Emanuel Datt

Chief investment officer, Datt Capital

That’s the latest earnings season done then. What did we learn?

According to Datt, the person, Emanual, it all points to a rocky road ahead for the Australian economy. Dammit.

“Labour shortages, inflation and an increasing cost of capital are three of the most visible take aways from the current crop of company postings,” he said. But there were some pointers to guide investors through those potentially troubled times.

The cost of labour is rising. That favours the mining industry, because the mining industry is best placed to meet high wage demand once workers start leaving industries such as logistics and construction in the hunt for more cash.

In an environment of rising costs, you don’t really want to be in discretionary retail. It’s much easier to pass those costs onto consumers if you’re in insurance and non-discretionary retail.

So given that, according to Datt Capital, the equities investment manager, these three stocks are looking especially attractive.

QBE Insurance (ASX:QBE): Datt said QBE is a general insurer that is well diversified, by business line and geographically. As a general insurer, it will benefit from increases in premium rates as well as increases in interest rates given its investment portfolio’s asset allocation.

Woolworths (ASX:WOW): “Woolworths is primarily a food retailer and benefits from higher food prices as it is able to preserve margins by passing costs through to its customers,” he said.

“The large scale of its business means this can be performed in a targeted manner.”

NIB Holdings (ASX:NHF): NHF provides primarily private health insurance to customers in the ANZ region.

“Health insurance is a fairly ‘sticky’ product where premium increases can be passed on relatively easily,” Datt said.

“It will also benefit from rising interest rates from increased yield on its investment portfolio.”

 

Adam Dawes

Senior investment adviser, Shaw and Partners

But… with earnings season comes divvies. Everyone loves divvies.

There are a couple of ways to play the dividend game. “You can buy a stock before the ex-dividend date, hold it long enough to receive the dividend, and then sell it,” Dawes says.

The ATO kind of frowns on it. It’s called Dividend Stripping, so if you want to claim the franking credits, you have to have held the stock for 45 days first.

Or you can play the longer game. That’s watch and note which stocks are good dividends payers, then wait until they go ex-dividend. In theory, a stock should drop by as the dividend amount, so you can pick it up at a discount, and hold it for 12 months, which gives you a shot at a capital gain plus the divvies next time around.

This year, more than 88% of ASX200 companies issued a dividend. Here’s the top five according to yield – that is, the percentage of their share price that got paid out to investors:

Yancoal (ASX:YAL), 53c, 15.60% yield; Fortescue (ASX:FMG), 75c, 11.10% yield; Woodside Energy (ASX:WDS), $2.11, 10.80% yield; Whitehaven Coal (ASX:WHC), 32c, 8.40% yield; and BHP (ASX:BHP) $2.55, 7.70%.

Pretty stable lot, that. And in Small Caps Land:

My Food Bag Group (ASX:MFB), 3c, 27.70%; Fenix Resources (ASX:FEX), 5c, 20.60%; Sunland Group (ASX:SDG), 4c, 20.10%; Earlypay (ASX:EPY), 2c, 16%; Pengana Capital (ASX:PCG) 2c, 14.50%.

Which looks tempting but remember, a higher dividend yield however doesn’t automatically translate to great companies. Stockhead’s own Eddy Sunarto tells us that.

“Yields could be high due to several factors, including a depressed share price.”

Barry FitzGerald

 

And finally, what’s Garimpeiro eyeing off this week?

Uh-oh. He’s in Save Reputation mode, because a couple of gold developers he noted were looking cheap last year ahead of potential re-ratings are now looking… cheaper.

The theory went that Red 5 (ASX:RED) and Calidus (ASX:CAI) might get a share price boost after their upcoming first production.

At the time, Red was trading at 26c for a market cap of $600 million and Calidus was a 69c stock for a market cap of $278m. But a year and a bit later, Red is back at 14c for a market cap of $450 million, and Calidus is at 23c for a market cap of $101 million.

Caveat time – Garimpeiro did warn the strategy only worked if the new gold mines lived up to expectations. Which they clearly didn’t.

But wait, wait – a couple of quarters into production, and there are signs both are getting the early production wrinkles ironed out.

It took Red a bit longer than expected to get down to the high-grade stuff, and it’s forecasting a production rise of some 50% this half. Calidus has been working on improving grade reconciliation, expects costs to start dropping, and has set guidance for 31-36,000 oz this half.

That’s close enough to its inital annual target of 80,000oz to warrant another look. And some “early stage exploration” for lithium has been encouraging.

What Garimpeiro’s saying here is… maybe both have been sold off a bit too much?

The views, information, or opinions expressed in the interviews in this article are solely those of the interviewees and do not represent the views of Stockhead. Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.

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