The S&P/ASX 200 (INDEXASX: XJO) doesn't know what it's doing.
Yesterday it was falling on 'Grexit' worries while today it soared after a strong US performance overnight. The strong response to external factors says to me that the ASX currently lacks direction, and could be set for further falls if the news feed over the coming few days is negative.
Plenty of stocks have hit 52-week lows in the last five trading days, with Arrium Ltd (ASX: ARI), Fletcher Building Limited (Australia) (ASX: FBU), Silex Systems Ltd (ASX: SLX), and Energy Resources of Australia Limited (ASX: ERA) all charting new depths.
A special tip of the hat to Woolworths Limited (ASX: WOW) which hit a 52-week low earlier this week before rebounding after a change of CEO, and Affinity Education Group Ltd (ASX: AFJ) who reached new lows after appearing in 52-week lows last week.
South32 Ltd (ASX: S32) – last traded at $1.98, down 10% for the year
After an initial upbeat ASX debut, former BHP Billiton Limited (ASX: BHP) asset South32 has fallen sharply as investor enthusiasm for the company evaporates. The announcement of a delayed restart to three major manganese furnaces in South Africa on the back of a 20% decline in material prices also played its part, with investors realising the risks to owning BHP's cast-off assets.
Motley Fool contributor Mitch Sonogan recently investigated the company in depth and wrote an article on why you shouldn't invest in South32 just yet. I think Mitch has called it correctly and South32 faces a fair amount of downside risk without much blue sky potential.
I am not a buyer at today's prices and wouldn't be surprised to see shares fall further.
Myer Holdings Ltd (ASX: MYR) – last traded at $1.29, down 37% for the year
Myer, Myer, Myer. No stranger to the 52-week lows articles, Myer returns for another round this week as investors become ever more pessimistic on the stock's chances of recovery. The exit of a CEO and a subsequent half-yearly report that came in below expectations – and the litigation over failed disclosure obligations that followed – kickstarted Myer's fall earlier this year.
That fall has continued in recent weeks as Myer announced the closure of its Top Ryde store in NSW and three trial stand-alone specialty stores in Melbourne. Ironically, closing underperforming stores is probably the best approach to take – despite investor pessimism – and management is working hard to improve the group's performance.
I feel that shares have gone roughly as low as they will go in the absence of further bad news, but even so I am not optimistic about Myer's future.
IMF Bentham Ltd (ASX: IMF) – last traded at $1.68, down 11% for the year
Litigation funder IMF Bentham has seen its strong share price performance pull back substantially from recent highs above $2.20 as a result of several negative findings in its major litigation cases. A cash-flow negative quarter reported in April also appeared to spook investors and shares have trended down since.
This is part and parcel of owning a litigation company as it is inconceivable that IMF could win 100% of cases, and thus revenues will naturally be quite lumpy.
Investors will want to make sure the win rate doesn't dip too low, but for the moment IMF has a strong financial position and a record of performance, and I feel the recent price pullbacks could present a good entry point. Dividends of 5.9% shouldn't be relied upon, but the chance of decent yields at today's prices – combined with growth over time – is quite high.
