This tragedy has fund managers positioning

Friday, 29 December 2017
Melbourne, Australia
By Terence Duffy

  • Senate committees swing into action
  • One for the watchlist
  • Get your position sizing right and keep your downside tight

Editor’s note: Kris Sayce, Bernd Struben and the staff at Port Phillip Publishing are taking a break for the holidays. We will be returning to our posts on 2 January, 2018. While we’re away, we’re bringing you some complimentary back-issues of Money Morning Trader.

Money Morning Trader is a daily paid service (Monday–Friday), brought to you by our expert chartist, Terence Duffy. Terence details how the day’s charts tell you everything you need to know about the economy and the stocks about to move. And they do it long before the mainstream financial media gets onto the story. Terence looks for stocks about to break higher, and to get on board for the run. As he says, the stock market itself tells you which stocks to buy! To understand what he means by that, you can find out more about Money Morning Trader here.

The following article was originally published on 15 September 2017.

The public inquiry into the Grenfell Tower fire opened yesterday. The tragedy, which occurred in west London on 14 June, caused at least 80 deaths and over 70 injuries. 

The death toll may be far higher than indicated by the official figures, due to the number of undocumented subtenants, migrants and asylum seekers believed to have been living in the building. A definitive death toll is not expected until at least 2018.

Police and fire services believe the fire started in a fridge freezer on the fourth floor. The rapid spread of the fire is thought to have been accelerated by the building’s exterior cladding.

The use of these polyethylene composite panels has been under intense scrutiny in Australia since the Grenfell disaster.

A series of audits have since been conducted to determine how prevalent the cladding is across the country. The numbers are unclear, but a leaked NSW government submission suggested there were 2,500 buildings with the cladding in NSW alone.

As Senate committees swing into action, a potentially large amount of building cladding will need to be replaced. That has a few investment minds starting to focus on this sector. 

This week fund manager Lanyon Asset Management upped its stake in Global Construction Services Ltd [ASX:GCS] to 17.4%. Boutique fund manager Wentworth Williamson also emerged as a substantial shareholder with 5.3%. 

GCS is a supplier of onsite construction products and services but also owns one of the top two cladding players in the country, after buying a business in 2014, now known as Gallery Facades.

The GCS share price has been on a bit of a tear over the last couple of weeks, rising over 20%.

The company has set a strategic direction of diversifying its operations away from resource-dependent Western Australia, and is starting to establish a footprint on the more profitable east coast through acquisitions.

Last month the company reported that underlying profit was up 12.4% and that there was a long list of projects in the pipeline.

Let’s bring up the chart. Here’s the monthly chart going back to its August listing in 2007:

chart image

Source: Optuma
Click to enlarge

This is another charting pattern of interest that you can watch out for: Stocks which are holding a narrow trading channel over a period of years.

The share price is meeting stiff resistance around 63 cents and finding support at 35 cents. That’s almost all you need to know to inform any investment decisions. Everything else is just words on a page.

The share price has been stuck in a sideways channel for well over four years now, so we watch and wait. The last thing you want to do is tie up precious capital in a stock going sideways.

However, should the share price start trading and closing above 66 cents, then GCS becomes a company that might reward further study.

GCS is one more for the watchlist.

Good trading,

Terence Duffy,
Editor, Money Morning Trader

I (Bernd) thought you might like to see how this one played out. Below you can see what the chart did tell you, as updated on 6 December:

chart image

Source: Optuma
Click to enlarge

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Our service offers what we believe are useful trading ideas and company price charts that you can do your own study and risk analysis on. We’re looking for interesting opportunities before they happen.

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