MARKET TRADING ALERTS

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Mervyn Cummings
5 years ago
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1 Date: Saturday March 30 MARKET TRADING ALERTS Please note that this information is general advice only & is current only for this edition of the daily alerts. The information will be superseded by the next edition. US market rating Australian market rating Note to traders* The publishers of this article/information/promotion wish to disclose that they may hold this stock in their portfolios and that any decision to purchase this stock should be done so after the purchaser has made their own inquires as to the validity of any information in this article/information/promotion. The US market finished the week with a small gain and ended up rising 4% in March. The index is only 4% off the all-time highs despite all the fuss about the yield curve inversion and frankly there are no signs of any significant credit stress out there. Nothing to see here move along. Globally however things are not nearly as good with global industrial production growth at zero. The comparative US number is positive 3% so it is pretty clear that it is the US economy which is doing the heavy lifting for the whole world of finance. Overnight China stocks were the best performers with 3% gains typical. The US banks have also found stability so I have now moved the second portion of the JPM trade to a buy recommendation. The US dollar was higher which kept the Aussie dollar under 71 cents, but it did keep a bit of pressure on commodity prices. I wish to introduce an Australian engineering technology company that fits the powerful global theme of treating wastewater and the provision of drinking water from that or from desalination processes. It also fits with my focus on getting into companies closer to the start of an enormous runway for growth for years or decades to come and where that theme is virtually a no-brainer given shifts in demographics or societal change (in other words powerful tailwinds). All that is then required is to add an excellent, focused management team and you have a formula for substantial success.

2 The company is Fluence Corporation which designs, manufactures, and operates packed water treatment units for installation around the world. The current market cap is $270 million and whilst it is not yet profitable, I would classify the stock as a small cap, not a microcap. I would also classify it as moderate risk (not high risk as I normally would for a still unprofitable operation) because the pathway forward appears to be so predictable. Revenues have been building rapidly and there is now an accelerating stream of project awards in China, the Middle East and South America. There is also a strong level of institutional interest in the US and a listing there is a distinct possibility later this year. If that were to occur I would expect a material re-rating as the US market treats these sorts of stocks far better than our market does. The global market for producing drinking water from wastewater is estimated at $700 billion and is occupied by some of the largest engineering players. FLC however occupies a defined niche of smaller projects spanning $5 million to $50 million and is the global leader in that segment. They have unique technologies that allow them to achieve some remarkable outcomes such as delivering and switching on a fully-functional desalination plant to the Philippines in one week. The level of recurring revenue is currently under 10% of total revenues but they are working towards have 30% of revenues being recurring which greatly increases the predictability of future earnings. Following a recent capital raising the company had $55 million cash and no debt so are in a solid financial position. This is a capital intensive business because they have to build the plants upfront before receiving payment or ongoing fees so I don t expect the eventual ROE s will be high. At this stage it is difficult to value this stock with any degree of reliability so I will just leave it that $270 million market cap seems very modest for the potential they have ahead of them. Members who are interested in this stock should allocate a minimum of 12 months to allow it to unfold. The price peaked at $1.15 in October 2016 on excitement about their direction but then declined to a low of 29 cents last Xmas. The price has been building a base for 15 months and looks ready to go now with some larger volumes coming through. There was a big price spike on Thursday which took the price up to 53 cents. The possibility of a partial pullback to around 40 cents remains so be prepared for up to a 20% temporary decline. I think that is a low probability, but it is possible. Equally we can never know when the broader market will embrace this stock and push the share price significantly higher, but I have a high degree of confidence that it will happen sooner or later. The potential upside is large enough to justify the timeframe and the likely price volatility.

3 TABLE OF OPEN POSITIONS AUSTRALIAN STOCKS NST APT Original $3.79 & $4.30 $7.45 & $13.80 Current price % gain Market cap Entry Date 1 - gold $ % $6.3 B 24/2/16 & 9/9/16 If you don t own it / comment $ fintech $ % $4.2 B 25/5/18 Av $10.60 CUV $12.00 $ health $ % $1.2 B 7/6/18 AXL $ finance $ % $100 M 3/8/18 Suspended HUB $11.00 $ finance $ % $840 M 10/8/18 FOD $0.16 & $ indust. $ % $60 M 19/9/18 MPW $0.22 $ tech $ % $23 M 26/9/18 CTD $29.00 $25 1-tech $ % $3 B 11/10/18 WEB $12.70 $ tech $ % $1.5 B 9/11/18 AMI $0.715 $ mining $ % $780 M 15/11/18 MWR $4.90 & $ tech $ % $40 M 22/11/18 & 10/1/19 EML $1.45 $ tech $ % $425 M 1/2/19 COE $0.52 & $0.495 $ energy $0.50-2% $840 M 22/2/19 & 14/3/19 CGR $0.53 $ finance $0.49-8% $110 M 5/3/19 Av $ s in blue are considered microcaps and therefore should form a smaller part of your portfolio POTENTIAL TRADES BEING TRACKED AUSTRALIAN STOCKS Recommended Current price Comments Market cap GOR 3-gold $0.81 to $0.84 $0.67 $0.97 Half position $730 M WTC 1-tech TBA $23.12 Longer term target $6.3 B FLC 5-indust Below $0.52 $0.36 $0.505 Buy now $270 M

4 TABLE OF OPEN POSITIONS AMERICAN STOCKS Original Current price % Gain Comments Date first entered If you don t own it BABA $ $ China $ % 6/7/17 TCEHY $43.50 $33 1-China $ % 27/9/17 HACK $39.90 $36 1-tech $ % 27/8/18 RGLD $77.94 $60 1-gold $ % BX $33.00 $22 1-finance $ % 13/11/18 ALSN $46.37 $38 1-indust $ % 13/11/18 GDX & $ gold $ % Average $ /1/19 & 28/1/19 MDT $84.35 $75 1-health $ % 14/1/19 XOM $73.00 $60 1-energy $ % 8/2/19 JPM $ $80 1-finance $ % Half position 14/2/19 CCJ $11.95 $ uranium $ % 13/3/19 KBA $30.72 $25 1-China $ % 28/3/19 POTENTIAL TRADES BEING TRACKED AMERICAN STOCKS Recommended Current price Comments JPM 1-finance Below $102 $80 $ Buy 2 nd half now

5 Recommendation table Key THE MARKET RATINGS ARE; Green the best trading conditions where it may be appropriate to raise your normal risk per trade & your total overall exposure to above 80% of trading funds Orange intermediate conditions where normal risk per trade applies, but limit total exposure to a maximum of 50% Red use normal risk per trade but trading activity & exposure should be minimal & less than 25% of total funds except if you are short selling CATEGORIES 1 The highest probability of trade type These are the stocks with the best fundamentals, highest growth rates within the sectors that are most assured for forward growth The price will represent good value at The trend is strong as confirmed by the angle of the 150 dma The price pulls back to below 40% on the RSI, below the Bollinger Bands and close to the 150 dma These are the first choice of trades when times are uncertain 2 - Banks are good examples The fundamentals are good but the growth rates will not be as high as category 1 and the valuations may not be quite as appealing The trend is strong as above Buy the pullback as above 3 Range trades Buy the bottom of a trading range with a tight stop and take profit towards the top 4 Great fundamentals but out of favour Tick all the fundamental and valuation boxes The price may be in a sideways band or even a medium term downtrend Buy the reversal below the Bollinger Bands 5 Generally stocks in phase 1 which are showing signs of a breakout

6 Garry Davis Authorised Representative / Director 22 Dilkara Way City Beach WA 6015 Mobile: Ph / Fax (08) Web: Customer notice: The information contained in this communication is general information only. Any advice is general advice only. Neither your personal objectives, financial situation or needs have been taken into consideration. Accordingly you should consider how appropriate the advice (if any) is to those objectives, financial situation and needs, before acting on the advice. Garry Davis (AR No:317590) is an authorised representative of Primary Securities Ltd (AFSL No ). Note to traders* The publishers of this article/information/promotion wish to disclose that they may hold this stock in their portfolios and that any decision to purchase this stock should be done so after the purchaser has made their own inquires as to the validity of any information in this article/information/promotion.

DAILY TRADING ALERTS

DAILY TRADING ALERTS Date: Tuesday May 17 Please note that this information is general advice only & is current only for this edition of the daily alerts. The information will be superseded by the next