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Nanosonics Shares (ASX NAN) – is it a stock to buy?

by Henry Fung - Partner Managing Director Henry Fung - Partner Managing Director No Comments

Nanosonics (ASX NAN) has a clear and reliable strategy for future development and a revolutionary monopolistic product (Trophon 2). The company also just achieved regulatory approvals in key markets and is selected by the guidelines in both Germany and France. The company also plans to rapidly expand into worldwide markets during FY19.

The company has developed a unique disinfection technology which is the first major innovation in High-Level Disinfection (HLD) for ultrasound probes. The products include Trophon machine, including Trophon EPR (first generation), Trophon2, consumables & accessories, and are sold in 3 different types of selling models.

The main product “Trophon” is an automated system that delivers HLD of ultrasound probes which is highly effective in killing bacteria, fungi, and viruses including the highly resistant HPV virus. North America is their most substantial market making up 89.62% of total revenue in FY18.

They also operate in some European and Asian countries, while still exploring chances to introduce their technology to other new countries. In addition, their successful business model, customer experience, product innovation, operational excellence, people engagement, and value creation, lay the foundation for success. Read more

Why Rural Funds Group Shares (ASX RFF) Is A Good Buy

by Henry Fung - Partner Managing Director Henry Fung - Partner Managing Director No Comments

Rural Funds Group shares (ASX RFF) is the only diversified agricultural Real Estate Investment Trust (REIT) in Australia which controls more than 40 properties across sectors including almond, cattle, poultry, and vineyard. It is one of the very few commercial entities who actively seeks to provide property leasing solutions to the Australian agricultural sector.

Its assets in the portfolio are leased to high-quality tenants including Treasury Wine Estates (TWE), Olam Orchards Australia (Olam), Select Harvest, RFM Almond Fund and RFM Poultry, with a Pro Forma weighted average lease expiry (WALE) at 12.3 years. Read more

Will Oil Be The Next Rally?

by Henry Fung - Partner Managing Director Henry Fung - Partner Managing Director No Comments

Over the past few weeks there has been a lot of speculation around where the price of oil will go, will oil be the next rally?

The oversupply to the market pushed down the oil price from $80 US per barrel down to below $50 US dollars per barrel. With the recent commitment by OPEC to cut production by 1.2 million barrels per day, asks the question of when will the oil price return to previous levels.

A production cut doesn’t necessarily mean the oil price will sky-rocket, it will take some time for the price to recover to previous levels. The slow recovery to previous levels will be worth the wait.

As seen below, oil has been coming off throughout the past couple of months:

Oil (ASX OOO) - Will oil be the next rally - Bloomberg Brent WTI

Where is the oil price going?

The recent production cut agreed to by OPEC of 1.2 million barrels per day will certainly affect the price of oil, but as there is no date for the production cut to come into effect has made for the potential volatility to both the downside and upside certain. The volatility was voiced on the 18th December as “planned production curbs by global producers, led by Saudi Arabia and Russia, failed to allay concerns about oversupply stoked by swelling US shale output; saw Brent crude tumbling 5.6%, and WTI down 7.3%”.

There are still some factors hindering the rise in the price of oil. Fear of weaker demand for oil has oversupplied the market due to the potential global slowdown in the global economy, supported by recession fears. The US-China Trade War also poses a risk, if they don’t reach an agreement will deter economic growth and thus decrease the demand for oil.

President Trump doesn’t help with numerous statements of his joy for a low oil price, and now with US production being the largest in the world means there won’t be any commitment from the US to limit oil production. Saudi Arabia also just had their largest on record output of oil, oversupplying the market.

Factors counteracting low oil price

The commitment by OPEC to cut oil production by 1.2 million barrels per day weighs heavy, supported by sharp declines in output by Iran because of sanction waivers from the United States. Venezuela has also slid in their output due to the turmoil in their country. Libya’s largest oil field, El Sharara, has been halted due to security concerns.

US shale oil has a large contribution to oversupplying the market, but there is one key fact that hurts the output from the United States. Majority of shale producers are only in profit after $50 US WTI per barrel, after this they will run into loses. If the oil price stays at these low levels will naturally correct the effect, causing production cuts by shale producers till oil prices recover; otherwise, they will incur too many loses.

Demand tends to pick up from January onwards due to the Northern Hemisphere demanding more oil coming out of winter.

Oil (ASX OOO) - Will oil be the next rally - 2017 WTI Crude Oil Futures Seasonality

When will oil fight back?

In theory, it will take a couple of months after a production cut for the price of oil to react to demand pressures.

Supported by the seasonal demand pressures from January onwards will hopefully see a gradual increase in oil price over six months, this is on the basis that supply has dropped and economic growth continues. If China & the United States don’t reach a trade deal will place downward pressure on the oil price as global economic growth will be expected to fall.

How to gain exposure to oil?

The ETF-OOO provides investment results that correspond to the price and yield performance of the S&P GSCI Crude Oil Index, with a currency hedge against movements in the AUD/USD.

As you would expect OOO over the past few months has dropped from $21 to $13.

There is a strong probability the oil price would stabilise and gain over the next few months due to production cuts from Canada, OPEC and Russia set to come into effect after January. If the United States & China reach a trade deal will boost the expected outlook for global economic growth, placing more global demand for oil.

Buying the ETF-OOO is a good opportunity for a short-term, high-risk trade, with potentially great upside.

This article was researched and co-produced by Jean-Marie Klumper, an Adviser at MF & Co. Asset Management.

Is the S&P500 (SPX) Oversold?

by Henry Fung - Partner Managing Director Henry Fung - Partner Managing Director No Comments

With the recent volatility in the markets and a major correction underway since the start of October, the end of the correction doesn’t look to be anywhere close to over. However, could we be seeing some temporary support at this level as the market becomes heavily oversold?

A number of indicators are indicating that the market is increasingly oversold with fear in the markets very overdone. If the US markets can capitulate and find some support at this level, we could see a strong rally into Christmas and perhaps into January. This will give world markets such as the Australian ASX 200 some much-needed relief.

CBOE Equity Put/Call Ratio over 1.5x

The CBOE Equity Put/Call ratios are the highest (1.562) since 15th January 2016. The Put/Call ratio is considered a contrarian indicator as equity options are generally traded more heavily by retail investors and is a good indicator of fear in the markets. Generally when fear is at maximum and investors are buying a disproportionate number of puts, which it is now, the market tends to capitulate and reverse.

S&P500 Put Call Ratio

the US market made a full recovery and into a raging bull market from a low of 1812 in January 20th just 5 days later to a high of 2909 on 10th May 2018, up 60%.

The other time that the put/call ratio got this high (1.5+), was 8th November 2016, where the market then made a low of 2100 on the same day,  before rallying to a high of 2909 on 10th May 2018, up 38%.

S&P500 Put Call Ratio

52-Week Lows at 119

The 52-week Lows on the S&P 500 is also running at extremes at 119. This indicator looks at how many stocks on the S&P 500 made new 52 week lows. Generally, when the indicator crosses down from more than 40 stocks making new lows to less than 40 stocks making new lows, the market has found a temporary bottom as the market capitulates from being strongly oversold.

As the indicator is now running at 119, which is exceedingly high, we can expect the market to find a temporary bottom in the next few days as the number of new lows drops back below 40.

S&P500 52-week Low

Based on these indicators, there is a strong possibility that the US market has at least found a temporary bottom giving equities across the world some much-needed relief coming into Christmas and potentially into January.

Top 3 Best Small Cap Stocks To Buy Now On The ASX For 2019

by Henry Fung - Partner Managing Director Henry Fung - Partner Managing Director No Comments

Even though small-cap stocks tend to have much more risk and volatility involved than blue-chip shares, having some exposure to small caps and their potential upside can add strong upside potential for your portfolio.

A compliment of small-cap investments in a blue chip portfolio can be the shot needed to add that extra 5-10% in capital growth you probably won’t see in big players such as Commonwealth Bank, Wesfarmers and QBE.

With the market correction towards the end of 2018, small-cap and growth stocks have been hit hard. With prices much lower than towards the middle of 2018 and valuations well off its highs, there are a lot more opportunities in the market now that you can get set on for the next rally up.

The best small cap stocks to buy now are generally driven by three factors within the markets, understanding these forces helps us time the market and buy or sell small-cap stock at the most opportune moments. Read more

Top 5 Best Dividend Stocks To Buy Now On The ASX For 2019

by Henry Fung - Partner Managing Director Henry Fung - Partner Managing Director No Comments

If you are entering a stage where you are looking for stocks that pay a strong, reliable and predictable dividend, the best place to look is for companies that are mature and dominant in their field.

With the market correction towards the end of 2019, a lot of stocks which were trading at a lower yield due to strong a stock price are now yielding much higher than before. The great thing about corrections in the market is that even though the market is pricing stocks at a much lower price, the fundamentals of the stock hasn’t changed. This means that there are many bargains to be had when markets correct.

If you are looking to buy these stocks for the long-term and looking for a strong stable dividend, these are some of the best dividend stocks to buy now on the ASX for 2019.

However, if you want to time the market and maximise your dividend yield by purchasing these stocks when they are oversold, check out our article here on how to buy income stocks using technical analysis. Please note that all the dividend yields are quoted grossed up which means it includes the franking credits and will also be higher or lower depending on the share price on the day.

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Top 5 High Growth Best Stocks To Buy Now On The ASX For 2019

by Henry Fung - Partner Managing Director Henry Fung - Partner Managing Director No Comments

Picking the best stocks to buy now is hard, but if you dig hard enough, the ASX has a number of hidden gems that can provide strong growth for your portfolio.

With the correction towards the end of 2018, growth stocks have been hit hard and brought down some of the more ridiculous valuations investors have priced in. Even though the stocks have become cheaper, the narrative of the story hasn’t changed. This means with a correction comes opportunity.

Growth stocks are generally driven almost entirely by qualitative factors such as first mover advantage, quality and quantity of assets, permits and technology. Quantitative factors such as profit, revenue and so forth taking a back seat. Even though it is imperative that their financials are sound, when it comes to growth stocks, we are buying the story and perceived future value.

However, the very nature of valuing companies through qualitative factors means that there is a lot of room for error, opinion and subjectivity. This means that high growth stocks tend to be small-cap, high risk and highly speculative.  Read more