Weekly Wrap 1 May

Jessica Amir
May 1, 2020

On Thursday, the ASX200 closed off the month up 8.8%, the best monthly gain on record since the data set began in 1993. Not bad… almost as good as the All Ordinaries clocking off the month with a 9.5% rise – its best result since 1988. Plus, the University of Queensland and Gilead make breakthroughs in potential COVID-19 treatments.

In this week’s wrap, Jessica covers:

  • Four key reasons the markets rallied (0:35)
  • Energy gets a boost, rising 12% in this week’s sectors report (1:13)
  • Stocks in the spotlight: (Mon-Thu) AP Eagers (ASX:APE) up 46% while ResMed (ASX:RMD) fell the most, down 6% (1:23)
  • Are we back in bull territory? (2:35)
  • Recalling a not-so-distant historical 20% rally in a bear market (3:12)
  • Stock ideas: Bell Potter’s list of 10 recovery stocks (4:01)
Read Transcript

You’re watching the weekly wrap, I’m Jessica Amir a market analyst with Bell Direct.

Well this week the Australian share market gained 5.3% from Monday to Thursday and on Thursday the ASX200 closed off the month up 8.8%, that’s the best monthly gain on record since the data set began in 1993.

While the All Ordinaries rose 9.5% clocking its best monthly gain since 1988, while smaller companies outperformed with the ASX200 small Ordinaries up 14%.

Now markets rallied for *four* key reasons, 1. The University of Queensland passed a further COVID-19 vaccine milestones and could have a treatment ready later this year or early next year, 2. The Australian Cabinet is tipped to begin talks to lift sport and restaurant lockdowns and 3. Over in the U.S the company Gilead, their trial has cured 50% of patients with severe COVID-19 from their trial and 4. The U.S also pledged to keep interest rates near zero to help the American economy.

Now looking at our sectors this week, Energy, IT, Consumer Discretionary rose the most while Conservative Defensive sectors continue to underperform.

Australia’s biggest car dealer AP Eagers (ASX:APE) rallied up the most 46% after announcing $6 million a month in savings after axing 1,200 workers while it also anchored $122 million in funding.

Now despite this week’s share price charge for AP Eagers, it’s still down 50% this year.

On the other side ResMed (ASX:RMD) fell the most this week 6%,  however it managed to hold on to its year to date gain of 7% and ResMed shares have been consistently growing for nine straight years.

Now in the industry, Credit Suisse has warned that ventilator manufacturers could be at risk of over supplying the market as they ramp up production to keep up with COVID-19 but Credit Suisse forecasts ResMed’s third quarter earnings could grow 6% and their EBIT could grow 10%.

The bank also raised ResMed’s price target 2% to $25.50, that’s higher than its close price on Thursday of $23.14.

So what did I mean when I said we re-entered bull territory, well after the ASX200 record gain in April, the market is charged up 22% from its March lows, which is the bottom blue line.

So we’re now only 23% off the February all-time high, as you can see from the top blue line.

There seems to be a real pivotal point that has got investors divided, not knowing if markets will move higher or lower.

So I look back at the GFC to see what happens when the ASX200 had a rally of over 20 percent in a bear market.

Now the only time as you can see that the market sustained a rise of over 20% was when the market started to recover out of the GFC, so the question is do you think that we can sustain this 20% rally and move higher, have we seen the bottom?

Well I think there’s three key points to think about 1. The depth and duration of the pandemic is still far from clear, 2. The fundamentals suggest growth and cyclical companies’ balance sheets could be exposed to further downside and 3. On the upside you would expect those companies with strong cash flows, low debt to stick to their guns and fire higher and remain on track to pay dividends.

And now for some final stock ideas, well Bell Potter has put together a list of ten recovery stocks for the other side of COVID-19, all of which have strong balance sheets and are rated as a buy and they include: Aristocrat (ASX:AWL), ANZ banking group (ASX:ANZ), Macquarie Group (ASX:MQG), Premier Investments (ASX:PMV),  Flights Centre Travel (ASX:FLT), Qantas (ASX:QAN),  Mirvac (ASX:MGR), BHP (ASX:BHP), Worley Parsons (ASX:WOR) and Origin Energy (ASX:ORG).

Thanks so much for your company this week from all of us here at Bell Direct.

I’m Jessica Amir, stay safe and happy trading.

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