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Trading Diary

Trading Diary – 7 August 2019

This week is a busier week than usual as volatility has increased significantly since the beginning of August. We’ve made three sales this week, one at a small loss, one at breakeven and one at a decent profit. 

US/ China relations have again become a flashpoint. The US accused the Chinese of manipulating their currency and threatened them with increased tariffs. The situation in Hong Kong has also deteriorated, adding to the uncertainty.

Despite all this, the long term trend of the stock market remains up. As a result, we’ve continued deploying excess capital into the market.  

Sells 

  1. Fortescue Metals (FMG) – 23% profit
  2. Appen (APX) – 1% profit
  3. Lovisa (LOV) – 8% loss

Fortescue Metals (FMG)

The price of iron ore has fallen below $US100 a tonne this week for the first time since June after having spent most of July above $US120. The price has fallen in response to trade tensions between the US and China as well as an improved supply situation. FMG fortunes are heavily influenced by the price of iron ore. As a result, FMGs shares have fallen on heavy volume, causing us to lock in profits on the position. 

Appen (APX)

Uptrend broken on heavy volume, triggering stop loss. Nothing has changed in the fundamental outlook for the company. However APX trades on high multiplies of revenue and earnings, placing it amongst the most expensive stocks in the market. Therefore APX is heavily reliant on sentiment towards technology stocks remaining strong and for continued overdelivery on realised growth. 

Lovisa (LOV)

Again nothing has changed in the fundamental story. The company’s prospects remain very bright if they are able to execute on their global growth ambitions. However, the stock might need more time before it’s able to resume its uptrend. There appears to be significant overhead supply of stock from sellers at these levels which needs to be worked through. This might take some time. As well as that the company is yet to fully prove it’s model in the US market. This might take some time. 

Buys

  1. Nickel Mines (NIC)
  2. IPH Limited (IPH)
  3. Mirvac Group (MGR)

Nickel Mines (NIC)

Listed on the ASX in August 2018, the company is a low cost producer of nickel pig iron (‘NPI’), a key ingredient in the production of stainless steel. The company mines low grade ore in Indonesia, part-processes the material and delivers it directly to a Chinese owned stainless steel plant. Since listing it has been able to bring both of its projects into production. The company has significant scope to expand production. Also, the outlook for nickel demand and pricing is very strong, supported by demand for stainless steel and growing EV battery market. 

Technically, the stock is showing all the signs of being in a stage 2 uptrend supported by high volume accumulation.  

IPH Limited (IPH)

This is one that we’ve owned previously. The stock has continued to trend higher as the company have articulated their vision for growth. 

The market for patent application filings has grown steadily in Australia and NZ, where IPH has a number one position. The company is also building its presence in the higher growth Asian markets, where they are looking to increase market share. IPH will also look to improve margins as they scale. 

Mirvac Group (MGR)

MGR is a defensive position, representing exposure to high quality real estate assets. Real estate stocks have benefitted from the falling AUD and more importantly falling interest rates. These two trends are not likely to reverse anytime soon. 

The MGR stock is consolidating after a strong run up since the beginning of this year. We expect demand for higher yielding assets will remain robust, especially those that are also able to continue to grow incrementally.  

By Danny Sandler

Founder of Ocean Asset Management.