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ASX is down, small caps are up and the stocks to watch
The ASX was in the red at the time of writing this story by Jonathon Jackson of Proactive Investors.
The S&P/ASX200 has dropped 35.00 points or 0.48% to 7,200.90.
This index has lost 2.79% for the last five days but gained 9.32% over the last year to date.
The bottom-performing stocks at time of writing were Orocobre Ltd down 7.56% and Netwealth Group Ltd down 6.34%.
Miners and energy stocks are dragging the market down, with BHP and Woodside Petroleum down more than 1% in early trade.
Financials were also in the red with AMP feeling the heat down 3.6%.
Afterpay’s decision to delay its shareholder demerger vote saw its stock tumble 5%.
But small caps such as Boadicea were up nearly 10% on 2 December.
The winner was Australian Pharmaceutical Industries (ASX:API), whose shares soared at the open after Woolworths made a higher $1.75/share cash offer for the Priceline owner.
API’s shares surged 14% to $1.70 by 10.30am after the $872 million offer trumped Wesfarmers’ bid of $1.55 ($763 million).
Wesfarmers owns a 20% stake in API and could come back harder.
Next day settlement for US securities
The Securities Industry and Financial Markets Association (SIFMA), the Investment Company Institute (ICI) and The Depository Trust & Clearing Corporation (DTCC) has published a report Accelerating the U.S. Securities Settlement Cycle to T+1, which provides firms with a roadmap for shortening the settlement cycle and issues to be considered.
This report targets the first half of 2024 to shorten the US securities settlement cycle from trade date plus 2 days (T+2) to trade date plus one day (T+1).
It states that shortening the settlement cycle will reduce risks and costs for the industry while building upon the benefits achieved in the successful move to T+2 in 2017.
“Shifting to T+1 will strengthen the financial system and offers tangible benefits to investors by reducing their risk exposure and enabling them to more quickly leverage investment opportunities,” said ICI president and CEO Eric J. Pan.
“Regulated funds are a primary source for daily trading transactions, occupying a prominent place at the intersection of trading and settlement. This report provides a roadmap to help funds and their investors realise the benefits of moving to T+1, and we look forward to working with our members and the SEC on implementing the recommendations.”
Implementing T+1 in the first half of 2024 will allow enough time for firms to assess the changes they need to undertake, for the industry to conduct comprehensive testing, and for regulators to make the necessary regulatory changes.
“As we saw during the industry move from T+3 to T+2, shortening the settlement cycle requires a collaborative effort from market participants across the industry, and the development of this report is a key step in making the vision of accelerated settlement a reality,” said SIFMA president and CEO Kenneth E. Bentsen, Jr.
“We thank the industry representatives who participated in hundreds of hours of daily, remote working sessions to help us evaluate potential risks, understand the impacts, and develop a sound approach for implementation.”
As part of ongoing efforts to decrease risk in the system, SIFMA, ICI and DTCC started discussions around accelerating the settlement cycle in 2020. SIFMA, ICI and DTCC formally initiated the effort to accelerate the settlement cycle to T+1 following a February 2021 DTCC whitepaper outlining the benefits that such a move would bring to the industry and investors.
In April 2021, the industry engaged Deloitte & Touche LLP to lead working group sessions with more than 800 participants from 160 organisations, including buy-side and sell-side firms, custodians, vendors and clearinghouses. An Industry Steering Committee oversaw the process and report.
“From our ongoing conversations with market participants and stakeholders, we’re in broad agreement on shortening the settlement cycle to T+1 to deliver significant capital efficiencies and risk mitigation benefits to the entire industry,” said DTCC president and CEO Michael Bodson.
“We look forward to continuing to work closely with the industry on this important initiative to modernise market structure, as we did during the move from T+3 to T+2 in 2017, to increase the overall efficiency of the securities markets and remove costs and risks.”
The Industry Steering Committee will now recommend that firms begin to work with their counterparties, custodians, vendors, regulators and clients to better understand internal impacts related to timing requirements and deadlines, system requirements and improvements, and process changes. Firms are also encouraged to continue to engage with the Industry Steering Committee as the initiative progresses.
While the paper confirms that the industry achieved consensus around T+1, it also indicated that further shortening the settlement cycle is not feasible in the short term. The report explains that moving beyond T+1 would require an extensive overhaul of current-day clearance and settlement infrastructure, changes to business models, revisions to regulatory frameworks, and potentially the implementation of real-time currency movements.
eToro’s 2022 stocks to watch
As we enter the final stretch of 2021, many are putting their thinking caps on regarding 2022.
eToro has released its stocks to watch next year, highlighting diversification as a key to manage the risks associated with the ageing US equity bull market and take advantage of the broad global economic growth.
US markets will benefit from still strong growth, low-interest rates and its world-leading tech sector,” analyst Josh Gilberts says.
Here is his take on the stocks to consider:
Microsoft
As one of the world’s largest tech companies, Microsoft continues to deliver each quarter and ultimately doesn’t seem to put a foot wrong. Its recent earnings results in September beat analyst expectations with revenues of US$45.3 billion, up 22% year-over-year.
The global transition to the cloud is still in its early days, however, it’s clear that Microsoft is by far one of the core leaders in the space with its ‘Azure’ product offering. With workforces anticipated to maintain a focus on remote or hybrid working arrangements in 2022, cloud technology will be front of mind for most CIOs and IT decision-makers. As a result, global cloud spending is on an upward trajectory that Microsoft is only set to benefit from. This spending is expected to potentially reach US$1 trillion over the next decade.
Outside of the cloud, Microsoft has a pre-dividend free cash flow of US$40 billion. Forecasts have anticipated that this could rise to US$62 billion by its fiscal year-end. Overall, Microsoft’s dominant market position within the tech space, and its high profitability and innovation make it a standout stock for investors to keep an eye on in 2022.
CrowdStrike
The move to working beyond the safety of the office walls has forced many businesses to rethink their approach to cyber security, in particular, their vulnerability to potentially devastating phishing and ransomware attacks.
CrowdStrike is one of the world’s biggest cyber security firms, known for endpoint security. Its current valuation does represent high expectations, but in this current environment, there is significant scope for increased sales growth, with margins continuing to expand and improved retention rates.
CrowdStrike’s subscription customer base expanded more than 80 per cent in the fiscal year 2021 at a pace that it can sustain amid a heightened cyber-threat environment. Additionally, many companies are likely to shift aggressively to CrowdStrike’s style of cloud-based endpoint security, replacing previous solutions.
The latest infrastructure bill in the US has allocated US$2 billion to cyber security, demonstrating the growing threat of online attacks and the importance of protecting businesses and institutions.
CrowdStrike has a clear pathway to growth and has continued to deliver this through 2021. We expect this to translate into 2022 and for the foreseeable future, with protecting workloads becoming one of the highest priorities for enterprises.
The global reopening has a long way to go. Although restrictions and lockdowns have eased globally, the world is still heavily restricted with freedoms. For example, if we take the COVID-19 Stringency Index as a guide, which measures closures and travel bans, this is still at 50%, with 100% being the highest level. However, in January 2020, this number was at 0 per cent, which tells us there is an excellent opportunity in the travel sector as vaccine rates continue to rise.
Airbnb (NASDAQ:ABNB) has established itself as one of the most popular travel platforms worldwide, since originally launching in 2008. In Q3 2021, Airbnb announced a record quarterly revenue amid a rebound in travel demand across Europe and the US. Nights and experiences booked through Airbnb reached 79.7 million in Q3 and climbed by 29.7% year-over-year.
Its guidance for Q4 calls for an acceleration of booking trends, as the world begins to open again slowly. Despite this, cross-border travel is still at only 33 per cent of gross nights booked compared to 50 per cent historically. This offers further growth opportunities for Airbnb as travel begins to normalise.
Airbnb does trade at a significant valuation compared to its peers, with forward 12m P/E at 167.36. However, with the global shift towards alternative accommodation, long term stays and work-from-anywhere, Airbnb is a great stock to watch for 2022 in an addressable market that continues to grow.
First Solar
In 2021, the renewable energy industry remained resilient and the outlook for 2022 looks positive amid concerns for climate change and supportive policies by government administrations globally.
First Solar is a leading provider of affordable and sustainable solar panels and it operates some of the world’s largest grid-connected power plants. Solar installations in the first half of 2021, despite global supply chain constraints, rose by 28 per cent year-over-year, illustrating the continued trend in clean energy.
The company’s Q3 earnings missed expectations, however, this was explicitly owed to shipping delays. As a result, First Solar reported earnings of US$0.42, coming in below analyst estimates and revenues were US$584 million. Despite this, the deliveries that were missed in Q3 are set to be delivered in Q4, which would allow First Solar to reach its full-year sales target. In addition, we expect supply chain disruptions to ease in early 2022, which will allow First Solar to lift deliveries.
First Solar has the smallest carbon footprint of all solar technology companies, displacing 89-98 per cent of greenhouse gas emissions. The company has also committed to powering 100 per cent of its operations by 2028, well ahead of global expectations.
In early 2021, First Solar announced its plans to expand its US manufacturing capabilities to boost the company’s overall global production capacity, which is expected to support its growth into 2022 and beyond.
On the small Cap Front
Boadicea Resources Ltd (ASX:BOA) is up 7.89%. BOA is set to “catapult” into a serious explorer for lithium with its proposed acquisition of a tenement to be named Bald Hill East, adjacent to a lithium mine and processing plant in Western Australia.
Creso Pharma Ltd (ASX:CPH, OTCQB:COPHF) is up 6.25% after wholly-owned, Canadian-based psychedelics company, Halucenex Life Sciences Inc. secured an upgrade to its Controlled Drugs and Substances Dealer’s Licence from Health Canada to include production and packaging amendments.
Zelira Therapeutics Ltd (ASX:ZLD, OTCQB:ZLDAF) is up 5.88%. ZLD has secured ethics approval for a Phase 2a clinical trial to assess the effectiveness of its licensed patented cannabinoid formulation, ZTL-106, in treating patients with chronic pain.
Emmerson Resources Ltd (ASX:ERM) is up 5.48%. ERM has lifted its mineral resource estimate (MRE) for the Chariot gold deposit at Tennant Creek, Northern Territory, by 40% to 556,200 tonnes at 7.8 g/t gold for 138,800 ounces of gold.
Brookside Energy Ltd (ASX:BRK) is up 5.26%. BRK is continuing with preparations for drilling of Rangers Well, the company’s second well within the SWISH area of interest (AOI) in the world-class Anadarko Basin of Oklahoma.
AuTECO Minerals Ltd is up 4.23%. AUT has shored up a potential resource update planned for next quarter with results of up to 2.0 metres at 68.3 g/t gold from drilling at its flagship high-grade Pickle Crow Gold Project in Uchi sub-province of Ontario, Canada.
