Weekly Wrap 17 July

Bell Direct
July 17, 2020

With COVID-19 changing our daily behaviour, several rebalancing and trading opportunities have surfaced. Add in the six key economic indicator and commodity price movements this week – and there’s plenty for investors to consider.

In this week’s wrap, Jessica covers:

  • (1:59) Three stocks benefiting from the economic recovery
  • (2:15) Recessionary outperformers slump: Avita Therapeutics down 15%
  • (2:35) Where to consider increasing exposure to in light of the recent $2 billion jobs package
  • (3:08) As OPEC eyes a production lift in August, the oil price braces for heightened volatility
  • (3:26) Reading the new market: rebalancing ideas for your portfolio
  • (4:24) Strategic trading ideas: Collins Foods (ASX:CKF), Coles (ASX:COL) and Super Retail Group (ASX:SUL)
Read Transcript

Welcome to the weekly wrap for Friday the 17th of July.

I’m Jessica Amir, a market analyst with Bell Direct.

The Aussie share market climbed 1.7% to Thursday helping to claw back some of last week’s 2.3% fall.

The ASX200 is 32% up from its COVID-19 March low.

This week we had a sweep of news.

1 – Business confidence returned to positive territory in June, supported by growth in profitability and employment.

Keep in mind though that the data was collected pre-Victoria’s lockdown.

2 – We saw 211,000 jobs being added to the economy in June, almost a full recovery from the 228,000 who lost their jobs in May.

But note, this doesn’t factor in Australia’s second most populated state entering lockdown on the 8th of July.

3 – New home sales roared up 78% in June, but not quite enough to offset weak record low sales from March to May.

The growth was supported by the Government’s $25,000 home builder grant, encouraging people to build or rebuild June to December end.

4 – On the commodity front, the oil price hit a new three-month high as U.S. cut supply.

5 – The price of iron ore rose to a new 11-month high benefiting from a 35% lift in Chinese imports in June compared to May.

China’s coal imports also rose 12%. 6- Amid COVID-19 vaccine hopes and better than expected economic news in the U.S., the gold price fell 0.9% from its 9 year high that it hit last week and now tracks at US$1,798.

These factors explain who made the snakes and ladders ASX200 weekly leaderboard to Thursday.

Stocks linked to the economic recovery climbed the ladder the most.

Oil and gas business Copper Energy (ASX:COE) rose 11%, hitting a one month high, Whitehaven Coal (ASX:WHC) followed up 9%, with Fortescue Metals (ASX:FMG) up 8%.

On the flip side, recessionary outperformers slumped.

Avita Medial (ASX:AVH) lost 15%, which still doesn’t dent its 938% surge this year.

Mesoblast (ASX:MSB) fell 11%, but it’s still up 57% this year.

Moving to strategy, firstly consider increasing your exposure to online retail, discretionary spending and online education stocks.

The Government announced a new $2 billion job package this week.

$500k of that will go toward running new courses to train school-leavers and the unemployed.

$1.5 billion will go to apprentice wage subsidies, which means online shopping might not drop off as expected post September, when the JobKeeper and JobSeeker payments are expected to end.

Secondly, rethink your oil and gas exposure.

We know in August OPEC and its ally counties plan to increase their production, meaning more oil will be in the market.

Demand however is low, so you could expect the oil price to to fall or definitely see some volatility.

Thirdly, look at rebalancing your portfolio, factoring in how social distancing has affected restaurants, pubs, gyms, CBD office stocks, toll road operators, and airlines.

Aussies using cooking websites has spiked, the google search for ‘at-home exercises’ hit an all-time high, average road traffic has stumbled and there’s a lot less people in CBD offices.

But a steady stream of people lining-up at supermarkets, alcohol shops and fast food restaurants.

Looking at one example, restaurant revenue fell 25% from FY19 to FY20, and Pub, bar and nightclub revenue is expected to follow.

The industry body, Restaurant and Catering Australia does not expect to see a recovery until 2021, especially as 30% of accommodation and restaurant revenue is from international tourists.

Thinking about strategy ideas, when analysing your food and beverage exposure think about whether you want exposure to stocks like Retail Food Group (ASX:RFG) which is closing down stores.

Perhaps look more closely at KFC franchisee Colins Foods (ASX:CKF) and Domino’s Pizza (ASX:DMP) because they’re both seeing strong sales.

For the shift from drinking in pubs to at home and eating more of your own home cooking, review your pub exposed stocks like ALE Property Group (ASX:LEP) and Redcape Hotel Group (ASX:RDC).

Think about tilting toward stocks like Dan Murphys, BWS and Cellarmasters owner Woolworths (ASX:WOW) or owner of Liquorland, FirstChoice Liquour and Vintage Cellars, Coles (ASX:COL), or owner of IGA Liquor and The-Bottle-O Metcash (ASX:MTS).

With the move from working out in a gym, consider shifting focus from companies like gym owner, Viva Leisure (ASX:VVA) and instead turn to stocks benefiting from outdoor and lockdown fitness like the owner of Rebel Sports, BCF, and Macpac, Super Retail Group (ASX:SUL).

With less people in office buildings, consider the commercial real estate trusts or property ETFs you hold.

It could be worth looking at pure industrial real estate stocks APN Industrial REIT (ASX:ADI) and Centuria Industrial Reit (ASX:CIP) benefiting from industrial investment.

Lastly consider there’s less people moving around the country.

Toll road operator Transurban (ASX:TCL) is seeing an earnings squeeze, along with Qantas (ASX:QAN), Region Express (ASX:REX) and Air New Zealand (ASX:AIZ).

Alternatively, think about Alliance Aviation (ASX:AQZ) hit another all-time high amid fly-in fly-out demand at the mines.

So there’s plenty to consider.

On behalf of everyone here at Bell Direct, have a happy and safe weekend.

I’m Jessica Amir, bye for now.

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