Tech stocks take a breather but COVID-19 could see a second wave of rises, Materials rise again and… investors should have patience

By Jonathan Jackson. Published at Jul 31, 2020, in Features

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Going against the trend of the last six months, tech stocks took a breath this week.

The surge, as it was, came to a halt. Not a shuddering one, because if the mad history of 2020 tells us anything, we could see more gains for tech stocks as COVID-19 trends once again accelerate.

The rise of tech stocks this year, has been a defining feature of the stock market since the COVID-19 pandemic began.

According to eToro’s Adam Vitesse, the logic behind this is clear: “firms that deliver services digitally, or can enable workers to do their jobs remotely, stand to benefit from a crisis that pushes consumers and companies towards living virtually.”

Intriguingly, Vitesse notes that the tech stock rally paused just as Covid-19 cases in the US once again soared.

The answer behind why tech stocks have taken pause appears to be a relatively simple one; “investors have hit a wall in terms of the valuations they are comfortable with. Amazon’s share price is up by more than 60% year-to-date, while Netflix has added close to 50%,” Vitesse says.

There is one Aussie small cap to watch in this mess.

OneView Health (ASX:ONE) has been rolling out its cloud based software to hospitals during this COVID mess.

OneView Healthcare is a health-tech provider, which this year launched a cloud-based solution to help healthcare systems manage hospitalised patients during and after COVID-19.

Oneview Cloud, the tablet enables virtual rounds, visitations and services, helping patients feel supported, whilst educating them about their current situation and the post-op recovery work they may have to do to help themselves heal properly.

Oneview Cloud also helps healthcare workers to provide more care more efficiently.

The company rolled the tech out to New York-based medical centre, NYU Langone Health in April this year.

Langone is one of the top five medical institutions in the US and the hospital behind the cure for one of the last major global pandemics – polio.

It knows a thing or two about managing healthcare during a pandemic.

On Wednesday 5 August, OneView will host a webinar for investors to discuss:

  • NYU Langone’s experience in rolling out the Oneview solution at the height of the pandemic;
  • How digital technology is helping to improve the patient experience;
  • How COVID-19 has made digital infrastructure at the bedside and agile innovation more important than ever; and
  • Oneview’s strategy for growth and product vision.

If you would like to know more about OneView success in this field, click the link below to register for the Webinar:

International stocks to watch

NXP Semiconductors (NASDAQ: NXPI)

NXP is down 9% this year, however expectations are buoyant for this chip stock. NXP is known for supplying chips to the automotive industry, for purposes such as keyless entry and car radios. According to Vitesse, “vehicle sales have been decimated by the coronavirus pandemic, and that has had a knock-on impact on the firm’s prospects. Wall Street analysts lean towards a buy rating on the stock, but their expectations for the company’s Q2 profit have fallen by around 20% over the past three months.”

Principal Financial (NASDAQ: PFG)

This US company will deliver its earnings figures on Monday. The insurer and investment firm is down by close to 20% year-to-date. However, it has surged by 49.3% over the past three months and still offers a dividend yield of 5% despite the share price recovery. “Security of the dividend will likely be probed by analysts on the earnings call, as will the impact of close to zero interest rates on the firm’s margins,” Vitesse says.

Reckitt Benckiser (LON: RB)

“Investors will be hoping that Reckitt can emulate fellow Anglo-Dutch consumer goods giant Unilever in its own quarterly earnings report on Tuesday,” Vitesse says. “Last week, Unilever gained 6.9% after delivering its earnings numbers, propelling it to become the largest FTSE stock. Reckitt’s share price has gained 25.8% year-to-date. A month ago, UBS put a sell rating on Unilever shares and upgraded Reckitt to a buy rating, citing unsustainable drivers of growth for the former and a ‘compelling turnaround story’ for the latter.”

Two Aussie small caps to watch

WhiteHawk Ltd (ASX:WHK)

WHK was up 55% over the last five days. On Tuesday this week, the company announced it had was contracted by a US federal government CISO (Chief information Security Officer) to implement WhiteHawk’s Cyber Risk Radar.

News sent the share price soaring to a near 14 month high and will net the company $!.2 million annualised over 5 years. You can read more about it here.

Galileo Mining (ASX:GAL)

GAL rose almost 20% this week after it announced it had commenced drilling at its Fraser Range Nickel Project.

GAL kicked off its second Reverse Circulation (RC) drilling program at its highly prospective Lantern nickel targets. Anticipation ahead of the drilling program was building with the company’s share price gaining more than 50% in July alone.

Sector performance

Materials and Consumer Staples were the best performers up nearly 2 percent. Communication Services was up over 1.5 percent. The worst performing sectors were Energy down over 2 percent followed by Healthcare and Utilities, both in the red at the time of writing.

Of the ASX top 100 stocks, ALS Limited surprised up around 14 percent yet, according to Wealth Within’s Dale Gillham, “its PE ratio is nearly double the market average and its EPS is relatively flat. Therefore, the fundamentals for this stock are not really supporting the move, which has seen this stock shoot up by 100 percent since March of this year. My guess is that retail investors are pumping up the stock for fear of missing out, which also appears to be the case for Fortescue Metals, which is up almost 8 percent so far this week, while Magellan Financial Group is up just under 7 percent.”

The worst performers were IOOF Holdings down over 10 percent, Qantas down over 7 percent and The Star Entertainment Group down nearly 6 percent.

So what's next for the Australian share market?

According to Gillham, “the All Ordinaries Index has continued to move cautiously and is still lacking any real direction. That said, if the market closes higher than it opened this week, we will see the highest weekly close on the market since early March, which is a good sign. As I mentioned last week, the market is moving more cautiously than confidently, with momentum in many of the top 100 companies slowing while retail traders are pushing up stocks in the Small Ordinaries and Emerging Companies Indices. When this sort of situation occurs, it means the market is running out of steam and is likely to fall away.

“Again, investors should exercise patience rather than jump in, as there will be plenty of time to profit once the market settles. Given that the All Ordinaries Index has failed to trade above the high of 6,314 points set on 9 June, once again, it is looking unlikely that there is sufficient time for the market to trade up to my target of around 6,600 points before it falls away. Right now, the pendulum is swinging towards the probability that it will begin to fall away very soon into the next low, which will be below 5,800 points.”

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