Week Ahead: Investing Ideas, Key Highlights to watch. Week ending 19 August.

Views 2452 Apr 28, 2024

China is looking shaky, plus we cover an earnings season pause and reflect, covering what you need to know. Plus iron ore miners could be in trouble. Energy earnings are likely to up their ante. Read our week ahead, covering potential trading and investing ideas.

The three major things to consider this week

1- The world holds its breath for a potential default of China's biggest developer

Country Garden is in danger of default, rivaling Evergrande. This has huge implications not just for China, but for the world's biggest tech companies, the broader US markets, and mining companies. Read the 7 things you need to know, including investor implications.

2- US earnings season is 91% over. 455 of the S&P500 companies have reported and most beat expectations. But, earnings declined on average 8%. What are the takeaways?

In Q2, Consumer Discretionary stocks saw the largest jump in earnings, following on from delivering the most earnings in Q1. In Q2, average earnings grew 52% in the sector, amid the reopening trade gaining momentum.
MGM Resorts and Caesars Entertainment saw the most earnings growth, with earnings rising in over triple digits. The question is, can they sustain this growth and will their share prices continue? MGM Resorts $MGM Resorts International(MGM.US)$ shares and Caesars Entertainment $Caesars Entertainment(CZR.US)$ shares are both up about 40% YTD.
The biggest drops in earnings in Q2 were in Materials (the mining sector), with earnings falling 29% on average, and Energy company's earnings falling 51% in the quarter. This is due to energy and commodity prices being weighed by lackluster demand from the biggest consumer, China. Its the second quarter Materials (mining) earnings fell. It's the first time this year that energy earnings have declined.

3 - Australian reporting season gets into full swing. What you need to know this week and why CSL shares could likely surge

-Sure, you could argue that Australian reporting season really revs up next week, with Australia's biggest company, BHP $BHP Group Ltd(BHP.AU)$ reporting results, as well as Woodside$Woodside Energy Group Ltd(WDS.AU)$ reporting, which is the 8th biggest company on the ASX.

But this week is really important too, as the world's biggest blood plasma therapy business, CSL $CSL Ltd(CSL.AU)$ reports Tuesday. The market expects benign earnings per share. But it's likely it could deliver an upside surprise, given blood plasma collection has increased. An earnings beat will likely push its shares up, and this could then trigger quant buying in CSL, as it's currently in 'oversold territory' from a technical analysis perspective. So given CSL $CSL Ltd(CSL.AU)$ shares are down almost 9% this year, keep an eye on CSL this week.

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Three potential investing and trading ideas to consider

1 - Iron ore and metallurgical coal producers could be in further trouble.

China is expected to finalise its steel production reduction target on Tuesday this week and Chinese factories are preparing to cut production from September. This will mean less demand for iron ore and coking coal, i.e. less earnings and thus, pressure on margins. So, keep an eye on iron ore and metallurgical coal giants, including BHP $BHP Group Ltd(BHP.AU)$, as well as other iron ore majors such as Rio Tinto $Rio Tinto Ltd(RIO.AU)$, Fortescue Metals $Fortescue Metals Group Ltd(FMG.AU)$ and Champion Iron $Champion Iron Ltd(CIA.AU)$. They could see a downside.

2 - Rolling heat waves threaten to drive up energy earnings. Here is why to consider investing in oil and gas companies.

Oil posted its longest streak of weekly gains since mid-2022 as reports forecast increasing demand.

Consider that energy sector earnings will very likely turn around in the third quarter (July to September quarter).

Supply has been restricted, while heat waves are pushing up demand, which is why the oil price is up 19% so far this quarter. There's another heat wave forecast for this week in the US Northwest, as well as dangerously high temperatures in the South, according to the US National Oceanic and Atmospheric Administration. Temperatures above 43C will mean air conditioning will be running at full blast.

Keep your eye on oil and gas stocks such as $Exxon Mobil(XOM.US)$, Chevron Corp $Chevron(CVX.US)$ and $ConocoPhillips(COP.US)$, which are the biggest energy companies in the US by market cap. In Australia keep an eye on the largest oil companies including Woodside $Woodside Energy Group Ltd(WDS.AU)$, $Santos Ltd(STO.AU)$ and $Ampol Ltd(ALD.AU)$. Consensus energy sector shares to rise 9-10% on average over the next year. But you could argue, that the market has not priced in the heat wave and El Nino.

3- The world's biggest lithium company Albemarle could be due for a rally as it's in 'oversold' territory.

Albemarle shares are in oversold territory and could see some quant buying at these levels. Click this link for more

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