You wouldn’t believe it…
Many believe that understanding economics is the key to being able to predict the stock market. Curiously the Chinese economy is growing the fastest of all economies and is variously described as the global growth engine. And the Chinese ripples positively impact many peripheral economies too, as my recent visits to Singapore have shown me.
Meanwhile the US economy is in the doldrums, threatening to fall into another recession with anemic growth, stubbornly high unemployment and continued weakness in housing.
And yet the Chinese market as measured by the Shanghai Stock Exchange A Share index remains 65% below its high of 6391.98 in October 2007. Perhaps ironically the S&P500 made its high of $1565.42 on October 10, 2007 and today it sits just 11% below that. If the Total Return index is taken into account, its sits level or just above its 2007 highs.
So all that chatter about recessions, depressions, unemployment and the like counts for very little. How many children are suffering needlessly because the money spent on economists isn’t directed to the kids?
What we do know is that investors should be looking at individual companies. Or talking to people on the ground. In China, balance sheets are deteriorating as receivables blow out while in the US, of the 411 companies listed on the S&P 500 that have reported earnings so far this quarter, 297 have exceeded analysts’ estimates, while less than 110 have missed their forecasts. And as many of our travelling clients have informed us, things seem to be swimming along in the US.
Keep an eye on individual companies and you’ll go far. So don’t worry about whether you should say Go Australia or not. We say Go ARB, Go WOW, Go CCP, Go COH and Go CSL!
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.
pabx panasonic
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i like u shared.trims
Scottthekingloveshisqueenjojoisscottsprincess
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thanksa lot for everything it helps me out all the time
David Sherington
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I like the looks of all 5 of the companies mentioned, but getting a decent entry price can be quite tricky for most of them. From memory, its been a while since Roger commented on WOW and it was not looking as positive for the company as now – the move away from minimg services has really narrowed the field. I was thinking that SEK might be another company to add to that list of stocks to watch. I have watched a number of stocks with good fundamentals (at that point in time) and discounts to IV fall off the perch lately, but I am sticking by a company that very few people seem to get excited about in CWP. I feel that a lot of people mix what this company up with a lot of other businesses in the property sector, but each have unique characteristics – some will be winners and others will be losers, and others are in completely separate sectors. So far it looks as though its weathered the weakness in the property sector quite well and its performed reasonably well for shareholders on a longer-term basis. I liken it to being similar to a mining company. It has its developments, sells a commodity (land) and bears costs in developing and marketing these assets for sale. The commodity has to be of the right grade (location, presentation etc.) and have an economic cost of production to make it a winner and survive periods of weak demand. Others in the sector do not do as well and there is a reason for that – location, management and strategy. The main attraction right now is the substantial discount to IV, but I think that there is potential for IV growth going forward. It has a bit of debt bit I just thought I would mention this one, as I am finding it increasingly hard to find attractive businesses to invest in at present and thought it may be of interest to others.
david klumpp
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With the lead from Roger, I am very pleased to see comments re-focus back onto the “Micro” issues and the qualities of individual companies. This is especially valuable as many of us want to consider companies we hold, or might invest in as we enter this reporting period. I agree with David S that it is very difficult to find worthwhile companies in which to invest at the moment if you use Roger’s guidelines of Quality, Performance and Value as your guide. David has pointed out many companies that did look good, have “dropped off the perch” due to some change in fundamentals, or perception over previous months. With mining services excluded due to perceived risk to earnings, I find it does not leave a lot of highly rated companies (with a good MOS) from which to choose. Using Skaffold, I find that my shortlist (based on high ROE, high EPS and IV growth rates, low or no debt yet with a MOS) is often populated by mining services. The best of these seem to be LYL, MLD, FGE, MIN and DCG. Though we hear we have reached the peak of mining boom, will these companies continue to adapt and perform as A1 businesses, as they have over the past 10 years? I would like to hear others opinions on this. On my watchlist two that “fell off perch” for me were SWL and TSM. Engineering firm SWL was highly rated for some time in terms of rising IV and earnings and as a well run business with many good characteristics. Its share price has since dropped severely, due I suppose to one of its main clients (Qld Govt) being in serious debt, plus new management that has unproven record. Some projects were also delayed. While on a visit to Townsville recently I saw the SWL local office so I went in and talked with their office manager and engineers who told me that “from the ground” business was as strong as ever, and that they had a healthy pipeline of tenders. Many jobs are derived from Fed and Local Govt (and NSW) funding, so maybe this company will surprise everybody? They also told me the company looks after and fosters a strong sense of corporate pride among employees. It is still on my (cautious) watchlist, and like others on watchlist I will watch progress through the reporting season. Others I like based on fundamentals are CCP (which I own), SEK, FLT and JIN, however only the last 2 are with any MOS.
zoran arnautovic
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Hi David K
I keep in touch with few investors who almost 100% have same thoughts as you. Is this ‘cos all are “skaffolders” ?
I agree with you on all but SWL,maybe because I wasnt in it at $2 but at 81c looks like agreat buy.
I have friends that are members of teaminvest and 9 out of your 11stocks you mention are on their buy list as well.
Skaffolder Zoran .
David Sherington
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I took an interest in SWL a while ago, but it has disappointed on more than one occasion, is highly reliant on government funding, bears risks associated with civil engineering projects that have blown up for a number of other engineering firms operating on small margins and one of the biggest issues I hear people talking about is that some senior management have left not long after listing on the ASX, leaving a bit of a hole that is yet to be appropriately filled. In recent times I’ve learned to be a lot more demanding of the companies I invest in and if I see things that cloud the future outlook and detract from my initial investment case, I am far less patient and forgiving and I cut and run to something of far higher quality. There are many examples, but two I am glad to have got out of are GNG and RMS. As soon as I saw that GNG result I was out and I have never given the company any thought since. If I’d stayed in there, I would be regretting it. I will take another look but only if there are runs on the board.
Andrew Legget
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I have always been a fan of focusing more on the micro level than the macro. I don’t ignore it completley but at the end of the day it is what is happening at the company I am in. I know, for simplicity sake, that Spain, Italy or Greece defaulting is not going to have that much of an impact on people buying bread or Coca Cola from Woolworths etc (if woolworths had an amount of their current assets invested in Spanish, Italian or Greek bonds than that would be another story).
An interesting case study is David Jones and Myer. There are both Micro and Macro elements affecting them at the moment, they are both playing a part but working out which one is having a bigger effect would be an interesting discussion. Is it the structual shift to other forms of purchasing (online etc) and the two mentioned companies sluggish reaction to it that is having the biggest
affect or is it the fact that the population are a bit spooked by what is happening and over-leveraged so as a whole are spending less and saving more. Depending on which one you put the most wait on could have very different interpretations as to what you will expect from the future.
Really enjoying the new site and some very interesting posts you have been putting up here Roger. If i had the money to invest I reckon i would be cheering on the exact same companies you guys are cheering on in the ASX’lympics and avoiding those companies that you can bet would fall over at the various hurdles in front of them.
Andrew Legget
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Just re-read, sorry everyone for some bad grammar. Was trying to do a few things at once.
caseyjtan
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US has the unique advantage of “owning” the Reserve currency and being able to “print” money with limited repercussions cf the rest the world; as the then President Nixon reminded the British PM, who noted the US paying for goods/services and buying assets worldwide with rampant money printing and defaulting on exchanging US dollars for gold. US will comparatively recover better/faster than the rest of the world again. Don’t bet against the US; although they may be prone to shoot themselves in the foot with the fiscal cliff ahead.