CSL PHARMACEUTICALS (ASX:CSL)
Hi All,
Here was my thought process for entering this trade.
BOUGHT - LONG - AV. PRICE 199.23 - 6 AUG 18
Disclaimer: I am not a qualified financial advisor and the following should not be taken as recommendations or financial advice.
FUNDAMENTAL ANALYSIS
Since my style is shorter term trading I do not put too much emphasis on fundamentals. However, there are still key signals I look for.
Balance Sheet/ Margin of Safety
I've calculated the current ratio of CSL to be 2.86 and quick ratio to be 1.4 based on the values of their 6-month report ending December 2017. This ensures the company is able to cover its short term liabilities and will not default in the near future (whilst I am holding).
Growth/ Profitability
Revenue grew by 12.8% from the end of 2017 compared to the end of 2016, it is not amazing but is still better than a decrease. What caught my eye was the 35.8% growth in EPS during this same time period and with the annual year report due just around the corner (18 Aug according to Tradingview), if CSL is able to pull off a similar EPS growth, it is likely to send the stock into new highs just like it did after last year's annual report release.
Cash
The company is in positive free cash flow however has not had a history of growing FCF. In the short term this does not matter to me as much.
TECHNICAL ANALYSIS
Trend
Prior to me buying, there was a bearish divergence between the MACD indicator and the price, with price moving higher but the MACD drifting lower. However, price remained above all moving averages and began trading in a range, indicating a period of consolidation before earnings. I therefore bought at the MACD convergence because I think the bearish divergence has already played out (as the range) and am hoping it will continue its upward trend.
Oscillators
I bought it when the Lane's stochastic crossed and the CCI crossed -100 line, indicating the stock is recovering from an oversold position. To my knowledge oscillators work well in trading ranges so it seemed like a safe entry at least.
Support and Resistance
As can be seen in the images above the stock has been trading sideways, with resistance at around $205 dollars. I am waiting to see whether it breaks that.
RISK
As mentioned earlier the risks of this trade includes: failure to break resistance and disappointing annual report. I am mitigating my risk by keeping a stop loss 2 ATRs away in waiting of the annual report release.
Risk = 2% on this trade. I have around 7% of my portfolio allocated to this. Total portfolio risk < 1%
Thanks a lot.
I am still learning having only really dabbled in trading since May this year, so if anyone has any advice, queries, suggestions .... feel free to leave a comment.
Till next time.
Howard....
Update 23/8/2018
Stock had successfully broken resistance (good results, met expectations) and is likely to resume trending upwards, trailing stop loss now set at 210 (2 x ATR). Locked in 5% profit. Will continue to hold my position until there are signs of reversal or if CSL starts ranging (it is currently consolidating, we will wait and see if it keeps its upward momentum).
Update 9/9/2018
Stopped out on the 6/9/2018 (the ASX had a drop and many companies' stock prices declined). Stopped out at $222.99. After commissions that totaled $182.88 in profit which is an 11.4% return on this trade over 31 days.
A great trade in my books!
TRADE CLOSED.
Here was my thought process for entering this trade.
BOUGHT - LONG - AV. PRICE 199.23 - 6 AUG 18
Disclaimer: I am not a qualified financial advisor and the following should not be taken as recommendations or financial advice.
FUNDAMENTAL ANALYSIS
Since my style is shorter term trading I do not put too much emphasis on fundamentals. However, there are still key signals I look for.
Balance Sheet/ Margin of Safety
I've calculated the current ratio of CSL to be 2.86 and quick ratio to be 1.4 based on the values of their 6-month report ending December 2017. This ensures the company is able to cover its short term liabilities and will not default in the near future (whilst I am holding).
Growth/ Profitability
Revenue grew by 12.8% from the end of 2017 compared to the end of 2016, it is not amazing but is still better than a decrease. What caught my eye was the 35.8% growth in EPS during this same time period and with the annual year report due just around the corner (18 Aug according to Tradingview), if CSL is able to pull off a similar EPS growth, it is likely to send the stock into new highs just like it did after last year's annual report release.
Cash
The company is in positive free cash flow however has not had a history of growing FCF. In the short term this does not matter to me as much.
TECHNICAL ANALYSIS
Trend
Prior to me buying, there was a bearish divergence between the MACD indicator and the price, with price moving higher but the MACD drifting lower. However, price remained above all moving averages and began trading in a range, indicating a period of consolidation before earnings. I therefore bought at the MACD convergence because I think the bearish divergence has already played out (as the range) and am hoping it will continue its upward trend.
Oscillators
I bought it when the Lane's stochastic crossed and the CCI crossed -100 line, indicating the stock is recovering from an oversold position. To my knowledge oscillators work well in trading ranges so it seemed like a safe entry at least.
Support and Resistance
As can be seen in the images above the stock has been trading sideways, with resistance at around $205 dollars. I am waiting to see whether it breaks that.
RISK
As mentioned earlier the risks of this trade includes: failure to break resistance and disappointing annual report. I am mitigating my risk by keeping a stop loss 2 ATRs away in waiting of the annual report release.
Risk = 2% on this trade. I have around 7% of my portfolio allocated to this. Total portfolio risk < 1%
Thanks a lot.
I am still learning having only really dabbled in trading since May this year, so if anyone has any advice, queries, suggestions .... feel free to leave a comment.
Till next time.
Howard....
Update 23/8/2018
Stock had successfully broken resistance (good results, met expectations) and is likely to resume trending upwards, trailing stop loss now set at 210 (2 x ATR). Locked in 5% profit. Will continue to hold my position until there are signs of reversal or if CSL starts ranging (it is currently consolidating, we will wait and see if it keeps its upward momentum).
Update 9/9/2018
Stopped out on the 6/9/2018 (the ASX had a drop and many companies' stock prices declined). Stopped out at $222.99. After commissions that totaled $182.88 in profit which is an 11.4% return on this trade over 31 days.
A great trade in my books!
TRADE CLOSED.
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