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The Government last month announced it planned to increase the Navy’s warships from 11 to 26 by 2040, which means an increase of $11.1 billion for Defence funding in the 24/25 Federal Budget.
While we can debate the pros and cons in regard to national security, I would rather look at whether this presents an opportunity for Australian companies.
The move to increase Australia’s naval capacity presents an opportunity for our largest shipbuilding company, Austal Limited (ASX: ASB). So could now be a good time to buy this stock?
Before we consider that, let’s take a brief look at the decision by the Government to downsize the Navy.
While it’s great that we are looking to secure our borders, what’s concerning is that Australia’s Navy is expected to reduce in size before these new warships are even built.
Given the global tension among countries is at alarmingly high levels and there are growing concerns about China, there couldn’t be a worse time to decrease Australia’s naval defence.
But defence is not my area of expertise, so let’s leave the politics for another day and shift gears to discuss Austal which I believe stands to benefit most from the recent announcement.
ASB is a key player in the global shipbuilding industry and a leader in naval innovation, having a significant portion of its business in the defence and commercial sectors.
From a fundamental standpoint, the company is strong, with projections for sustained growth over the next 10 years after entering into a strategic shipbuilding agreement with the Australian Government last year.
From a technical perspective, the stock traded at a high of A$4.99 in November 2019 before falling away to a low of $1.58 in April 2023. ASB is trading around $2, which is the stock’s long-term median price. This means the company is trading around a fair price; however, looking at what might drive the price higher into the future, the recent announcement may be just that catalyst.
Recently, the share price broke through a long-term downtrend signalling the worst could be over. If you weigh up the Government’s announcement, it’s clear that there are strong signs why Austral could have a fantastic 2024 and beyond. There may be an opportunity for a possible entry to this stock in the near future.
Best & worst-performing sectors this week
The best-performing sectors include Real Estate, Financials and Industrials, which are all up more than 1 per cent. The worst-performing sectors include Energy and Consumer Staples, down over 1 per cent, followed by Materials, down just under a per cent.
The best-performing stocks in the ASX top 100 include Northern Star Resources (ASX:NST) and Evolution Mining (ASX:EVN), as they are both up over 11 per cent, followed by ALS Ltd (ASX:ALS), up over 8 per cent.
The worst-performing stocks include Pilbara Minerals (ASX:PLS), down over 7 per cent, followed by IGO (ASX:IGO), down over 6 per cent and Block (ASX:SQ2), down over 4 per cent.
What’s next for the Australian stock market?
This week the All Ordinaries index is trading up and providing a positive start to the month of March, which is great to see.
As mentioned in my previous report, I expect the market to continue to push higher in March on the back of a mostly positive reporting season.
A word of warning though, there is potentially a significant peak likely to form late March or even out into early April before the market falls away again.
In the immediate future, the Australian market has risen for three consecutive weeks from the February low, therefore I wouldn’t be surprised if the market falls for at least one week in the next two weeks. If this unfolds, the move down will only be small and there is support between 7,700 to 7,800 points.
Right now, I would welcome a pullback given many stocks have taken off like rockets during reporting season and normally we see a lot of investors getting caught chasing stocks through Fear of Missing Out (FOMO), which leads to poor buying decisions.
Remember, patience always pays off while FOMO doesn’t, so please be cautious and very selective in your stock selections this month. If a stock you’re watching has taken off, be patient and wait for the next opportunity, as it will come, and you will be glad you waited.
For now good luck and good trading.
Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also the author of Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in bookstores and online at www.wealthwithin.com.au
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