Weekly Wrap 10 July

Jessica Amir
July 10, 2020

Though the Aussie share market appears to be recovering, it’s not exactly been a smooth road in light of Victoria re-entering lockdown. That being said, investors should remember this is only the 4th pullback in 16 weeks.

In this week’s wrap, Jessica covers:

  • (0:26) The rocky road to recovery: The ASX200’s sluggish return
  • (0:37) Tech sector leading the way: Up 2.7% (Mon-Thur)
  • (0:53) Five gold stocks make the stock leader board (1:02) Gold glistens, Melbourne suffers & the RBA holds cash rate
  • (2:19) Afterpay skyrockets (ASX:APT): sales up 120% year-on-year
  • (4:40) Thematic Healthcare trading ideas: CSL (ASX:CSL), Sonic Healthcare (ASX:SHL), and Oncosil Medical (ASH:OSL) poised for a booster shot
Read Transcript

Thanks for tuning in to the weekly, i’m Jessica Amir a market analyst with Bell Direct.

The Aussie share market’s rocky path to recovery is progressing but slow this week with the ASX200 reversing 1.7% to Thursday while U.S. equities gained 0.7%.

The key is that Aussie investors are questioning the expected economic recovery but the state of Victoria re-entering lockdown.

But take heed, although the market fell this week it’s just the fourth pullback across 16 weeks and as we can see the market is still up 31% from its COVID-19 low and 17 away from its February peak.

This week investors chased returns in the tech sector which gained 2.7% thanks to the rise in online COVID-19 shopping while stocks sensitive to the economic recovery went south, with the Real Estate sector falling 5.6%.

On the stock leaderboard, five gold stocks made the list Perseus Mining (ASX:PSU) out in front up 15%, followed by St Barbara (ASX:SBM).

Now this was because the gold price rose to US$1,816 an ounce this week, its highest level since September 2011 with U.S. COVID-19 cases rising, increasing demand for the safe haven.

Locally, Melbourne entered lockdown for six weeks, restricting people from being allowed to leave their homes only for essential shopping, work, exercise or medical treatment.

Now this throws up the big question, how will this impact the economic recovery?

We’re thinking it will delay the recovery, causing a speed bump.

Melbourne adds 20% to Australia’s growth.

So you could expect GSP to fall 0.25% this year.

To help soften the bump, we expect the Federal Government will provide extra help to businesses affected so they can maintain cash flows, increase the number of JobSeeker and JobKeeper payments and also allow further access to superannuation.

This week the RBA met and held rates at a record low of 0.25% saying the economy is improving with some businesses rehiring staff and with rates set to remain at record lows for some time, the hunt for high stakes continued.

Afterpay (ASX:APT) shares rose 9% to Thursday’s $73.26 close, another record high.

Notably, Morgan Stanley one of the world’s biggest investment banks backed Afterpay for the first time this week.

Afterpay announced sales grew 127% year on year beating expectations.

It doubled its customers to 9.9 million and increased U.S. market share, gaining on U.S. rival Klarna, while also holding down number one rank here in Australia in the buy now pay later segment.

Afterpay also announced a $800 million capital raise which might help it enter new global markets and with acquisitions, Morgan Stanley reckons Afterpay’s eBay partnership will go global and Afterpay will also take market share from PayPal and Credit Cards.

The dark blue line shows buy now payloader use verse further room to grow.

Now Morgan Stanley gave Afterpay a $101 target but estimates 60%, or there’s a 60% chance it could hit $242.80 if Canadian sales take off, U.S. adoption progresses and it expands into Asia.

Probability of success in Asia is high given the tech giant Tencent owns 5% of Afterpay and Tencent wants to offer more payment options to its gaming and Wechat customers.

Now turning to strategy, putting the spotlight on the Healthcare sector, COVID-19 has shifted the focus onto companies trying to develop treatments, vaccines or diagnostic tests for the virus.

Bell Potter expects companies that deliver solid clear data and commercial outcomes for next year FY21.

They’ll be rewarded for their efforts with share price appreciation, new investors and new business partners.

Secondly, consider the all important employment data is out next week.

Now the RBA expects the unemployment rate will rise from 7.1% to 10% in June.

But keep an eye out on consensus due out early next week.

If unemployment is lower than the market expects, the ASX200 Banking and Consumer stocks should rally.

If unemployment is higher than expected, the market may come under pressure.

Now ending on trading ideas, firstly consider this week that CSL (ASX:CSL), the biggest company in Australia, saw its biggest decline since COVID-19 falling 6% to $280.75.

UBS estimates plasma center donations will fall 20% from April to September amid the rise of COVID-19, particularly in Texas, Florida and Arizona, which account for 20% of CSL’s plasma centers.

UBS expects a recovery though given citizens get paid to donate blood plasma in the U.S..

UBS reiterated CSL as a buy but dropped its price target to $331.

Another UBS buy is disinfectant company Nanosonics (ASX:NAN).

Citi likes Sonic Healthcare (ASX:SHL) with a $34 target and Bell Potter’s preferred biotech companies are Oncosil Medical (ASX:OSL), Avita Medical (ASX:AVH) and  Volpara Health Technology (ASX:VHT), which will benefit from their outstanding management and patents.

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

I’m Jessica Amir, we’ll see you next week.

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