Weekly review: investors move on from value stocks and back to growth
WEEKLY MARKET REPORT
Fashion can be a fickle thing and the cyclical rotation out of growth shares and into undervalued growth seems to have suddenly turned full circle.
No sooner had a few brokers and fund managers quietly let slip that they were in the process of changing from buying value shares to growth stocks again than the hordes came with them – automatically reinforcing the veracity of the call.
It was a trend that was very much in evidence in this week’s trade, with Friday an impressive day for profitable high-growth technology, health and payments companies that promise to shine in an otherwise low growth environment.
Rising rates prompt switch back to above average returns
Investors now seem to have factored in an earlier rise in interest rates and are reasonably relaxed with buying companies that are growing faster than the economy in general, adding an extra edge should inflation start to hamper returns.
In turn, that has led to some soggy trading in banks, energy stocks and miners, which had earlier ridden sharply higher on the value trend.
Despite a last-minute fade late on Friday as some profits were taken off the table, the ASX 200 still managed to add 0.1% for the day and 0.8% for the week for the fifth straight week of gains to close at 7368.9 points.
Travel stocks also put in a strong performance as confidence grew that economic growth will be turbocharged in sectors where there is significant pent-up demand.
Some notable examples included Webjet (ASX: WEB) which rose 6.4% to $5.30, Corporate Travel (ASX: CTD) which jumped 5% to $21.54, and Flight Centre (ASX: FLT) which jumped 5.1% to $16.11.
In some ways the hawkish turn by the US Federal Reserve has added to investor confidence that the strong economic rebound will continue to be a dominant theme, pushing technology stocks and the tech-heavy Nasdaq exchange into fresh record territory.
Tech goes for a run
That was echoed locally with the rise of the buy now pay later stocks, with Afterpay (ASX: APT) shares up 6.5% to $114.40 – the highest in eight weeks – while rival BNPL stock Zip (ASX: Z1P) did even better, rising 9.9% to $8.14.
It was a similar if slightly less spectacular performance across other technology stocks – even some that have hit troubles recently – with Xero (ASX: XRO), Wisetech Global (ASX: WTC), Appen (ASX: APX), Nearmap (ASX: NEA) and even Altium (ASX: ALU), which managed to rise 3% to $35.55 even after indicating first half trade would be at the lower end of guidance.
Health companies were also strong with shares in blood products and biotechnology company CSL (ASX: CSL) hitting its highest level for seven months and other biotech companies including ResMed (ASX: RMD), Sonic Healthcare (ASX: SHL), Mesoblast (ASX: MSB), Clinuvel (ASX: CUV) and Megaport (ASX: MP1) all hitting record highs.
Oil, gold and miners weaker
It wasn’t all good news though, with the prices of gold and oil slipping and China continuing to try to dampen iron ore prices.
BHP (ASX: BHP) fell 2.5% to $46.52 while Rio Tinto (ASX: RIO) also fell 0.6% to $123.47.
All of the banks were lower too, led down by market leader Commonwealth Bank (ASX: CBA) which came down from record highs, dropping 2.1% to $103.69.
Woolworths in underpayment row but demerges drinks
In a stock specific move, shares in retailer Woolworths (ASX: WOW) fell 1.6% to $42.67 after Federal Court action was taken by the Fair Work Ombudsman over the company’s alleged underpayments to staff.
Woolworths’ shareholders also approved the Endeavour drinks demerger.
Proving investors haven’t lost faith in groceries, Coles (ASX: COL) shares were up 0.43% to $16.36.
Other stock specific news included Air New Zealand (ASX: AIZ) providing a trading update which saw the airline forecast losses for the 2021 financial year before significant items and tax of under $450 million.
As you would expect, domestic capacity is almost normal at 90% of pre-COVID levels, but long-haul international travel is a trickle at just 5% of pre-COVID levels.
Infant foods company Bubs Australia (ASX: BUB) saw its shares jump an impressive 29.3% after an announcement that it will sell some of its infant formula products in the US through Walmart’s online platform from September.
Betmakers Technology Group (ASX: BET) saw its shares jump 13% after it resumed trade, having completed the acquisition of Sportech’s Racing, Tote & Digital assets in the US, UK and Europe.
Shares in mortgage broker, Mortgage Choice (ASX: MOC) were suspended from trade after the NSW Supreme Court approved its takeover by REA Group (ASX: REA).
Small cap stock action
The Small Ords index edged 0.21% higher this week to close on 3386.2 points.
ASX 200 vs Small Ords
Small cap companies making headlines this week were:
PNX Metals (ASX: PNX)
A pre-feasibility study has supported PNX Metals’ proposed sequential development of its Fountain Head and Hayes Creek projects in the NT.
The projects are within the NT’s Pine Creek region and host a combined resource of 470,000oz gold, 16.2Moz silver and 177,000t of zinc, with 68% of the estimate classified as indicated.
Under the PFS, Fountain Head would be developed first with capital costs estimated at $46 million. After five years of gold production at Fountain Head, PNX will look to develop Hayes Creek.
Over the first 10-years, Fountain Creek and Hayes Creek are expected to generate total undiscounted revenues (net of treatment, refining and transport costs) of $972 million.
Isentia Group (ASX: ISD)
AIM-listed Access Intelligence made an all-cash bid for media monitoring group Isentia, with the offer giving Isentia an enterprise value of $67 million.
Isentia’s board unanimously recommended shareholders accepted the bid, with chief executive officer Ed Harrison describing the transaction as “attractive”.
He said the offer provides Isentia with the opportunity to be part of a wider global organisation, and will increase geographical reach and product offerings.
Initial plans are that both companies will operate independently, while Access and Isentia teams working on gradually combining the businesses.
Little Green Pharma (ASX: LGP)
Little Green Pharma will be distributing its medicinal cannabis oils and flower products throughout Poland under a new five-year agreement with Pelion SA’s subsidiary Medezin.
Medezin now has the exclusive right to distribute Little Green Pharma’s medicinal cannabis throughout the country, but must achieve certain set goals.
Sales targets include capturing 20% of Poland’s medicinal cannabis oil market and at least 10% of the high-THC medicinal cannabis flower market.
Poland is the European Union’s fifth largest member with a population of 38 million.
Wide Open Agriculture (ASX: WOA)
In its bid to make headway in the growing plant-based protein market, Wide Open Agriculture’s board has endorsed the construction of an in-house lupin and plant-based protein manufacturing facility in WA’s suburb of Kewdale.
The pilot plant is estimated to cost $1.6 million and will be built near Wide Open Agriculture’s Dirty Clean Food operations.
Wide Open Agriculture will use the plant to refine its proprietary lupin protein production process, protect existing IP and develop new IP.
The plant will also produce pilot-scale food grade quantities of lupin protein with the company anticipating modest revenue from its operation.
Meteoric Resources (ASX: MEI)
Following last week’s maiden resource for Palm Springs in WA, Meteoric Resources has unveiled a substantially updated resource for its Juruena gold project in Brazil.
The global Juruena resource estimate now totals 1.9Mt at 6.3g/t gold for 387,000oz.
Meteoric noted this was a 50% increase over the previous estimate with 40% of the resource classified as indicated.
The company will now “seriously assess” development scenarios for Juruena including an updated scoping study.
The week ahead
There are some economic releases to watch out for this week, with most interest in preliminary retail and international trade, purchasing manager indices and wealth figures which are likely to show Australians continue to do well.
Consumer sentiment numbers are also out.
On the Reserve Bank front, on Wednesday Assistant Governor (Economic), Luci Ellis, is giving a speech in Adelaide while other things to watch out for include business conditions and sentiment and the May detailed labour force statistics which will add some texture to Australia’s strong jobs performance.
Internationally, the biggest news is coming out of the United States, with US economic growth, housing, manufacturing, personal income and spending figures the highlights.
One of the potential market moving events comes on Thursday US time, when the Federal Reserve releases its bank stress results.