Weekly Wrap 3 July

Jessica Amir
July 3, 2020

In a recovering market, thematic trading seems to be all the hype, with the Tech sector and its darling stock Afterpay (ASX:APT), setting all-time highs. Plus, with the market continuing its recovery, the idea of making lemonade from lemons seems to have gripped investors…

In this week’s wrap, Jessica covers:

  • (0:06) What’s driving the market gains?
  • (0:35) Tech sector sets the trend with a near 7% WTD rise
  • (1:02) Afterpay (ASX:APT) rises 20% WTD, Citi expects online & in-store use to continue
  • (2:12) Mapping out a strategy: The shift to online education
  • (3:09) Buy low, sell high: Opportunities in crashes
  • (4:07) Iron ore exports surge
  • (5:00) Trading ideas: IDP Education (ASX:IEL), G8 Education (ASX:GEM), BHP (ASX:BHP) and Rio Tinto (ASX:RIO) for consideration
Read Transcript

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

Thanks for watching the weekly.

Well the Aussie share market ended the quarter up 16.2%, its best in 11 years on hopes of a quicker than expected economic recovery.

The benchmark index rose 2.2% this week to Thursday, it’s best gain in five weeks.

Now the market is primarily being driven by:

1- Behavioural shifts in online shopping and a rise in working from home technology demand stocks. 2 – The hunt for growth and momentum stocks.

The tech sector is up 7% this week and hit a new 20-year high.

It’s no surprise that these trends have taken the share market by the horns, riding the tech sector like a mechanical bull up 18% this year to date.

While two typical recessionary cycle out performing sectors followed, Healthcare up 5% and Consumer Staples rising 4% this year.

As for the standout stocks, Afterpay (ASX:APT) shares flashed 20% higher this week to a record $68.16 with Citi noting Afterpay’s continuing to benefit from increased online and in-store use, especially in the U.S. and Canada.

Now this should continue for the next few months while Shopify’s entry into the U.S. is a risk to watch.

Secondly, Nearmap’s (ASX:NEA) shares rose 16% recovering from their COVID-19 crash, with the aerial imaging stock fishing a six-month high.

Now Goldman Sachs maintained its buy rating for stock.

Thirdly, KFC franchisee Colins Foods (ASX:CKF) plucked up 16% to a four-month high after revenue rose over 9% year on year with more Aussies tucking into KFC while in isolation.

UBS upgraded Colin Food’s outlook with KFC sales up 12% already in the second half of the year.

Now Colins Food was given a $10.65 price target.

Now moving to strategy and ideas, I encourage you to think about firstly this shift to online education, with COVID-19 forcing the global education system to head back to school.

Now a Bell Potter expects the global education market to grow at 5% per year to $10 trillion by *2030* on population growth, the thirst for knowledge in a very competitive job market and the digitization of the industry.

Currently about 3% of the education market is digital, so expect online education to surge.

The biggest segments to watch are kindergarten to year 12, making up 50% or US$2 trillion of education spending.

Also watch China’s online education market, with usage doubling year-on-year to 423 million people in March.

Secondly, consider making lemonade from the market.

Now the ASX200 is down about 10% this year, but long-term investors and fund managers look at downtown’s as huge opportunities to buy cheaper priced stocks.

Now this chart shows you three and five-year returns after market declines are significantly positive.

The exception, the dot.com crash.

Another example of how to make lemonade from markets is to look at the best and worst performers this year.

Now Southern Cross Media (ASX:SXL) and Afterpay (ASX:APT) both fell 78% in the COVID-19 crash.

Now after that, Southern Cross rose 44%, Afterpay soared 660%.

Astute investors were averaging into the market during that time capturing those gains.

Thirdly and lastly, consider the shipments of Australia’s biggest export, iron ore, are leaving the Aussie dock at their quickest pace in over five years despite COVID-19.

This chart from UBS shows that shipments from the big four iron ore players BHP (ASX:BHP), Fortescue Metals (ASX:FMG), Rio Tinto (ASX:RIO) and Roy Hill up 10% year on year in June.

Now BHP exports rose 9%, Rio Tinto is up 14%, while Fortescue Metals’ shipments fell 5%, slipping from the record levels.

Citi expects ore demand to continue given other countries are constrained.

Now so far this year, Pilbara (ASX:PLS) shipments are up 3%, on par with Chinese steel production up 3% as well.

To trading ideas, firstly consider taking your portfolio back to school.

UBS increased its by rating this week on student placement firm IDP Education (ASX:IEL) with a $18.20 target.

Other stocks to watch include iCollege (ASX:ICT), which is an online educator for emergency management courses in the drilling and oil sector and educates companies like BHP employees.

iCollege also provides health courses in South Australia.

Other stocks to watch include 3P Learning (ASX:3PL), an online education portal partnering with UNICEF and Microsoft.

Or if you’re really hell-bent on face-to-face companies, you could buy G8 Education (ASX:GEM), now that’s backed by UBS.

Secondly and lastly, if you want a ticket on the iron ore shipment float you could look out Fortescue Metals and BHP both reiterated as UBS buys this week.

Citi echoed BHP as its iron ore pic and Goldman Sachs backs BHP and sees the most upside in Rio Tinto.

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

I’m Jessica Amir, see you next week.

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