As promising as you can hope for
Two quality companies with cheering charts
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.