Stocks to Watch - 22 Aug 2016

Volume spike shares:

CMI - CMI Ltd
AHX - Apiam Anml Hlth

These two stocks had a recent spike in volume accompanied by a jump in share price. Watch over the next few days. Note that these have very low volume in general.

Both have PEs of less than 7. Both have projected high growth rates above 10%. Both are regarded to be of good value based on future earnings outlook. CMI has a divided yield of over 8%

TIPS - Dividend above 6.5, PE above 9

From the recent Motley Fool newsletter, which had a big tease about one stock with Dividend Yield (Grossed up) to be 6.5% and P/E forward looking as above 9.0, we can use a search of the ASX 300 shares to see which stocks fit this category.

VectorVest is used to filter the selection of stocks and the results are given below. The dividend used in the search is the actual dividend received by investors which is 70% of the grossed up value. The other criteria include:
Growth Rate > 10%
Recommedation = Buy

So the group of five stocks may contain the one Motley Fool was referring too - but even if it does not, then the list below still represent a good selection of strong stocks both technically and fundamentally.

Note: The VST is the VectorVest number and anything higher than 1.0 is good. It is made from the three components of RV, RS, RT indicating relative value, safety and timing respectively.

Company	Symbol	Price	$ Change	DY	RV	RS	RT	VST	Sector	GRT	EPS
Mirvac Grp	MGR.AX	1.545	0.02	5.18	1.42	1.23	1.36	1.34	Financials	17	0.11
ALS Ltd	ALQ.AX	9.8	-0.05	4.59	1.49	1.05	1.335	1.3	Industrials	24	0.8
Investa Office Fund	IOF.AX	3.03	0.06	5.28	1.34	1.16	1.21	1.23	Financials	15	0.23
M2 Telecom GP	MTU.AX	3.77	0.01	4.77	1.34	0.99	1.22	1.19	Telecommunication Svcs	15	0.31
Westfield Retail Trust	WRT.AX	3.13	0.08	5.43	1.21	0.97	1.26	1.16	Financials	11	0.3

TIP - Making New Highs

The following have been identified as making new highs. These are not penny dreadfuls stocks. Apart from their technical trends, they also enjoy relatively good earnings (EPS) and growth. Feel free to do your own research on these stocks.

WHF - Whitefield
AHE - Automotive Holdings
AAX - Auscenco
LLC - LendLease Corp

Tip - EAX

Definition TIP = very little fundamental analysis, very very quick technical analysis.

Detailed: Each tip is obtained from some selection criteria which identifies a worthwhile looking stock. Then a very brief commentary and its graph are posted here.

Before going to today's tip, LOOK UP the price for our previous Tip: NUF and JHX and check against
http://ozstock.blogspot.com.au/2012/07/tip-nuf-jhx.html

Today's main exciting stock is: EAX - ENERGY ACTION LTD FPO
Fundamentally, the earnings have been rising - this could be one main factor driving the price action. The price rise is strong with the moving average of short leading the long term. The price has broken away from a period of flatness.

MCR - Mincor Resources.
The price action shows the downward trend is tapering off. Recently it looks as if it has bottomed and rising slightly. Although this is early stages, it may be good to keep watch of this. From a fundamental view, the earnings has plummeted for some time, but also showing signs of tapering off.

PMV - Premier Investments.
This is showing potential upturn, but one should be more cautious. Although it looks like coming off from a bottom, it has not decisively change the major downtrend pattern. Also there is no indication of increased earnings.

REH -  Reece Australia
The price actions looks to be coming off very smoothly from a bottom. Again caution is needed because the earnings is still at the bottom.

Valuation - the VectorVest way.

This is an explanation of how the VectorVest system calculates the value of a company.
(For other ways of valuation, see:
Warren Buffet's 1981 Formula for quick valuation   )

The P/E ratio is a common and simple ratio used to estimate the value of shares. It can be used to compare with P/E ratio of different companies in the same sector to see if the share is overprice or underprice. However, the PE ratio is very inaccurate as many stock analyst would know, but still uses from time to time.

The other funny result from P/E ratio is that for companies with No Earnings or making a loss, then the P/E ratio is infinite, hence not published. A better way is to look at the E/P ratio, for companies with no earnings, then the E/P ratio is zero.

Another quantity is the Earnings Yield, calculated like:
        EY = 100 x P/E
but we can use the E/P ratio in there like:
        EY = 100 / (E/P)

The E/P ratio is more intuitive because it is like Dividend / Price which is the Dividend yield, since earnings is like dividend.

Another very important relation that the VectorVest founder discovered is like investors will invest in bonds when stocks are performing poorly and then return to stocks when they perform better. So investments cycle back and forth between bonds and stocks. In the overall picture the yield from both are the same. Bonds yield are determined by interest rates (IY), so
         EY = IY

Now using the previous equations for Earnings Yield (EY), we have
         100 * (E/P) = IY

To find the actual value of the company, instead of price, we use the Value variable (V)
         100 * (E/V) = IY

So the value of a company is:
V = 100 * (E / IY)

This gives a value of a stock such that if we assume we want to get at least the interest rate of fixed bonds, then this formula tells us the value or price to pay. So if the price of the stock is much lower than V, then it is undervalued.


Here are a few useful strategies:
- Look for Green light
- RT 15 SMA > RT 10 SMA
- VST Mighty Mites