More popular shifts will gradually become worth fewer flexicoins, and vice versa.

IAG Executive General Manager Amanda Whiting stated:

The process of changing shifts has previously been quite manual and often involved several conversations between the employee, their manager and colleagues. Not only is this time-consuming for the individual, but labour intensive for the business.

With some managers reportedly spending as much as 20% of their time managing this issue before the change, the benefits for IAG are obvious. This new technology may demonstrate that IAG are ahead of the curve on managing people in the modern workplace, and willing to use technology to keep operations lean.

Foolish takeaway

Despite leading the way in terms of workforce management, these efficiency gains are nothing in the face of disappointing financial results. While IAG's new tech brought the company some positive media attention recently, especially in IT circles, it didn't prevent the share price slide in early August.

It may be that IAG's share price held firm on Thursday for no better reason than it had already fallen so far in recent weeks. Investors may have been more concerned about stocks that had been rising right up until problems in the US market took hold.

Potential investors should watch the company carefully from here to see if it continues to outperform the ASX.

The post Will the IAG share price continue to defy the market? appeared first on The Motley Fool Australia.

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Motley Fool contributor Tyler Jefferson has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Insurance Australia Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.