I rarely read the financial press but today I made an exception because my wife needed a stack of newspapers to cut up. So I bought the all biggest ones and browsed through them over breakfast. In The Weekend Australian an article titled Brokers put Santos through the wringer about Santos (ASX:STO) caught my attention. I love a good broker recommendation for a laugh. Usually means they’re off-loading excess stock to the retail public. So you can imagine how I nearly spit my coffee all over the table when I read this:
Merrill Lynch analyst James Bulleen….. cut his target price to $17.47 from $17.89.
“In your dreams pal,” I thought. The weekly closing price was $10.65 and the company was having well documented problems with a major project. And how does he get to a figure ending with .47 and .89? Why not 17.50 or 18.00? And what about a timeframe? How long would it take to reach that price (assuming it even would)? That would be a 70% rise. Who are you guys trying to kid?
Curiosity got the better of me and I just had to look at the chart. I was quietly surprised. The weekly candle chart below show Santos sitting on a major support area from where it has rallied four times. In 2007 and late 2008 it rallied over $7 in the space of about six months! In early 2008 it went from $12 to $22 in 14 weeks! Yes, over 100% in 14 weeks. So yes it can be done. And yes, the analyst isn’t fooling anyone. It could happen by Christmas. So if I was a stock buyer I’d buy this chart. I’d even tolerate a run on stops below support (that happens these days). And of course, I’d have a price point where I’d admit I was wrong somewhere near $8. So that’s 20% risk v 70% reward.