Mining services still in the dog house
We continue to gloss over results as reporting season ramps up and nears the end. Last week we wrote about certain parts of the market we’re watching and the lack of conviction around the mid cap space. We thought it would be appropriate to update our view on mining services stocks following recent numbers.
Early last month we wrote “But when is the next cycle? That is something we aren’t sure about. What we do know is the mining services stocks are being priced for collapse. Companies that don’t collapse can expect to double or triple their market value in the next one or two. So we’ve started to run the ruler over certain names. Many of the good ones have already moved significantly above their lows. These are very low levels, so rallies are still in the overall context not discouraging from a valuation perspective…”
Following that note, we published several recommendations to Invast clients. For example, we published a note calling BLY a buy at around the $0.10 level. The stock ran up by around 70% in the preceding two weeks.* After a measured discussion among our team, we decided to take profits and issue a sell recommendation, crystalising the gain. As of the time of writing, BLY is trading at around $0.125 – so the trading result was perfect in hindsight.
We’ve been keeping an eye on other mining services stocks, like Monadelphous (MND) for example. The recent result shocked the market and the stock came back after a strong rally. We don’t necessarily think the sector is expensive, but with results now in, there is a real lack of conviction among investors. It’s hard to see what the catalyst will be for mining services stocks.
So we continue to monitor the space closely and will most likely issue trading recommendations when stocks approach ridiculous levels again. US 10-year bond yields have ticked up a notch since our note, we think the Fed will raise rates in the fourth quarter and when that happens, there is likely to be an equities re-rating. We need to see some better jobs numbers out of the US next month before that Fed narrative builds.
When we see the opportunity open, we will act swiftly. As always, only Invast clients will get access to these premium notes. Like that gain in BLY shares over a two week period. If you’re not yet a client, we’ve made it simple to get onboard.
Execution costs for ASX stocks are 0.06% (6 basis points) above minimum charge, which means for a trade with a notional exposure of AUD 10,000, the applicable commission is only AUD 6.00.
*Past performance is not indication of future performance. These performance exclude financing and commissions costs.
Chief Market Analyst
Peter Esho is a member of Invast’s Investment Committee and Chief Market Analyst at Invast Financial Services in Australia. The Invast’s Investment Committee constructs professionally constructed global thematic portfolios of Direct Market Access (DMA) CFDs over highly liquid global shares and ETFs through its new PortfolioInvestor platform. Since 1960, the Invast Group has grown to become one of the largest and most successful global brokerage firms, offering state-of-the-art trading technology and unparalleled service catering to all levels of traders.
Invast Financial Services Pty Ltd (ABN 48 162 400 035) is regulated by the Australian Securities and Investments Commission and holds an AFS Licence 438283 which authorises it to carry on a financial services business in Australia.