Gold is shining on trading platform Stake. ASX: Getty Images
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Online brokerage platform Stake reckons investors can continue to expect market volatility in the coming months as the full impact of rate hikes feeds through the economy and company revenues are affected.
Stake ASX equities analyst Dylan Zhang told Stockhead that despite after 10 consecutive rate hikes the RBA left rates unchanged at 3.60% at its April meeting, it doesn’t mean the inflation fight is over.
He said while Australia’s inflation has declined to 6.8% in February YoY, from 7.4% in January it remains high and above the RBA’s target of 2-3%.
“Inflation still remains high, and given Australia’s sensitivity to rates, due to a high percentage of variable and short-term fixed rate mortgages, the RBA is likely pausing to see the full effects of the previous increases,” he said.
“It does appear that we’re nearing the end of the hiking cycle but exactly how close is yet to be seen.”
Zhang said given the uncertainty, investors can expect continued market volatility in the coming months.
He said while some may be tempted to increase their exposure to tech growth stocks in anticipation of lower rates, things can change quickly, as demonstrated by the collapse of Silicon Valley Bank and Signature Bank in the US along with Switzerland’s second largest bank Credit Suisse in March.
He said the rise in gold prices shows that investors are still positioning for continued market uncertainty. After several attempts in March the precious metal breached the psychologically important US$2k/oz mark last week.
Zhang said Stake investors are seeking to capitalise on this, with a 65% increase in buy orders of Northern Star Resources (ASX:NST) over the past week, and a 52% increase in buys of the Global X Physical Gold ETF (ASX: GOLD) over the same period.
“We’ve also seen investors looking to gain exposure to sectors that are either less cyclical, hold up well during times of volatility or those benefiting from current events,” he said.
Here are Zhang’s three standout stocks on the Stake platform right now:
Casual dining and takeaway services generally perform well during downturns, as consumers are forced to tighten their belts and go for budget options. However, DMP has been heavily sold off over the past year, as inflation cut into the company’s profit margins, which has ultimately led to a 36% drop in the share price over the past 12 months.
“Inflation is cooling, yet consumer confidence is still weak, and this could work in Domino’s favour as people look for cheaper food options,” he said.
Zhang said CEO and managing director Don Meij admitted that the company had made mistakes on pricing over the past year, and the company is rapidly shifting focus to prioritise value once again.
“Given Domino’s brand recognition, physical scale, and reputation as a low-cost option, the company is well positioned to meet the demands of struggling consumers if it gets its strategy right,” he said.
Following news of Tuesday’s rate pause Stake has seen a 150% increase in investors adding DMP to their watchlists.
“That said, while the inflation picture is looking a little more benign in Australia, it’s worth noting Domino’s also has exposure to European markets including Germany, the Netherlands, and France, and the inflation picture across different nations is still mixed,” he said.
Healthcare remains defensive as the sector is less cyclical to economic conditions and the sector has seen increased interest in Stake over the past few weeks.
Melbourne-based NEU develops treatments for neurodevelopmental disorders, and has gained significant attention recently, after its patented world-first treatment for Rett syndrome was approved by the US Food and Drug Administration (FDA).
Zhang said NEU’s share price has already increased by 67% over the past month but there is still room for growth.
“The product (Daybue) is set to be available in the US by the end of April, and Neuren is entitled to royalties and milestone payments under a licensing agreement with Acadia – with income totaling more than $50 million after the first commercial sale alone.”
Neuren currently owns the rights to commercialise the drug in every location outside of the US, Canada and Mexico, offering significant potential for new approvals. Its second patented drug, NNZ-2591 is also under review by the FDA as a treatment for conditions including Phelan-McDermid syndrome, Angelman syndrome, Pitt Hopkins syndrome and Prader-Willi syndrome.
Unsurprisingly, Neuren shares have been popular on Stake over the past 30 days, with a six-fold increase when compared to the previous period. While the future looks promising, drug approval processes can be long and expensive, and Neuren still has significant work to do.
Zhang said as global tensions rise, defence is one of the few sectors where investment is actually increasing, and DRO is proving popular with Stake investors.
DRO produces guns that send a burst of frequencies that overwhelm drones, forcing them to land or return to the controller.
“While Droneshield can undoubtedly be described as a growth stock, the company has had no issues in raising capital or growing revenue since the deployment of its products in Ukraine to take down Russian drones,” Zhang said.
“It raised $10.9 million through a placement in February, and secured two $11 million deals from unnamed sources in December and January, leading to an almost 60% jump in revenue for the last quarter.”
Zhang said given DRO’s $190 million market cap, it seems there is a lot of room for growth, but it’s important to note that the company has not yet reached profitability.
He said while capital is currently available, this could change if geopolitical priorities shift.
“The share price has already increased by over 80% in the past six months, but Droneshield claims that the applications of its technology go far beyond the battlefield, with demand from the likes of airports, prisons, energy facilities, and event organisers,” Zhang said.
“The company claims an addressable market of US$10 billion but investors will need to decide whether they believe its rapid growth can be sustained.”
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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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