As promis­ing as you can hope for

Two qual­ity com­pa­nies with cheer­ing charts

Financial Mail - Investors Monthly - - Guest Column - The writer owns shares in both Aspen and Sten­prop Twit­ter: @Richard­s_Karin

If you are any­thing like me, there is noth­ing you like bet­ter than buy­ing a “good” stock and see­ing it trend higher for months on end. We may be for­given for think­ing there are no such op­por­tu­ni­ties re­main­ing in our mar­ket, par­tic­u­larly for qual­ity stocks. How­ever, the charts in­di­cate that there are still a few. Aspen Phar­ma­care Aspen is a blue-chip stock with su­perb man­age­ment and a busi­ness model that spans sub-Sa­ha­ran Africa, Latin Amer­ica, Asia, Australia and Europe. Un­for­tu­nately the slump in emerg­ing mar­ket (EM) cur­ren­cies and Aspen’s ex­po­sure to the fail­ing Venezuela led to a 46% de­cline in the share price from R443 in Jan­uary 2015 to R238 in Fe­bru­ary this year.

Since then the Venezue­lan losses have been writ­ten off, EM cur­ren­cies have im­proved and the in­terim re­sults have con­firmed that the un­der­ly­ing busi­ness is solid and cash gen­er­a­tive. The deal to ac­quire the rights to As­traZeneca’s global anaes­thet­ics port­fo­lio has been well re­ceived. At the time of writ­ing Aspen was trad­ing at R357.

Aspen’s re­cov­ery has built a solid re­ver­sal pat­tern, known as a “re­verse head & shoul­ders”, in­di­cated on the chart as S-H-S. The neck­line (in red) has been bro­ken, which sig­nals that the pat­tern is con­firmed and the tar­get (R426) is in play.

The right shoul­der is above the 200-day mov­ing av­er­age, which strength­ens the pat­tern.

Ob­ser­vant read­ers may no­tice that the head is it­self made up of a se­ries of in­ner cup­ping pat­terns, the most re­cent shown in grey. This is a healthy devel­op­ment, as each smaller pat­tern lays a solid foun­da­tion for the larger pic­ture.

There are three tar­gets out of this pat­tern:

The first tar­get is R384 — the height of the in­ner (grey) cup pro­jected up.

The sec­ond tar­get is R400 — de­rived from the more con­densed weekly pat­tern (not shown). Strong re­sis­tance can be ex­pected at R400.

The third tar­get is R426 — the full height of the pat­tern pro­jected up.

There are no cer­tain­ties in mar­kets, but the com­bined tech­ni­cal and fun­da­men­tal pic­ture for Aspen is about as good as it gets in an un­cer­tain cli­mate. If these tar­gets are reached, longer-term in­vestors can con­tinue to hold. The pic­ture is strong enough to sup­port a re­turn to the prior high of R443 and for this to be ex­ceeded. Bar­ring al­ways-pos­si­ble dis­as­ters,

Sten­prop is a smaller Western Euro­pean-based prop­erty stock and though it was part of the rand-hedge list­ings flurry it is su­pe­rior in terms of man­age­ment and the qual­ity of as­sets.

Most prop­er­ties are of long stand­ing and Sten­prop takes no devel­op­ment risk. It is fo­cused on of­fice and re­tail as­sets, in­clud­ing three A-grade cen­tral Lon­don of­fice blocks and re­tail prop­er­ties in Ham­burg and Berlin. The 55 prop­er­ties are val­ued at €891m and have a geo­graphic spread of UK (36%), Ger­many (28%), Switzer­land (18%) and joint ven­tures at 18%.

Sten­prop is on a cur­rent yield of 5.9%. It is cum a net div­i­dend of ±R0.67 (ex­change rate to be an­nounced). Mar­ket cap is R7bn. At the time of writ­ing it is trad­ing at R26.80 — still be­low its net as­set value of R28.45.

Sten­prop has tested and re­versed up from the im­por­tant 200-day mov­ing av­er­age.

It has bro­ken through a sig­nif­i­cant re­sis­tance line (in red).

The mov­ing av­er­ages (50 and 200-day) have drawn to­gether. This is a bullish sign.

The price tar­get is R28.80 but there is rea­son to be­lieve that the pre­vi­ous high of R30 will be reached and, in time, ex­ceeded.

Stop is a daily close be­low the 200-day mov­ing av­er­age at R25.20. If more tol­er­ant, use a weekly close be­low R24.

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