The great news, irrespective of your political bias, was that this time, there was a decisive outcome from the Australian election. While things are unlikely to be plain sailing in the upper house, the reality is that the parliament has a clear mandate and much to do.
How bad is it?
The Abbott Government’s job is likely to get a lot tougher as the real figures emerge from Treasury and various other departments as to the true state of affairs – these will be horrific and far worse than many would imagine.
Anecdotal evidence reflects the recent lack of business confidence in the engine room of the economy – the private sector. Confidence is everything. The ANZ Job Advert survey shows figures at a very dismal 5% above the low of the GFC – enough said.
This will likely change – not because of an overnight miracle turnaround, but -because there is now a majority Government that has set out a clear mandate. Stocks like SEEK, for example, should therefore enjoy a little more favour than they have had for some time.
So where is the real profit opportunity?
Great question to be asking and of course there are always opportunities but which areas do we favour to outperform and why? One thing to bare in mind, this is all about confidence – not hard facts. This is a key distinction as markets react to sentiment – driven by confidence, and not necessarily through actual facts.
A good example of this on Monday was McMillan Shakespeare Limited’s, a beneficiary of any reversal of the recent Labour FBT changes actually fell on Monday – why – because it had its run based on sentiment, from the week before, as it became clearer that there was going to be a change in Canberra.
RIO and BHP are likely to enjoy some level of improvement on the back of a more positive level of business and investment confidence over the coming months. Now months, from our strategy perspective, is an awful long time – as we are looking to be riding monthly income, but none the less, our view is that this sector and in particular RIO and BHP will enjoy good gains.
With a continued outlook of lower interest rates, investors will be seeking yield wherever it can be achieved and Telstra is the perennial yield play. Solid profits, and profit growth, for the year to June, the expansion of the broadband network, and the high level of dividend yield will keep this stock high on the portfolio investor and SMSF client radar.
With a higher level of confidence, an already simmering property market and lower interest rates, the banks are likely to be big beneficiaries – aren’t they always?
CBA delivered a cracking result, just a few weeks ago and with Australian being declared open for business, expect it, and the rest of them to deliver growth in earnings and therefore share price. Add around this our desire for options premium too, and you have opportunity.
These are all broad stroke comments, because when its trade time, we will be issuing our recommendations – taking into account the technical entries and fundamentals, as well as premium at the time. If you currently do not receive our recommendations, click here and register for a free 7 day trial and see how you too, could be making the most of the new era for our great nation.