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Orica’s implosion

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By Michael McCarthy

Buy the rumour, sell the fact. Orica reported on Monday. You can see from the chart the strong rise into the announcement, and that investors certainly “sold the fact”. However this could offer an opportunity for investors not yet on board.

The recovery in metals prices is driving mining stocks higher. By extension, a pick-up in mining activity should see the associated mining services powering ahead. Naturally this includes explosives maker Orica (ORI). The issue here is that miners have not fully responded to the commodity price signals – yet – and therefore Orica’s bottom line didn’t improve. In fact, revenue and profit fell by around 1%.

Investors who see a global upswing in industrial sentiment indicated by strong industrial commodity markets are the likely drivers of the recent Orica rally. Mining services operations offer a diversified exposure to a surge in mining operations.

In some respect stocks like Orica offer an exposure to the theme without the mine specific nature of many choices in the resource sector. This pull back eases valuation concerns. Additionally, the price action is supportive. In Monday’s sell down the stock fell through a support zone between $19.00 and $19.20. However this was enough to spur buyers back into the stock.

By the end of the day the share price rejected the lower levels and respected the support. This is a positive for technical analysts. While Orica holds above $18.80 the risks for the stock are on the upside.

Published: Tuesday, November 07, 2017


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