A shoul­der (or two) to lean on

The signs are good for some re­sources and prop­erty stocks

Financial Mail - Investors Monthly - - Guest Column - KARIN RICHARDS The writer owns shares in both An­glo and Growth­point Twitter: @Richard­s_Karin

Com­modi­ties have run hard. The ques­tion is whether any up­side re­mains for in­vestors. The charts say yes, and in­di­cate that for pa­tient in­vestors there is still po­ten­tial in stocks such as An­glo, Kumba, Glen­core and As­sore, as well as the plat­inum and gold min­ers.

Here I look at An­glo, which is typ­i­cal of our larger re­source coun­ters. It has a share price tar­get of 40%-50% higher and fur­ther po­ten­tial beyond that. The dif­fi­culty is rid­ing out the in­evitable wild gy­ra­tions as dis­be­lief re­cedes and the al­ter­nat­ing greed and fear take over. I have come to the con­clu­sion that the only way to han­dle re­sources is with smaller po­si­tions and wide stops.

Sim­i­larly suf­fer­ing from dis­be­lief are our lo­cal prop­erty stocks. They have been much ma­ligned, with dire predictions of an im­mi­nent im­plo­sion. The charts tell a dif­fer­ent story as the prospect of in­ter­est rate rises re­cedes and the world­wide hunt for yield in­ten­si­fies. But in­vestors should not stray beyond the large, qual­ity coun­ters such as Growth­point and Hyprop, as B-grade prop­er­ties are un­likely to ben­e­fit from for­eign flows. An­glo Amer­i­can Dur­ing the re­sources boom of 2008 An­glo reached R556. In Jan­uary 2016 it fell to R53.30. That’s an as­ton­ish­ing de­cline of 90%. At the time of writ­ing it is trad­ing at R158.46. Though this is a re­cov­ery of al­most 200%, it re­mains a long way from its best.

An­glo’s re­cov­ery con­structed a re­li­able re­ver­sal pat­tern, known as a re­verse head and shoul­ders (H&S). It’s in­di­cated on the chart as S-H-S. In the tur­bu­lent post-Brexit mar­ket it per­formed well, re­main­ing solidly above the 200-day mov­ing av­er­age and the neck­line (in red).

It has now bro­ken through the next re­sis­tance level of R150, form­ing a larger cup­ping pat­tern (in or­ange).

There are two tar­gets out of th­ese pat­terns:

• The first tar­get is R220 — the height of the re­verse H&S pro­jected up.

• The sec­ond tar­get is R243 — the height of the full pat­tern pro­jected up.

A re­turn to the su­per-cy­cle high of +R500 can­not be con­tem­plated, but it is rea­son­able to ex­pect that it will, over time, re­visit the 2014 high of R290.

In the shorter term R150 is an im­por­tant level for An­glo. It may stay there a while as it builds up steam for the next move up. It could re­trace as far as R143 with­out dis­turb­ing the pat­tern.

Stop is a daily close be­low R138. Longer-term in­vestors can use a weekly close be­low R115.

Growth­point

Growth­point is our largest real es­tate in­vest­ment trust (Reit) and one of the largest in emerg­ing mar­kets. It has ex­cel­lent man­age­ment and su­perb as­sets.

There is cur­rently a world­wide resur­gence of in­ter­est in Reits.

Growth­point is on a gen­er­ous for­ward yield of 7% and it can be ex­pected to once again at­tract for­eign in­ter­est. At the time of writ­ing it is trad­ing at R26.25.

Sim­i­lar to An­glo, Growth­point has formed a re­verse H&S. The head was caused by the Nenegate de­ba­cle. While this was trau­matic at the time, it laid the foun­da­tion for a strong move up.

It has si­mul­ta­ne­ously bro­ken through the neck­line (in red) and the 200-week mov­ing av­er­age. Such a dou­ble dose is pow­er­ful.

There are two tar­gets out of this pat­tern:

• The first tar­get is R28.00 — the height of the right shoul­der pro­jected up.

• The sec­ond tar­get is R30.40 — the pre­vi­ous record high. While the full tar­get is R31.50, it is un­likely to im­me­di­ately break through the prior high. It will prob­a­bly con­sol­i­date for some time just be­low it or even suf­fer a set­back once that level is touched.

If it does even­tu­ally break through to a new high it will set up the three-year con­sol­i­da­tion range as a base for a new tar­get of R38. But this is spec­u­la­tion.

Stop is a weekly close be­low R24.

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