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Julia Lee
Expert
+ About Julia Lee

Julia Lee is an Equities Analyst with Bell Direct. She is also the Head Media Presenter at Desktop Broker, providing financial commentary to SKY News, SKY Business Channel, Bloomberg, ABC radio and on the internet.   

Julia has over 10 years of experience in financial markets and previously was Head of Fundamental Analysis for a leading sharemarket educator as well as running investor education for an Australian bank.

You can see Julia hosting the Tuesday shares session of 'Your Money, Your Call' on the SKY Business Channel every Tuesday from 8pm-9pm where she takes live calls from traders and investors.

She is also a regular contributor to industry publications and is a frequent speaker at the ASX Investor Hours, Australian Technical Analysts Association and CPA Australia conference

Gold! Gold! Gold!

Tuesday, November 13, 2018

Unlike steel, for most of us, gold can’t be used for cars, to build office towers or for many other practical purposes. Yet for centuries, we’ve been obsessed with this largely useless metal. With talk that growth is rolling over, is now the ideal time to talk about gold? Julia Lee Equities Strategist at Bell Direct answers these questions on the glittery stuff.

Why do people invest in gold?

There’s 3 key reasons to look at gold:

1.     As a hedge.

2.     As a safe haven asset.

3.     As an investment.

Let’s go through each one of these in more detail:

• Hedge

When looking at gaining the benefits of diversification, it’s about choosing assets that don’t move together. Gold moves differently to equity and bond markets. Gold can be an important part of a portfolio because its price often moves in response to events that can see shares or bond prices decline.

• Safe Haven

When the stock market crashes, gold can see safe haven demand. If you think that markets will see increased volatility and wish to profit from that view, then gold is one way to take that view.

• Direct investment

Many investors buy gold to hedge against the US dollar. As a currency falls, it creates higher prices in imports and inflation. As a result, gold is a defence against inflation. Recently, with the US Federal Reserve raising interest rates, the US dollar has been moving upwards and therefore the gold price has come under pressure.

What’s the outlook for gold?

A stronger US dollar makes gold more expensive for overseas buyers. Rising interest rates also make gold less attractive. On the converse, looking out 18 to 24 months and if you think that we have seen the peak for company margins and earnings growth, then we may see a turbulent time for equities, which could be good for gold. A stronger dollar makes gold more expensive for overseas buyers, while higher Treasury yields make the metal less attractive.

Are there seasonal factors that affect the gold price?

Yes. During Indian wedding season, which runs October to December and again from mid January to end March, India can account for 20% of global demand for gold, according to the World Gold Council. Last year, these periods saw Indian gold imports increase by 67% to 855 tons. Hence physical buying can offer some support to the market.

How do you analyse gold companies?

Key things to look at include: cost of production, any hedging in place, mine life, new technology, water supply, power and currency.

Do you go for gold stocks or ETFs, gold coins, gold bars etc.?

If you are looking to gold because you think there will be a stock market crash, then physical gold would be better. That’s because when there’s a crash, all stocks tend to be sold off, including gold companies. If you’re using gold as a hedging tool, then a gold ETF or gold companies are popular. From an investment perspective, gold companies offer great potential upside and downside compared to physical gold coins or bars.

What’s your favourite stock/s?

I’ll give you two stocks.

1. Saracen (SAR) is an Australia-focused gold explorer. In terms of growth, it has outlined a plan to increase production to 350koz/pa, however with crushers, this could be pushed to 400koz/pa. The cost of production in the September quarter was AISC $993/oz.  It has a strong balance sheet with around $131m net cash.

2. Northern Star (NST) is another gold stock, with ambitious growth plans. The acquisition of Pogo means three tier 1 assets. Adding Pogo means that it’s hard to compare metrics with past quarters. The last quarter saw production costs at ASISC $1122/oz. There is upside from increasing its production profile and margins.

 

My gambling stock tip

Thursday, November 08, 2018

Australia is the world’s most lucrative gambling market. Australians spend over $23 billion a year on gambling. Per adult, that’s biggest in the world – around $1,250! 

Electronic gambling makes up around half, at $12 billion. Casino gambling accounts for $5 billion, racing $3.3 billion and other sports $1 billion. 

The opening of online markets for gambling is bringing about change e.g. Ireland and Finland are moving up in the spending stakes. As other markets open, together with the high smartphone penetration in developed economies, this is likely to be the big area of growth.

Gambling related companies

Electronic: AGI, ALL, AQS

Casino: CWN, SGR, DNA, RCT, SKC, SVH

Lotteries, sports betting: JIN, TAH, TBH

The best performer over the past 52 weeks is Jumbo Interactive (JIN), up 157%, while the worst has been The Betmakers (TBH), down 83%.

What to look for

Structural issues: a shift and an opening of markets in online gambling is seeing a shift of growth from traditional bookies to new entrants. 

Regulatory: changes in licensing requirements. Costs are always a risk in this area.

Scaleability: the higher the scaleability of the business, the easier it is to grow into new markets.

My pick: RCT

Reef Casino Trust owns the Cairns Casino in North Queensland. The trust’s main source of revenue is rent from the Reef Hotel Casino. The trust saw half year revenue up 14%, net profit up 32% and a dividend yield of 8%. With subdued activity, related to the arrest of marketing staff from Crown now subsiding, Reef Casino Trust should benefit from a slow return to normalised flights and activity from China. In terms of risks, the trust holds significant single property ownership risk and increased competition from clubs and hotels in the area of electronic gaming. Its major shareholder, Casinos Austria, owns 42%.

 

My tip in the consumer discretionary sector

Thursday, November 01, 2018

Consumer discretionary includes retailing, media, gaming, services and automobiles. While the market is now down 3% for the last 52 weeks, consumer discretionary has had a flat performance.  

In this time, there have been some wild swings. G8 education is down 56% in the last 52 weeks, while IDP Education is up 64%.

What drives valuations in this space?

Consumer confidence, the wealth effect, organic growth, store rollouts and competition are the key areas to analyse when looking at this sector. The sector is cyclical in nature and highly tied to the economic cycle. Once business is mature, usually significant risk is undertaken to try and ensure growth. This is usually in the form of expanding to other overseas markets.

What investors should keep an eye out for

Structural change has beset this sector for the past decade. We’ve seen a move from “bricks to clicks”. Still, niche players have enjoyed strong sales, usually driven by a strong internet presence and in-house brands that offer higher margins.

Warning signs

This sector is cyclical and there have been several soft trading updates in recent weeks, including from MHJ, TRS, SUL, NCK, FLT, WPP, MEA, BAL, KGN & BWX. 

Favourite stock in this sector?

All Baby Bunting’s four largest competitors have gone bust. Generally, in the immediate period after a competitor goes out of business, there is irrational pricing as inventory is cleared. While in the short term, this is a negative for competitors, in the medium term, this is a positive for existing players. Market share due to this should improve over the next 12-18 months for Baby Bunting despite Amazon building out its range. Further, many big ticketed baby related products, such as prams and cots are items buyers want to try and research in person before a purchase, which gives Baby Bunting an advantage compared to internet-based offerings.

Currently, key brands such as Bugaboo and Britax, are not stocked by Amazon, which gives Baby Bunting a competitive edge. When analysing retail concepts, a combination of strong organic growth together, with a rollout of stores, is a winning combination. Baby Bunting has seen strong organic growth with the first six weeks FY19 seeing same-store-sales up 9.8%. With a rollout target of 80 stores, this should underpin improving growth in profitability. The company currently has 47 stores and has historically guided 4-8 new stores per year.

My tip?

BBN: all major competitors have gone bust. Last one standing. Buy

 

Is Speedcast a buy?

Thursday, October 18, 2018

Turmoil in the telecom sector presents an opportunity for investors. Recently, Speedcast (SDA $3.89) was sold off after disappointing investors with its profit numbers. 

Speedcast is a company that provides global satellite communication services. Companies that operate in remote locations still need data and the internet. 

Its customers range from cruise ships, defence locations, emerging markets or an oil rig. This company has four divisions: maritime, government, enterprise & emerging markets and energy. 

Three out of four divisions are growing well but energy has been a disappointment. 

Energy is cyclical and investments into new projects are starting to flow in. This should help uplift profit in FY2019 & FY2020. 

The risk is that this occurs later and its rather large debt burden becomes a problem. 

This is a company with good cash flows but a stretched balance sheet. Despite the wild ride in the share price, an improvement in revenues from greater investment coming from energy companies should provide upside to the current market valuation and alleviate the concern around debt levels.

Source: Finance.Yahoo.com

 

Is it time to invest in Senex?

Thursday, October 11, 2018

Oil and gas companies have been rallying strongly in 2018 on the back of a rising oil price and a lower Australian dollar. When it comes to evaluating oil and gas stocks this late in the cycle, it’s the smaller more leveraged plays that are likely to rise the most. 

Senex is a company that is fast tracking its projects. It’s getting ready to capitalize on years of good deal making. It has secured funding for key projects and hit key milestone. To top it off, it was awarded the first of 13 exploration tenements to be handed out by the Queensland government. When looking at tenements, it pays to look at the surrounding tenements and the quality of discoveries. The Atlas gas field, which was the tenement awarded by the Queensland government, is surrounded by tenements owned by oil giant Shell. 

This is a company that is lowering unit costs at a time when oil prices are rising, which is a beautiful combination. It is a higher risk investment but at this part of the global economic cycle, investments tend to get riskier and short time framed to find above average returns.

 

Is Mesoblast a buy?

Thursday, October 04, 2018

Getting a product to market in healthcare can be a long journey that can typically take eight years or more. 

Mesoblast has started to transition from a biotech to one that is bringing in revenues. 

With three Tier 1 products in late stage trials, there is plenty of potential for a blockbuster product. Those potential products encompass the big and diverse areas of cardiology, oncology and degenerative disease. 

Heart failure alone is a huge market, and this currently is where most of Mesoblast’s valuation comes from. 

All these potential markets are huge. The company is one that is at peak research and development spend. 

Over the next few years, you’ll see falling costs and rising revenue. With a recent investment from Chinese Pharmaceutical company, Tasly, the company has enough funding at least for the next 12-18 at the current cash burn rate. 

The hard work has been done here and it’s time for come big products to move from trials to commercialization.

 

Is it time in the market or timing the market which is more important?

Wednesday, March 11, 2015

By Julia Lee

It has taken 15 years for the tech focused NASDAQ to regain most of the ground it lost during the tech wreck of 2000. After gaining 24% in the first three months of 2000, the index managed to lose 51% in the remaining nine months of the year. The NASDAQ is now within striking distance of the all-time record high seen on 10 March 2000 at 5132 points.

For Australian investors wondering how long it will take for the Australian sharemarket to regain the ground lost during the Global Financial Crisis, are there any lessons that we can find by looking back in time? Let’s start by looking at past bear markets and how long it has taken for the market to regain lost ground.

While it can be daunting to examine bear markets, the sharemarket is one of the most attractive assets to help accumulate wealth over the long term.

Looking at the past

Looking at bear markets since 1970, there are seven instances of the market losing more than 20% from peak to trough. The average recovery time of the last six instances is three years and three months.


The bear market of 1973 was the largest percentage decline for the Australian sharemarket of the seven bear markets. It experienced a fall even greater in percentage terms than the decline of the Australian sharemarket in the Global Financial Crisis (2007). The bear market of 1973 saw the market falling 60% from the peak in January 1973 to the bottom in September 1974. It took more than 6.5 years for the market to return to the previous high.

For the 1980’s crash, the market fell 41% from the peak on 17 November 1980 at 769 points to the bottom on 8 July 1982.  The market managed to regain ground back to the previous high on 13 Dec 1983; more than three years after its peak.

The 1987 crash was remarkable in that it took the longest time for the market to recover to the previous high but the initial fall occurred in the shortest amount of time. The market peaked at 2383 points on 21 September 1987. It bottomed less than two months later on 11 November 1987, after the crash of “Black Friday”. It would take more than nine years before the market managed to regain the ground lost during the 1987 stockmarket crash. The recovery was complicated by “the recession that we had to have” in the early 1990’s.

During the recovery from the 1987 stockmarket crash; 1987-1996, there was another bear market which ran from 1989-1991. From the peak on 30 August 1989 to the bottom on 17 January 1991, the Australian sharemarket lost 33%.

1997 was the Asian Currency Crisis. The Australian market lost 21% in just over a month. The market peaked on 23 September 1997 and had bottomed just over a month later on 28 October 1997. It’s the shortest bear market that this article covers. It also took the shortest time to recover to the previous peak, managing to do so in half a year.

Australia managed to avoid a bear market during the tech wreck in 2000. The economy also managed to avoid a recession in the early 2000s, which plagued the United States and European Union. Despite this, the Australian sharemarket managed to enter into a bear market with a decline of 23% in 2002.

The final bear market covered is the 2007 Global Financial Crisis (GFC). The market peaked on 1 November 2007 and bottomed on 10 March 2009. It’s been more than seven years since the GFC began and the market still hasn’t managed to regain the high at 6873 points.

Risk versus patience

While long term investors are often sold the line that it’s time in the market not timing the market that’s important, the recovery from bear markets can often last longer than most investors’ appetite for risk. The 1987 stockmarket crash took almost a decade to recover from, while the 2007 GFC has already seen more than seven years pass without the previous peak being reclaimed.

The lesson from examining the past must be that it is important to spend time in the market and to time entry and exit points to the market. Despite time in the market being important, equally or perhaps even more so, risk management has a big impact on portfolio returns. Good risk management should incorporate how to manage losses with tools for risk management such as stop losses, put options or alerts to help cut losses early. Technical analysis may also provide warnings that the market may be about to, or has peaked. These tools can mitigate or help manage losses.

 

Shake, rattle and roll. What does volatility mean?

Friday, February 20, 2015

By Julia Lee

Crunching the numbers for the Australian market in the last 22 years since the ASX 200 index began is an interesting task. Did you know that the biggest moves up in the Australian market have happened during a bear market? 2008 saw the biggest positive moves for the index but conversely also the most negative ones.

Here’s a graph of the ASX 200 index in 2008:

 

What is volatility?

Volatility measures how much an asset value is likely to change.

The volatility of the market can be measured by a volatility index. In the US, that’s the VIX index. In Australia, there’s the S&P/ASX 200 VIX with code XVI.

What is the S&P ASX 200 VIX index?

The S&P ASX 200 index measures implied volatility, or the level of volatility that traders have priced in for the market. It is based off the option market.

Uncertainty tends to drive option prices higher, since it benefits from greater volatility. In fact, option pricing models, such as the widely used Black-Scholes model, use volatility as a key variable in calculating the fair market price for a given option series.

The XVI is based on the same principle. By taking actual prices for index options over the S&P/ASX 200, and plugging them into the option pricing equation, the index gives a reading of implied volatility. By using options with the right expiry date, the index gives us a reading on forecast volatility for the next 30 days.

The advantage of this approach is that it is based on real options trades with real money, rather than analyst predictions. As we all know, putting money at risk tends to concentrate the mind, so we can be confident that the index reflects traders' best guess at future market movements. It is also a well-established principle that the collective wisdom of markets can provide greater predictive power than the forecasts of individuals.

The disadvantage is that Australia's index options market remains relatively small and illiquid, potentially limiting the accuracy of the forecasts it generates.

Using the S&P/ASX 200 VIX (XVI)

Reading the Aussie XVI is simple: the higher the index, the higher the predicted level of market volatility. Importantly, indices of this kind have a tendency to 'revert to the mean', so that they tend to return to their long-term average over time. As a result, any level above the long-term mean indicates more fear and more volatility, and a level below the mean indicates less.

Generally a low reading on the S&P/ASX 200 VIX has a high correlation with a rising market while a high or rising read on the S&P/ASX 200 VIX has a high correlation with a falling market.

 

S&P/ASX 200 VIX (XVI)

The S&P/ASX 200 VIX (XVI) is sitting at relatively low levels, which is good news for investors. In fact, the Australian share market is hovering around seven-year highs. Be careful if you start to see the XVI start to move higher, because that may signal weakness in the Australian market. 

 

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