Why Austal could profit from naval warship plans
In late February, the government 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 2024-25 Federal Budget.
The government's announcement that Australia's naval capacity will be increased presents an opportunity for our largest shipbuilding company, Austal Limited (ASX: ASB).
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 in 2023.
From a technical perspective, the stock traded at a high of $4.99 in November 2019 before falling away to a low of $1.58 in April 2023.
Currently, 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, we are looking at what might drive the price higher into the future, and 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. I advise paying close attention to this stock and looking for a possible entry in the near future.
What are the best and 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 more than 1%, followed by Materials, down just under 1%.
The best-performing stocks in the ASX top 100 include Northern Star Resources and Evolution Mining, as they are both up more than 11%, followed by ALS, up more than 8%. The worst-performing stocks include Pilbara Minerals, down more than 7%, followed by IGO, down more than 6% and Block, down more than 4%.
What's next for the Australian stock market?
This week the All Ordinaries index is trading up and providing a positive start to 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 in 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 7800 to 7700 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 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.
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