The end of the year is rolling around quite quickly now and many investors and traders have pulled their horns in as they wait for something a bit more concrete around the “Fiscal Cliff” which continues to weigh on markets.
The current market conditions appear to be throwing up two potentially excellent trades for Finweek readers and we loaded them up on The Wire social network yesterday:
Long African Bank Investments Limited (Abil)
This JSE-listed micro-lender has seen its share price come under significant pressure in the last few months as the threat of a micro-lending bubble continues to be raised. The continued tension in the local resource sector – where many Abil clients are employed – has not helped matters much either.
The team from Sanlam picked it in their end of year portfolios and this backs up similar calls from SBG Securities (12-month price target of R37/share) and Anchor Capital who believes that the share is undervalued at the moment.
Abil went ex-dividend yesterday (5% dividend yield at the moment) leaving the share trading below R30/share.
We believe there is an opportunity for traders to go long from these levels and look for short-term profit taking around the R32/share mark.
Long Exxaro Resources (Exxaro)
This resource play has had a tough time of late. The market punished it in line with other resource shares on the back of the various labour issues and it has not helped that coal and iron ore prices have been off the boil for much of 2012.
The team from SBG Securities have downgraded their 12-month earnings forecast for the share with a price target of R185/share. This is below the R200/share median forecast on FT.com on the basis of 11 polled analysts.
Currently the share is trading around R156, which suggests that much of the bad news has been priced in. The trade we have suggested is to go long at R157 and take profit at R170 per share.
A quick look at the commodity graphs for coal and iron ore suggest that demand is slowly returning. This coupled with a weaker rand should bolster earnings in 2013. All eyes will also be on subsidiary Tronox – a turnaround in fortunes here could be a catalyst for a rebound.
** Disclosure – Finweek journalists may hold long positions on either Exxaro or African Bank Investments Limited (Abil).