A tale of two stocks – Brickworks and Blackmores.

Australia’s Federal Court recently resolved a dispute between Australia’s premier financial management and trustee company Prudential Limited, and Robert Millner companies Sol Pattinson, and Brickworks with just over 40% cross-holdings in each other.

Legal counsel for Prudential argued that such an arrangement should not be allowed on the basis that it diminished the value of each by an estimated $450 million to the detriment of its wealth management clients.

In denying such an argument, Justice Jayne Jagot pointed out that “The cross-holdings may reasonably be seen as having provided each company with material benefits as a result of diversification, which has reduced earnings volatility”

https://technicality.me/2017/07/11/chart-review-w-h-soul-pattinson-sol/

Comparison of the charts of Blackmores Limited, and Brickworks Limited below suggests that her judgement in this decision was sound, and in the best interest of small shareholders in contradistinction to the the profit margins of large institutions such as Prudential, able to profit both from the rise, but also in its share-price decline through short-selling.

  1. This is a weekly chart over a 3 year period for Blackmores Limited. It shows the meteoric rise in the share-price of Blackmores Limited from $30 to a stratospheric $220 in the course of 2015. This heady high was followed by a steady erosion of the share-price in 2016 and 2017 to $87 this week.  It demonstrates that there is no such thing as an objective fair share-price range; only what market participants will ask and pay. Buyer beware!! Certainly now is not the time for retail shareholders to contemplate acquisition since the down-trend is intact to the present.

BKL Wk Aug 17

2. The weekly chart of Brickworks is much more sedate,  with the price action mostly trading in a range between $12. 30 and $15.70. This makes it less attractive for many retail investors who cannot resist the prospect of quick profit. However such a stock may offer greater stability of capital, income, and still an opportunity for worthwhile capital gain.

 

BKL Wk Aug 17 v2

 

The 12 month daily chart of Brickworks suggests that this could be an opportune time to enter Brickworks with the share-price rebounding from support at $13.

 

BKW Dy Aug 17

As always, readers are advised not to depend on technical features alone, without seeking the advice specific to their needs from their stockbroker or qualified financial advisor.



Categories: Chart Review, Trading opinion

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