Christmas has come early for the bank’s shareholders with the decision to slightly increase the 2024 dividend – despite a single-digit decline in the net profit and cash earnings.
Beating the market benchmark is never easy, with 72 per cent of Australian actively managed global equity general funds trailing the S&P World Index in the six months to June 30, 2024. Domestic equity funds performed slightly better, albeit against a significantly lower bar set by the S&P/ASX 200 Index.
Chasing momentum is not for the fainthearted
Last week kicked off a chain of events in the US that has had wide-ranging global implications. The number of COVID-19 deaths inside US nursing homes has finally reached a turning point. Since the arrival and distribution of vaccines in nursing homes, the number of deaths has dropped dramatically.
According to a new report from the Kaiser Family Foundation, COVID-19 deaths in nursing homes have fallen 66 per cent since late December. New cases are down 83 per cent over the same period. On top of this, drug maker Moderna has said preliminary Phase 3 trial data shows its coronavirus vaccine is more than 94% effective in preventing the coronavirus.
The data is clear, the vaccine is working. While it’s too soon to declare victory just yet, it is exciting news. Markets on the other hand, which work as a function of future earnings, seem to view this positive sign as victory.
The knock-on effect?
The positive Covid-19 news sent investors out of the safety of government bonds. The yield on the benchmark US 10-year Treasury note rose to a one-year high of +1.50 per cent this week, creating a bit of a wobble in US markets and the local market. The theory is that when bond yields rise, bond prices and all asset prices should reprice lower. Higher yields make currency more attractive and hint a recovery is on the way.
In a report this week, Citi said a 10 per cent sell-off seems highly likely if rising bond yields cause a sell-off in the large-cap IT space and thus, the broader index. At the time of writing the NASDAQ Composite Index is down by just over 3 per cent, as the bond rout accelerates, with tech stocks the worst hit.
And it’s taking its toll here. The yield on Australia’s 10-year note rose 0.13 percentage points higher to 1.86 per cent. The $A/$US exchange rate is at 0.79 cents.
Despite solid corporate results, shares in fast-growing tech companies such as Zip Co (ASX:Z1P) and Afterpay (ASX:APT) suffered heavy losses as their lofty valuations were underpinned by low rates. This week’s bond market sell-off says that investors expect a flood of stimulus measures to be introduced by the Federal Reserve, which will trigger a rapid recovery in economic growth, push up interest rates and have an inflationary effect. Tech stocks that have grown hard and fast are likely to be the first to be sold off as everything is re-valued.
Here is a list of the top 15 stocks in the S&P/ASX All Ordinaries Index that have been hot in the last 12 months
The table above is data from the S&{/ASX All Ordinaries Index as at 26 Feb 2021, ranked by 12-month price performance. Just a simple glance and you’ll notice the list is primarily tech (BNPL) and mining stocks. With a potential shift from growth stocks to safer value stocks, we’ve selected five stocks from this list to determine whether they’re overvalued or undervalued.
We used two methods to calculate whether a stock was overvalued or undervalued: 1. Using fair value forecast data from Simply Wall Street or 2. Using price-to-book (net asset value) data for the company compared with price-to-book data from the industry.
Potentially overvalued stocks
- Chalice Mining (ASX:CHN) – Shares up 6.8 per cent this week. CHN, which owns the high-grade Julimar nickel, copper, cobalt, gold and platinum group elements (PGEs) in Western Australia, exceeded the Australian Metals and Mining industry, which returned 47.1 per cent over the past year. CHN is overvalued based on its PB Ratio (26x) compared to the AU Metals and Mining industry average (2.8x).
- Sezzle (ASX:SZL) – Shares in the BNPL operator were sold off this week in-line with its industry. But SZL returned 379 per cent, which exceeded the Australian IT industry which returned 83.4 per cent over the past year. SZL is overvalued based on its PB Ratio (68.5x) compared to the AU IT industry average (4.4x).
- Pointsbet Holdings (ASX:PBH) – Shares in the online bookmaking group returned 248 per cent over the year, compared to the Australian Hospitality industry, which returned 3.8 per cent over the past year. PBH is overvalued based on its PB Ratio (13.6x) compared to the AU Hospitality industry average (2x).
Potentially undervalued stocks
- Redbubble (ASX:RBL) – Share price of $5.51 is trading below the estimate of fair value, at $6.19. The online marketplace stock is trading on a PE of 38.20x, which is in line with its industry PE of 30.90x.
- Lynas Corp (ASX:LYC) – At a share price of $5.66, the rare earth metals producer is trading below the estimate of fair value at $9.48 by more than 20%, making it undervalued.
