1. CSL traded very well during panic time but now it is going in the opposite direction to the market. Do you know why? Is there any particular reason? Is it a good buy below $290?
CSL has underperformed over the last month or so. Become a little “unloved”. I would put this down to:
- Global rotation out of healthcare stocks into other “deeper value” stocks (e.g. banks).
- Index funds are now fully invested.
- Rising Australian dollar (CSL earns 90% revenue outside Australia).
- It may have had a bit of “virus treatment/vaccine” premium in it (which now looks unlikely)
Citi has upgraded CSL today from Neutral to Buy. Overall, the brokers remain positive with 2 buys, 4 neutrals and a target price of $314.82 – about 9.3% higher than yesterday’s closing price.
Yes, I think it is in buy territory
2. What do you think of Suncorp (SUN)? I bought it around its highs of $20. Do you think it will ever return to those highs?
My bottom line on Suncorp is “prefer others”. My lack of enthusiasm is based on:
- I am not a huge fan of its bancassurance model.
- I don’t sense that they have great technology.
- The regional aspect to their banking business doesn’t appeal.
Stick to the leaders.
As for the brokers, according to FN Arena, a consensus target price of $10.08, about 8% higher than last night’s close of $9.35. Of the recommendations, 3 buy, 3 neutral and 1 sell.
3. As coal is our second largest export, I was thinking of investing in Whitehaven Coal (WHC) now that its price has been bashed up in this pandemic. It pays a really good dividend. Do you believe the price will recover and the dividend stay?
There is an old investment adage that says: “don’t buy a resources company for dividends”. I think Whitehaven Coal is a good example. Its forecast dividend (from the analysts) for FY20 is 4 cents, down from 40 cents in FY19, and 5.7 cents for FY21. This puts it on a pretty unremarkable prospective yield of 2.2% for FY20 and 3.1% for FY21.
Whitehaven Coal is struggling because of the:
- Collapse in thermal coal price.
- Rising Australian dollar.
- Messy Mar quarter production.
- Concerns about rising China/USA (and rubbing off into Australia) trade tensions.
Further, the whole ESG movement eliminates WHC from an increasing number of investors’ radars. The analysts, like it however, Target price $2.55, vs current price of $1.83, upside potential of about 39%. 4 buys, 2 neutrals, 1 sell recommendation.
4. Is there an historical relationship between bank hybrids and ordinary shares? Or to put the question another way, what is the pricing benchmark for hybrids?
From a retail investor’s perspective, although very different securities with different risk characteristics, there is no doubt a relationship between the yield on a term deposit, the yield on a bank hybrid security and the yield on bank ordinary shares.
What is the benchmark? That’s hard to say, because it is largely a retail market that institutional investors play in from time to time, and banks only issue into when it is attractive and can cover their high cost of dealer fees. Some argue that the benchmark is found in the institutional hybrid market. I think this is a factor, but not the only driver.
My point is that bank ordinary share prices have “crashed” and expected dividend yields have gone up – hence hybrid securities should be paying higher yields.
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