Transport group's strong run nears an end

By Graeme Dickson
Updated: 13:06 EDT, 18 August 2010

If there is any sector that reflects the state of the national economy it is industrial transportation, which is at the sharp end of any changes in consumer and business sentiment.

Stobart Group (STOB) runs the famous Eddie Stobart lorry fleet, transporting goods around the nation as well as providing rail, sea and air transport solutions for its customers.

However, the chart action suggests the strong run it has experienced since the beginning of 2009 might be nearing an end.

Not only has the 20 day exponential moving average intersected the 50 day exponential moving average to the downside, but also the eight day (pink line) and 20 day (turquoise line) simple moving averages have crossed over. This suggests further declines:

The company trades on a price to earnings ratio of just over 15. The growth prospects over the next year does not look bright in light of the lowering growth forecasts made by the Bank of England.

Additionally, higher fuel costs as a result of rising oil price will possibly further squeeze profit margins.

Newsflow will probably be thin on the ground between now and 20 October, when it reports its interims. Some investors might try to second guess. If the company is not performing as well as the market is hoping for, many could sell their shares in advance of the interim announcement date.

Expect support to come in at 120p and resistance at 160p. A close below 120p might lead the shares to test 100p.

Update

- Kingfisher (KGF) – suggested to sell last week at 211.6p, the stock closed yesterday at 206.6p. That in spite of US rival's Home Depot's well received results. Continue to hold while bearing in mind the resistance level of 228p and mild support levels of 200p and 175p.

- Stagecoach (SGC) - suggested to sell at 177p, the stock closed yesterday at 167.3p. Watch out for resistance of 171p, the 200 week exponential moving average. A close below 157p might signal a fall closer to 140p. The company is scheduled for an AGM statement tomorrow.

- Autonomy (AU.) – suggested to sell at 1685p, the stock closed yesterday at 1602p, having traded as low as 1543p. Keep the target at 1500p but also lower the stop 1685p.

- Ashtead (AHT) – suggested to sell half at circa 87p and half circa mid 90s, the stock closed yesterday at 94.65p. I would consider to close the position as on Friday bid rumours started to circle the company.

- Serco (SRP) – suggested to sell at 573.5p, the stock close yesterday at 544.5p. Keep hold of the position but bear in mind it is scheduled to release its interims next Wednesday. Lower the stop to the entry level of 573.5p.

- Smith & Nephew (SN.) – suggested to sell at 581.75p, the stock closed yesterday at 577.5p. The stock has swum against the healthcare sector tide but I am still inclined to hold despite the momentum starting to shift in favour of the bulls. Lower the stop to 610p.

- Capita (CPI) – suggested to sell at 754.5p, the shares closed yesterday at 711.5p. A forecast price to earnings ratio of 16.5 for 2010 and 162 per cent net gearing is still too high, therefore I continue to hold the view that the downside is greater than the upside, at least for the balance of 2010. Lower the stop loss to 750p, although at some stage would hope to take profits in the 665/670p region.

The writer does not hold any shares or derivatives in the above mentioned companies. The material for this report comes from Alpha Terminal.