Over the last month the S&P ASX 200 Index (ASX: ^XJO) has sedately moved sideways, down about 1.2%. Tempered by the Federal budget, further iron ore price falls and some consumer sentiment weakness, June has been less than thrilling, yet there are two blue-chip stocks that have risen more than 5% over the same time.
Here's what's driving them and why investors should keep a close watch on where they could be going.
Qantas Airways Limited (ASX: QAN) (up 5.6% since 16 May)
The iconic "Flying Kangaroo" has made a "cease-fire" with Virgin Australia Holdings Ltd (ASX: VAH) to halt adding flight capacity in a pricing war. Actually, Qantas may also take it the other way, reducing capacity that could lift prices.
It is proceeding with its transformation program that projects about $2 billion in savings, of which it expects to achieve $800 million by FY 2015. By third quarter FY 2015, it plans to have scaled down its jet fleet to just two types of more fuel-efficient planes to cut fuel and maintenance costs.
Source: incrediblecharts.com.au
— Outlook The growth prospects may be unclear over the next few years, but the company has about $3 billion in cash and undrawn bank facilities that will relieve some of the financial stress in the transformation.
Some analyst forecasts are now projecting a bigger earnings per share loss for FY 2014 and a smaller loss for FY 2015. If it could turn to a net profit from there, then it may be worthwhile for investors. Turnarounds can have profitable returns, but the story needs to be watched closely. For now the watchlist will do for this stock until full year results come out.
Oil Search Limited (ASX: OSH) (up 6.7% since 16 May)
LNG exports from the energy producer's jointly owned PNG LNG project started shipping in late May and its share price rallied 6.7% in the last 30 days. It had some informal talks with Woodside Petroleum Limited (ASX: WPL) recently, but the nature of the discussions hasn't been revealed. Woodside might be looking at what opportunities may be had with Oil Search after it decided not to get involved in the Leviathan LNG project near Israel.
Source: incrediblecharts.com.au
— Outlook Although Oil Search has a 36 price/earnings ratio, earnings are expected to move upward in a step-like manner as the PNG LNG project ramps up to full production capacity. Further expansion could increase production output by as much as four times. The share price could get punished if disappointing announcements come out, so it may be better to add deftly to a position on price weakness.
