Tuesday, July 14, 2009

Defensives looking bid?

Wonder what the equivalent of "my internet connection is down" was in the Victorian age? Wait, I was around then (well almost). Guess I just went to the pub early...

Anyway, to finish on this defensives theme from earlier...a couple of points:

1) Note that Tuen Driasma has suggested buying defensives in the current market...TPC has the relevant slice of Morgan Stanley's research.
2) Seems like there has been a undercurrent of institutional interest in the infrastructure sector locally over the last month - apart from the buying of CEU by CP2, I'm hearing of bids in the likes of SKI and DUE, and even the diminutive VIR had Australian Ethical go 'substantial' recently.

My picks for the sector are:
- CEU as a growth asset, attractively priced with corporate appeal but not without its probloms
- TCL as a diversified portfolio with good mgt and inflation linked revenues and manageable leverage
- ENV as a mature portfolio with fully cashflow funded incremental growth and manageable leverage
- DUE as a mature portfolio with fully cashflow funded incremental growth and a strong balance sheet
- VIR as a renewables portfolio that is dysfunctional at the corporate level as it reduces debt

More on this later...

And back to that TTS chart...the things I like about this are:
1) Momentum and RSI have consistently been trending higher since the low in March 2008. That's a relatively long time to fluff around in consolidation mode - particularly in the context of the market lows in March 2009.
2) Resistance around $2.60 is close. It's where the trend line from the absolute highs comes in, and also where the moving averages have flatlined to as price has traded the broader $2.00 and $3.00 range.
3) Slow stochastics are at a level where a buy signal is also not far away.

Conclusion - maybe I'm early in dipping the toe into the water and buying some at these levels (a lower risk position might be on a break of $2.60). But I like the stock - its management and its risk/reward valuation (more on this later too). And it fits with my defensives theme.

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