Global markets were mostly higher yesterday as shares on Wall Street fluctuated between small gains and losses. Investors bought into riskier assets on speculation global economic growth will continue, while disappointing reports from retailers Home Depot and Kohl's held back gains.
Closer to home, the ASX rallied yesterday after minutes from the last Reserve Bank of Australia (RBA) meeting showed the RBA considered cutting the cash rate at its November meeting, with a higher-than-expected easing bias. The market is now expecting another interest rate cut by year end. Lower rates mean a lower cost of borrowing and are seen as stimulatory for the economy and supportive of share prices.
Stock in Focus: A2 Milk (:NZX / A2M:ASX)
A2 jumped 10% yesterday, which was pleasing to see given we are positive on A2 which we see as a top quality growth stock at a reasonable price.
Part of the jump came as the market remains divided on A2, with a high volume of short positions in the stock (short interest had climbed to 7.7% of the company's shares) – where investors borrow stock predicting its price will fall, but also have to buy the stock to close their bet that the price will fall.
A2 Milk said its operating margin would be stronger than previously reported in the 2020 financial year, off the back of an improved price yield and a lower cost of sales. The company is guiding operating margins to be 29-30%, which compares to 28.2% when the company reported earnings in August. Revenue growth is also expected to remain solid at around 30% growth.
We currently have a BUY rating on A2.
Members should look out for our full update on A2 to be released in our weekly report.
Australia & New Zealand Market Movers
The Australian market rallied on Tuesday (+0.70%). Technology was the only sector to take a notable backward step on Tuesday. Shares in logistics software provider WiseTech fell sharply after the company provided an update on progress for the current financial year at its annual general meeting. Its shares remain volatile even as WiseTech reconfirmed that it expected growth in operating earnings of 34-42% in the 2020 financial year. The company's operating earnings grew by 39% in the 2019 financial year.
The New Zealand market was higher yesterday (+0.18%) led higher by A2 Milk after the firm gave upbeat earnings and margin guidance, more than offsetting losses in Ebos Group which fell after its cornerstone shareholder sold down its holding.
Ebos dropped -8% after cornerstone investor Zuellig Group sold a portion of its holdings at $22.50 a piece. The Hong Kong-based firm took on the stake when it sold the Symbion pharmaceutical business to Ebos. Arvida Group rose fter reporting a 47% lift in first-half profit, primarily on property valuation gains. Outside the benchmark index, Napier Port rose after beating prospectus guidance with record log volumes and higher refrigerated cargo than expected.
3 Things Markets Will be Watching this Week
- Trade related news-flow will remain important in terms of driving investor sentiment.
- Minutes from the last US Federal Reserve meeting are released on Wednesday.
- Minutes from the last Reserve Bank of Australia meeting are released on Tuesday.
Have a Great Day,