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What Analysts Tip For The Big Caps

FYI | Jul 26 2017

By Peter Switzer, Switzer Super Report

What analysts tip on Telstra, the banks and big miners

As the reporting season looms, the question is: will the overall story power the S&P/ASX 200 Index higher and possibly break that damn 6000 level? Those who play ETFs focused on the Index will be praying for a great reporting season, hopefully spurred along by some better Trump tax news before year’s end.

Ultimately, we need earnings season to wow those market players who have been taking short-term profits based on possibly a too negative view on the economy and company profits, which are related for many businesses.

The best news from last week came from Citi, which Fairfax reported this way: “August earnings season is coming up and it’s shaping up to be a decent one. Citi reckons earnings growth in financial year 2017 will come in just shy of 20%. The past financial year appears to have been a stronger than usual year for Aussie market earnings growth, underpinned by the recovery in resources earnings, and modest growth in industrials earnings.”

If this happens and the outlook statements can paint a positive picture, then the market could easily start beating gravity and head higher. However, we need to see some of the key driving big cap stocks of the equity market deliver and spike after reporting season.

So what are the analysts tipping for our most important stocks that many of us hold?

Telstra is the big one in the news and the views on where it looks like good value underlines the challenges for current shareholders and those who’d like to buy in soon.

On Thursday night, Charlie Aitken of Aitken Investment Management, who recently attracted money for his fund from the Stokes family and James Packer, thought Telstra at $4.00 would look like fair value. I know other respected investment experts who took the punt at $4.12, but CMC’s Michael McCarthy holds a much more bearish view arguing he could only get excited at $2.78!

That’s a huge call and I’d be surprised if we ever see the price go so low. Ultimately, what the company’s CEO, Andy Penn, says at reporting time on August 17 will have a big bearing on the share price. Some fund managers believe the dividend for Telstra could be on the chopping block, which would initially hit the share price but taking a line through what happened to BHP when it cut its dividend, many think it would be good for the share price.

I’m not as convinced because Andy would have to outline some plan that increases our belief that Telstra has a credible growth strategy. And then there has to be a decision about what needs to be done with the NBN payment that could be worth $15 billion if securitized.

Once again, to take the money, Penn has to have a plan that makes the market believe in Telstra’s future. What happens, market-wise, after reporting, will represent an important report card on the CEO’s stewardship.

By the way, according to FNArena, the analysts value the stock at $4.41, which means it has about a 7.5% upside.

Obviously, the banks are critical to getting the index going, with the financial sector responsible for some 37% of the index.

Analysts think the CBA at $83.97 is beating what they think it’s worth. The consensus view is $80.93, so that’s a 3.6% downside, if these ‘experts’ are right. Reporting season is a time when CBA often beats expectations, so I’m hoping that history repeats.

At the moment, the economy is doing better than expected. And if the RBA’s outlook on growth is right, then our biggest bank could be in for a better outlook statement. Right now, there are economists thinking the first quarter of 2017 will bring the first official interest rate rise and that should help the bank’s bottom line.

The other banks don’t report but we do get a trading update from the NAB on August 11. [ANZ Aug 15, WBC Aug 21]

The collective snapshot from CBA and NAB could set the scene for what happens to bank stocks.

This is what the analyst are tipping:

  • Westpac now at $32.43 looks like value at $33.59, so that’s a 3.6% upside.
  • The ANZ at $30.11 now is expected to see $30.76, so that’s a 2.2% rise ahead, if the analysts are on the money.
  • Meanwhile, the NAB, which was at $30.46 at the time of writing, is tipped to trend towards $31.68, which would be a 4% upside.

In reality, the expected rises are small so we do need some other powerfully positive stories to give their share prices and the Index a real wriggle along.

Better news lies with the miners. The FNArena survey of the big dirt diggers made very good reading. BHP at $24.49 has a consensus tip of $27.41, which would be a 12.1% upside. But Shaw Stockbroking has a $32 plus call out there!

Rio is also in favour at $63.05 now but tipped to head towards $71.29, which would be a 13.1% rise.

As you can see, the analysts are pretty positive on the key stocks that drive our market so if reporting season can surprise on the upside, we could be off to the races.

Right now, the economy is helping the overall picture, with Thursday’s jobs report a win for optimists. This is how CommSec’s Craig James saluted the biggest back-to-back monthly full-time jobs gain in 29 years: “Stronger employment means more people have money in their pockets, ready to spend. A stronger economy also means higher revenue and profits and clearly that is positive for share market investors and superannuants.”

Add this to a much better-than-expected world economic growth outlook and it’s not a big gamble to be pro-stocks for the rest of this year.

Peter Switzer is the founder and publisher of the Switzer Super Report, a newsletter and website that offers advice, information and education to help you grow your DIY super.

Content included in this article is not by association the view of FNArena (see our disclaimer).

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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