Weekly Wrap 24 July

Jessica Amir
July 24, 2020
The rocky road continues with the Aussie share market on the up, but hitting bumps along the way. With COVID-19 still a concern both domestically and in key international markets, strategic investing continues to be critical.
In this week’s wrap, Jessica covers:
  • (0:11) Two steps forward, one step back – the Aussie share market hits a 4-week high before falling back
  • (1:16) Stocks on watch: Resolute Mining (ASX:RSG) up 20%, while TPG Telecom (ASX:TPG) falls 10% amid roaming data losses
  • (1:44) Macro outlook: COVID-19’s impact on the Australian economy
  • (2:30) What the stimulus package means for the economy
  • (3:20) Taking advantage of the gold rush
  • (4:48) Working At Home trading ideas: Tesserent (ASX:TNT), Vocus (ASX:VOC) and Wesfarmers (ASX:WES)

Welcome to the weekly wrap this Friday the 24th of July.

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

The Aussie share market has had a choppy week hitting a new four-month high on Tuesday before pairing back.

Monday to Thursday the market rose 1% and the market’s tracking higher for the fourth month in a row, up 34% from the COVID-19 low.

The market did hesitate earlier this week though for three reasons.

Firstly, COVID-19 cases in Australia hit a record high despite Victoria being in lockdown.

Secondly, Australia’s third biggest company BHP (ASX:BHP) saw its biggest share price fall in five weeks after forecasting mixed results for FY21, expecting stronger iron ore, nickel and energy coal production, but weaker petroleum and copper.

That saw Citi and UBS drop Earnings Per Share (EPS) estimates to 5.2% – 5.9%.

But when you think about that EPS target, it’s still above average, which explains why UBS backs BHP as a buy with a $40 target.

And thirdly, this week TPG Telecom (ASX:TPG) lost about 10% after Credit Suisse dubbed the Telco as an underperforming stock with a $7.35 target, expecting the recently merged Vodafone business to lose $100 million in roaming revenue due to the travel pandemic restrictions.

On the flip side, Resolute Mining (ASX:RSG) outperformed, up 20% with the gold price not showing any signs of slowing down, with the gold price hitting a 9-year high.

Now this week on the macro side of things, we heard from the RBA Governor Philip Lowe announcing the economy passed its low point.

However, he stated a bumpy path was ahead and called on the Government to provide extra support.

Additionally, the mid-year budget revealed $289 billion has been spent on COVID-19 in the 2020 Fiscal year and that amounts to 15% of GDP.

Something to think about though is Aussie net debt now stands at 25% of GDP.

Treasury expects that to grow to 30% next year.

Moving to strategy, consider what the extra economic stimulus means for the economy and the stock market.

This week the Government extended JobKeeper and JobSeeker by six months to March 2021, which will cost the Government an extra $20 billion, taking the total job packages to $104 billion.

Now if you add that to the new $2 billion apprenticeship and school lever support, the economic risk of higher unemployment has greatly reduced, meaning the stock market recovery is more likely to continue.

But a big caveat of continued stock market growth will be confession season kicking off in August, with COVID-19 laggards like travel and tourism stocks to disappoint while mining and resources darlings are tipped to please investors, particularly those searching for dividend growth.

Secondly, think about how to take advantage of the gold price rush.

We know gold is expected to rally for a couple of key reasons.

Firstly, COVID-19 cases are spiking in the U.S..

Secondly, there’s lingering tensions with China and thirdly, the Presidential race ramps up over the next three months.

Additionally, the U.S. dollar as a store of wealth is coming under pressure as COVID-19 cases are increasing and further economic stimulus is needed.

So a move away from the U.S. dollar as a safe haven is further supporting the gold price, so consider investing in gold stocks or ETFs.

Thirdly, think about adding exposure to stocks that are benefiting from the shift to working from home.

In January, Aussies spent more of their time at work, fast forward to now we’re spending more of our time at home than ever before, so think about the themes emerging.

According to PwC, cybercrime has increased since COVID-19 as well as the need for greater internet reliability.

Secondly according to the Master Builders Australia, home renovations hit an all-time high and thirdly, the google search for ‘working from home essentials’ hit an all-time high with Aussies racing out to snap up home office and hardware supplies.

So thinking about trading ideas and how to take advantage of the working from home trends and thinking about stocks that could benefit.

Or cyber security stocks like Tesserent (ASX:TNT) which works with companies including Toyota, The Good Guys, Nintendo and BMW, that’s one to think about.

Tesserent’s shares up about 140% so far this week after announcing that they’ve met FY20 goals.

Or you could look at ETF (ASX:HACK), which has gained 47% in four years, it’s got exposure to some of the world’s largest cyber security companies.

For internet stocks, UBS backs Vocus (ASX:VOC) as a buy with a $3.60 target and Telstra (ASX:TLS) as a buy with a $3.70 target.

For home office setups and hardware renovations, consider Officeworks and Bunnings owner Wesfarmers (ASX:WES). Or for home office furniture, Temple & Webster (ASX:TPW) which is backed by Goldman Sachs and Bell Potter as a buy.

With Goldman’s giving TPW an $8.50 target.

So there’s plenty of opportunity and ideas.

Thanks so much from everyone here at Bell Direct.

I’m Jessica Amir, have a happy and safe weekend, see you next week.


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