Are you throwing the baby out with the bathwater?

Are you throwing the baby out with the bathwater?

As we start to turn our minds to a well-earned break, we cannot help to ponder what the year ahead might unearth and whether we’ll find something useful and attractive that others have thrown out.

What we know today however, is that Materials and Energy stocks are under the pump from rising supply and falling demand.  Some of them, along with those in the mining services game, will shutter operations or go broke – don’t forget there are over 700 mining services companies in Australia and 90 per cent of them are unlisted.  Given that China is forecast by the US Conference Board to be growing at only 5.5 per cent in the next few years and by 3.5 per cent in the years to 2025, it is difficult to see any rapid turn around in the economics of materials exploration, mining and production.

Then we turn to retailers.  Here is another category where the CEO’s have, almost universally, admitted to conditions being tough – with the exception perhaps of Nick Scali. For some companies in the retail space, the issues will be cyclical.  For many however, the problems they face are structural.  Even Woolworths and Coles may provide in the future not to be the blue chips they once were.  You can read more about the problems in retail here.

And finally we turn to the banks.  High yields have drawn enormous popularity and commensurately popular prices.  But the FSI , which we have written about extensively, combined with low credit growth from rising unemployment and weak consumer confidence suggest the halcyon days of ever increasing prices might now be over.

Of course, only time will tell, but in the meantime we will continue to steer clear of businesses whose prospects are anything other than bright.  Given our very high cash weightings and portfolios invested in companies in healthcare and elsewhere, we believe any weakness in the index puts us in a rather envious position to take advantage of opportunities that arise from investors throwing the baby out with the bath water.

And what about the banks.

MORE BY RogerINVEST WITH MONTGOMERY

Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.