Woolworths – Buy Signal

Woolworths Group is now under Algo Engine buy conditions and the recent price correction from $35 down to $31 is creating another entry opportunity for investors.

We recommend accumulating Woolworths and selling covered call options into the back half of the year, with a view towards remaining exposed to the September dividend.

WOW goes ex div $0.50 on the 13th of September.


Woolworths – Valuation Review

Woolworths Group is under Algo Engine buy conditions and is a current holding in our ASX 100 model portfolio.

The company is conducting a $1.7 billion off-market buyback which is 7 to 8% earnings accretive on an after-tax basis. Australian superannuation funds on a 15% tax rate are set to benefit from the off-market buyback.

Woolworths is trading on 23x FY20 earnings, which partly reflects the value of the off-market share buyback. If we assume the buyback is creating up to $2.00 of added value, fair value post the buyback, is sub $30.

Even at $29 – $30, it places WOW on 21x FY20 earnings and 3.1% dividend yield.

This places the stock at a very high valuation relative to the long-term average.

Woolworths – Valuation Review

Woolworths Group is a current holding in our ASX 100 model portfolio, as well as the ASX 20 & 50 models.

The stock is up over 9% including dividends after being added at $28.50 back in August last year. With the share price trading at 24x forward earnings and only a 3% dividend yield, we consider it expensive.

We suggest selling a long dated European call option to enhance the income. For more detail on the strategy, please call our office on 1300 614 002.

Coles – Where is Fair Value?

Coles has under invested in the supply chain and online platform vs Woolworths and therefore, investors need to be prepared for lower returns as Coles steps up capital expenditure over the coming years.

If we assume 3 – 5% EPS growth, (half that of WOW), Coles will offer a 5.4% dividend yield into FY20, based on earnings per share of $0.80

Coles trades on 18x FY19 earnings and with little upside to the share price, we recommend investors add a covered call to enhance the income return.


XJO – The 5941 Level Is Technical Resistance

The XJO has formed a “lower high” pattern within the existing Algo Engine buy signal structure.

The market has rallied 6% from the recent buy signal but we’re now mindful of the recent break of the “higher low” structure, as circled on the chart below.

5941 is resistance for the XJO and whilst the market remains below this level, some caution is required.

Names that remain supported within today’s broad market sell off include, AGL, CTX, GPT, WES, SCG, TCL, HSO & WOW. We remain cautious on the banks and select resource names .


Woolworths – Value Returning

With Woolworths trading back below $27.50, we believe the share price now represents good investor value.

The $26.50 – $27.00 price range is an attractive buying opportunity.

On a rally back above $28.00, we recommend selling $29.00 Euro-style March call options to enhance the return.

Woolworths goes ex-dividend for $0.43 on the 1st of March.


ALGO Update: Accumulate Woolies At Current Levels

Our ALGO engine triggered a buy signal for WOW on Monday at $27.45.

This “higher low” pattern is referenced to the $26.40 low posted on April 20th.

WOW shares have been drifting lower for the last two months and are now consolidating in the $27.30 to $27.60 range since going ex-dividend for 60 cents last week.

With the current share price trading at 22x earnings, we see the stock as good value above the $27.00 level.

WOW was added to our ASX Top 20 model portfolio on August 22nd. Our medium-term target is $29.40







Woolworths – Delivering 10% Cashflow

We recommend buying Woolworths and selling a March $29.01 European-style call option to enhance the yield.

Unlike American-style options, European-style options can only be exercised on the expiration date.

As such, the share price can trade through the strike price during the course of the option duration without being exercised.

The strategy delivers effectively 3 payments, September & March dividend, plus another $0.55 per share in option income.



ALGO Update: Stay Long Woolworths

Our ALGO engine triggered a buy signal for WOW on August 23rd at $28.25.

Since then, the share price has has traded in a relatively narrow range between $28.80 and $28.20.

The technical picture has improved and internal momentum indicators are now in oversold territory.

We see good support in the $28.00 area with an upside target near $30.00 over the medium-term.

WOW goes ex-dividend for 50 cents on September 13th with a special dividend of 10 cents, for a total of 60 cents.


Algo Buy Signal In Woolworths

Our Algo Engine has triggered a buy signal in WOW following the recent sell-off from $30.50 back down to yesterday’s close at $28.25.

Woolworths goes ex-div $0.50 on the 13th of September and we recommend accumulating the stock now , ahead of the dividend and then looking to sell $29.00 covered calls to enhance the income.