What you see below are the stocks that make up the top 20 companies on the ASX, and in recent times this component of stock market has done the right thing by my prognostications and has started to sneak up after being a great disappointment for nearly two years.
In June, the top 20 rebounded by 4% to be up 4.5% for the calendar year, which underlines how important June has been. And for the financial year the gain has been 11.3%. While this is good and shows improvement, the midcap 50 were up 14.4%. Over the same time the Small Ordinaries was up 24.3%, and so the question is: has the top 20 turned and is it about to enjoy an uptrend?
To get some clues I’ve turned to the broker/analysts surveyed by FNArena, and this is what I found:
This analysis shows that the hope side for the ASX 20 Index is going to be NAB, Westpac, BHP, Rio, Transurban, South 32, CSL, Brambles and Telstra.
These potential rising stocks make up about 60% of the ASX 20 Index, so that’s good news for the Index and for those who play ETFs on the S&P/ASX 200 Index. The ASX 20 has a big impact on the overall Index but I certainly would’ve hoped that the number of rising stocks and the potential rises were bigger.
If you want to take the odds that the FNArena’s stable of star stock pickers/assessors are on the money then going long NAB, Telstra, Brambles and Rio should give a double digit return in the teens, especially when you throw in the dividends. In fact, even speculating on the positive nine out of the 20 would look like a pretty defendable, diversified punt/investment.
And here’s another play you might want to think about.
With trade war talk around, there could easily be a sell off of stocks if the market’s assessment of how serious the Trump tariffs might be ends up being underestimated. Right now Wall Street has processed $US34 billion worth of Trump tariffs on a specified number of Chinese products, which in turn brings about return fire Chinese tariffs, which is expected to hurt a certain number of US businesses.
However, if the Trump threats of tariffs are ramped up to $US500 billion as the President has implied was possible, if he does not get an acceptable change from the Chinese on critically important trade matters, then this trade war could become really serious and Wall Street could easily get into stock-dumping mode.
This could create a timely opportunity to buy many of these stocks, including some of the stocks that, on current guesses of a non-trade war future, are expected to drop in price by only small amounts such as CBA, Suncorp, ANZ, IAG and Origin.
I know this is a speculative analysis but it is based on a consensus view, and I never have much trouble investing or taking a punt on quality companies because they are quality companies.
And yes, even with its challenges I believe Telstra has a brighter future ahead, purely because of its size in the market. My only problem is that it might take a few years for it to reassert itself and capitalize on being the market leader, but I do think the Telstra ‘lion’ will one day roar again.
One last point: I reached out to one of my charts guys, Gary Stone of Sharewealth Systems, to see what the technical analysis says about the ASX 20 generally. This is what he came up with:
“The trend is definitely up. Friday’s close of the ASX20 to a three-year high and the last three trading sessions have seen the ASX20 break out of a 15 month down trend shown between the black channel lines.
“The bottom graph shows the comparative Relative Strength line between the ASX20 and ASX500, the All Ords. The last three trading sessions have seen an uptick in this line, meaning that the ASX20 has started outperforming the All Ords. The ASX20 has underperformed the All ORDS and the Small Ords for all but eight months of the last three and a half years,” he pointed out.
“However, there is overhead resistance shown by the upper blue resistance zone, which the ASX20 has just reached. The actions to keep an eye on are the ASX20 rising above the overhead resistance zone and the RSC line to continue rising, meaning that the ASX20 is outperforming the rest of the market,” he advised.
“This could see the ASX20 rising towards 3760, the high that it reached in March 2015. It will need the banks and the big resource companies to all contribute to achieve this and all the help that Telstra can chip in too.”
I hope Gary is right.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regard to your circumstances.