AGL and Beach Energy Down: Is it Time to Buy?

We have come to the end of another financial year and it is at this time that I recommend investors take a look back at what has occurred in the markets over the last 12 months, as this provides insights into where the opportunities will be in the next 12 months. By 30 June 2021, the All Ordinaries Index had closed up 10.72 per cent for the financial year and historically the Australian stock market achieves a yearly return of between 10 and 20 per cent over 40 per cent of the time. Therefore, despite some of the volatility in the last 12 months, the Australian market performed pretty well.

Which sectors are likely to perform better in the 2nd Half of 2021?

If we drill down and look at the sectors that contributed to the performance, Financials rose 19.63 per cent while Consumer Discretionary rose 19.36 per cent and Communication Services rose 18.39 per cent in the last 12 months. On the flip side, Utilities was the worst performing sector for the financial year down 8.32 per cent while Information Technology was down 0.82 per cent and Energy was down 0.10 per cent. Given this, it is not surprising to see that the best performing index was the S&P/ASX top 20, which rose 13.88 per cent.

Moving forward, it is reasonable to assume that the Financials and Consumer Discretionary sectors may slow down over the rest of this calendar year while opportunities are likely to come from Utilities, Information Technology and Energy. Of these, I like the Energy sector the best although I also believe opportunities will come from the Industrial sector. Looking at the stock level, the a2 Milk Company is down 46 per cent this financial year although it is showing good signs of having turned the corner while AGL Energy and Beach Energy were both down over 30 per cent for the financial year. While I believe it is a bit too early to make a call on these companies, I would certainly put them on my watch list.

What were the best and worst performing sectors last week?

The best performing sectors included Communication Services up 3.24 per cent followed by Consumer Discretionary up 1.04 per cent and Consumer Staples up 0.85 per cent. The worst performing sectors included Utilities down 3.88 per cent followed by Information Technology down 3.07 per cent and Healthcare down 0.22 per cent.

The best performers in the ASX/S&P top 100 stocks include IDP Education, which opened up over 16 per cent after announcing it had entered into an agreement to buy 100 per cent of the British Council’s Indian International Language testing operations. IDP Education also closed the week up 17.81 per cent while Mineral Resources was up 9.48 per cent followed by Harvey Norman, which was up 8.33 per cent. The worst performing stocks included AGL down 9.97 per cent followed by Afterpay down 8.33 per cent and Lend Lease down 7.05 per cent

What's next for the Australian share market?

Unlike the S&P 500, the All Ordinaries Index failed to trade through its all-time high last week and is currently trading at levels it was four weeks ago with the market looking like it will move down, as I have been expecting.

Last week, the Australian market traded over a range of 127 points yet it only closed 9 points higher than it opened, which suggests there is uncertainty and indecision in the market. While the All Ordinaries Index traded 12 points higher last week than the previous week, given where it closed, it is not enough to suggest the market is still bullish. As such, I believe there is higher probability that the market will fall next week with the fall likely to last for several weeks.

As I have said previously, we need to be prepared for anything, as the last 12 months has certainly taught us that we need to expect the unexpected. While it is still possible the Australian stock market could trade higher, I expect any fall will be orderly and in the vicinity of 8 to 12 per. That said, given that market has been displaying a mind of its own, I recommend investors put stop losses on their stocks in the event the fall is more severe.

For now, good luck and good trading.

Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also author of the award winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good book stores and online.