23 October 2021
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REUTERS/Melanie Burton

The big miners dominate trading

Gemma Dale
17 September 2021

The ASX200 rose over half a percent on Thursday, to close up over 1.2% over the previous five days. This is a turnaround from the first week of the month, which saw weakness across the market. September is typically the share market’s worst performing month, both domestically and overseas, but with 11 consecutive months of gains to the end of August, a pullback would not be surprising, which makes this week’s strength all the more pleasing for investors. Volumes are well down on the heady days of reporting season, with investors happy to sit on the sidelines and wait for their recently declared dividends to start rolling in; over $40bn is expected to be paid in the next few weeks.

The big trade for investors continues to be Fortescue Metals Group (FMG) and the big miners. The iron ore price has collapsed to around $US124 a tonne at the time of writing, although it still sits marginally above its 52 week low of $US116 and is more than double Treasury’s long term price target of $US55 a tonne, to illustrate how extraordinary recent highs (touching $US220) have been. Fortescue’s share price, currently $17.25, has mirrored the price of its primary commodity, falling over 20% in the last month, and is roughly flat over one year, despite reaching $26.58 earlier in the year. It went ex-dividend last week, with investors holding at that date receiving a yield of over 20%. It fell a further 3% on Thursday, and was a hugely strong buy among nabtrade’s many value investors. BHP (BHP) was a strong buy on Wednesday’s fall, but a sell on modest strength on Thursday, when it rose nearly 1%. BHP is also down over 20% over the month. Rio Tinto (RIO) has been a consistent buy, on smaller volumes.

Relatively quiet periods often bring heavy trading in resources, and post reporting season 2021 is no different. Beyond the heavyweights in iron ore, Pilbara Minerals (PLS) fell nearly 5% on Thursday, but is up over 600% year on year and has been sold heavily by nabtrade investors over recent days. Battery metals, including lithium, are currently trading at multi-year highs, and PLS’ recent auction delivered extraordinary prices for the commodity. Sayona Mining (SYA), up nearly 2000% over twelve months, and Orocobre (ORO), up a comparatively measly 250% yoy, were also sold as investors locked in profits.

Among the blue chips, Telstra (TLS) touched $4 briefly on Thursday, and patient investors enthusiastically trimmed their positions, before the price fell away slightly to close at $3.95. AGL Energy (AGL), a former blue chip, continues to present a conundrum for investors who find it difficult to resist a bargain. At $5.91 it is only just above its 52 week low, and is down nearly 60% year on year. Over five years it is down 65%. Some brave souls continue to pursue the stock, with a 90% buy on Wednesday.

Former darlings Afterpay (APT) and Zip Co (Z1P) have also found buyers this week. Afterpay is awaiting finalisation of an all-scrip deal with US payments giant Square Inc, but the share price has drifted down from the $130 price at which it settled after the deal was announced. Some investors are holding out for a better offer, and believe $122 may offer upside in that scenario. Z1P was widely traded until the APT-Square deal was announced, and has since gone quiet, but at around $6.50, some investors continue to see value, particularly if there is consolidation in the buy now, pay later space.

On international markets, one stock that has garnered interest from wealthy investors is Enphase Energy (ENPH.US). Many Australians may have heard the name before – Enphase is the producer of solar energy micro-invertors that power many of the rooftop solar systems that Australian homeowners have adopted with extraordinary enthusiasm. Enphase is also offering scalable battery storage solutions, which are likely to only increase in popularity as Biden’s ‘green wave’ investments increase in the US and the world transitions to net zero. Trading on a price to earnings ratio of around 80x, it is not cheap – but growth rarely is.

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