Is Now the Right Time to Buy Austral Limited (ASX: ASB)?

Dale Gillham, Chief Analyst and Head Trainer of Wealth Within

By Dale Gillham |

In late February, the government announced it planned to increase the Navy’s warships from 11 to 26 by 2040, which means an increase of $11.1 billion for Defence funding in the 24/25 Federal Budget. While we can debate the pros and cons of this in regard to national security, I would rather look at whether this presents an opportunity for Australian companies.

The government's announcement that Australia's naval capacity will be increased presents an opportunity for our largest shipbuilding company, Austal Limited (ASX: ASB). So, the question remains: Is now a good time to buy this stock?

Before considering that, let’s briefly examine the government's decision to downsize the navy. While it's great that we are looking to secure our borders, what’s most concerning is that Australia's Navy is expected to reduce in size before these new warships are even built. Given the global tension among countries is at alarmingly high levels and there are growing concerns about China, there couldn't be a worse time to decrease Australia's naval defence.

Will Austral rise strongly in 2024?

But defence is not my area of expertise, so let’s leave the politics for another day and shift gears to discuss Austal Limited, which I believe stands to benefit most from the recent government announcement. ASB is a key player in the global shipbuilding industry and a leader in naval innovation, having a significant portion of its business in the defence and commercial sectors.

From a fundamental standpoint, the company is strong, with projections for sustained growth over the next 10 years after entering into a strategic shipbuilding agreement with the Australian Government in 2023.

From a technical perspective, the stock traded at a high of $4.99 in November 2019 before falling to a low of $1.58 in April 2023. ASB is currently trading around $2.00, the stock's long-term median price. This means the company is trading around a fair price; however, we are looking at what might drive the price higher into the future, and the recent announcement may be just that catalyst.

Recently, the share price broke through a long-term downtrend, signalling the worst could be over. If you weigh up the government’s announcement, it's clear that there are strong signs why Austral could have a fantastic 2024 and beyond. I advise paying close attention to this stock and looking for a possible entry in the near future.

What are the best and worst-performing sectors this week?

The best-performing sectors included Financials, up 3.32 per cent, followed by Real Estate, up 2.63 per cent, and Healthcare, up 1.47 per cent. The worst-performing sectors included Energy, down 0.68 per cent, followed by Materials, down 0.65 per cent, and Consumer Staples, down 0.29 per cent.

The best-performing stocks in the ASX top 100 include Northern Star Resources and Evolution Mining, which are both up over 11 per cent, followed by ALS, which is up over 8 per cent. The worst-performing stocks include Pilbara Minerals, which is down over 7 percent, followed by IGO, which is down over 6 per cent, and Block, which is down over 4 per cent.

What's next for the Australian stock market?

Last week, the All Ordinaries index traded up 1.25 per cent and provided a positive start to March, which is great to see. As mentioned in my previous report, I expect the market to continue to push higher in March on the back of a mostly positive reporting season. A word of warning, though: a significant peak is likely to form in late March or even out into early April before the market falls away again. 

So far the Australian market has risen for three consecutive weeks since the low in February; therefore, I wouldn’t be surprised if the market falls for at least one week in the next two weeks. If this unfolds, the move down will only be small, and there is support between 7,800 and 7,700 points. 

Right now, I would welcome a pullback given many stocks have taken off like rockets during reporting season and normally we see a lot of investors getting caught chasing stocks through FOMO, which leads to poor buying decisions.

Remember, patience always pays off while FOMO doesn't, so please be cautious and very selective in your stock selections this month. If a stock your watching has taken off, be patient and wait for the next opportunity, as it will come, and you will be glad you waited.

For now, good luck and good trading.

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

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