Bluescope – Where Are The Buyers?

Bluescope has sold off from $19 (mid-year), to now be trading at $12.10. The stock was expensive and we’re now back in fair value range.

The outlook is uncertain as US and Asian steel spreads contract and lower steel prices negatively impact forward earnings.

Also, leading indicators for the domestic residential construction market are creating investor concerns.

We expect cautious outlook comments from the AGM trading update on Friday, 23 November.

Watch for buying interest to build above the $10.50 support level.

Bluescope

 

Bluescope – Earnings Upgrade

BlueScope has upgraded 2H EBIT guidance to US$680m, this leads to consensus FY18 EBIT of US$1.2bn.

The upgrade driving higher profitability is due to stronger steel spreads in the US.

Bluescope was added to the ASX 100 model on the 6th February and is currently up 26%.  

ALGO Buy Signal For Bluescope Steel

Our ALGO engine triggered a buy signal on Bluescope Steel into yesterday’s ASX close at $14.56.

The “higher low” price pattern is referenced to the $13.50 intra-day low posted on February 6th.

BSL reached an all-time high at $16.80 on March 2nd before falling over 14% to $14.40 on the threat of steel import tariffs from the USA.

We added BSL to our ASX Top 100 model portfolio on February 6th at $14.15.

BSL is currently trading at 12X 2018 earnings and we see the next upside resistance area near $15.85.

Bluescope Steel

 

BlueScope Shares Retreat On US Tariff Threat

Shares of BlueScope Steel rose to an eight-year high of $16.80 just after the ASX open today.

However, after Mr Trump’s announcement earlier to impose sweeping tariffs on imported Steel and Aluminium, BSL shares have slipped back to $16.35.

In its current form, the legislation would put a 25% tariff on the cost of imported steel to the US, regardless of the country of origin.

BSL is the sole exporter of Aussie steel to the US market which is worth about US$130 million per year.

Our ALGO engine triggered a buy signal for BSL on February 6th at $14.15.

At this point, we suggest that investors either exit their long positions outright, or look to sell the $17.00 calls into April for 42 cents to enhance portfolio returns.

BlueScope Steel

 

 

Algo Buy Signals – AWC & BSL

Recent Algo Engine buy signals in BSL and AWC have performed well, with prices rallies of 20%+ in the past few months.

China has been ramping up production of both alumina and aluminium in the lead-up to potential capacity cuts. Alumina Ltd (AWC) is potentially the largest beneficiary, given it is a pure-play on the industry.

Rio Tinto and South32 also seem well-placed to benefit. We will reconsider these names on the next Algo Engine buy signal.

Chart – BSL
Chart – AWC