A Contrarian’s Delight?

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Late last year, I was pointing out that 2018 was a total dud for most investors. Ninety per cent of the 70 asset classes Deutsche Bank tracks were in the red.

Now we’re seeing the opposite kind of numbers. The ASX had its best March quarter since 1991. For the US, it was the best start to the year since 1998.

And commodities had their best quarter in almost three years.

US stocks are back around all-time highs.

We can see that risk sentiment is back on elsewhere. 

The market in Shanghai is up 26% over the year so far.

High-yield bonds in the US are roaring back up too — 10% from the lows in December.

But we can never be complacent…

All the above does is highlight how quickly sentiment can change in the market. All those markets were looking pretty grim in the last quarter of 2018.

I still think 2019 could be a total doozy to the upside for some stocks.

Just this morning, I’ve had three good announcements put out by three different shares on the Small Cap Alpha buy list.

I think this is part of the disconnect still currently happening around the market.

If you do nothing but follow the mainstream press, you’ll have your head full of worries and fear.

But once you start following individual companies closely, you can just see so many exciting things happening.

One of the companies I just mentioned upgraded its revenue guidance to over 40% for the financial year. That’s a very good number in anyone’s book.

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This kind of opportunity won’t stick around forever. At some point, the growth gets priced in. I really do urge you to check out the opportunities while they’re there.

2018 was a gift for some. It brought values down to such a compelling range to step in.

I’m not talking all theory here, either. In my last issue, I recommended a stock 80% down from its all-time high. But there’s still so much to like!

That’s why 2018 could prove a blessing to those coming to the market now…

Some Aussie stocks lifting off

There’s still value — or at least what looks a lot like it — lying all over the place.

It reminds me of the old Jim Rogers quote. He said he never does anything until he sees money lying on the floor. All he has to do is go and pick it up.

2018 sent a lot of stocks to the floor — regardless of outlook, growth or value.

Now’s the time to step in. Already the ASX has bounced back.

Some stocks are moving out of the bargain range. I mentioned in a separate note yesterday some of the moves my stocks have made since the market opened on 2 January.

Here’s a taste of the returns, with some creative name-calling from yours truly…

Cannabis flyer: +78%

Aussie tech star: +69%

Oil explorer: +42%

IPO comeback kid: +38%

It hasn’t been all beer and skittles. One high-risk situation bombed out for us. But the return would have been a monster if it had played out. I don’t regret it, for that reason.

And, like life, there’ll always be some names that are duds, ne’er-do-wells and stragglers.

But I still think the Australian market offers so much opportunity. You can focus on resource stocks alone and be busy for months.

There’s also another market worth keeping an eye on…

Patient contrarians: Look here

It’s the housing market. I know. Everyone wants to tell you it’s going to go down even more.

I think the worst is probably over. It’s flat more than anything. I saw one comparison recently between today’s property market in Melbourne and that of 1991.

That comparison is invalid, in my view. That recession was very harsh in Australia.

Today, office rents are rising in Melbourne, Sydney and Brisbane. Vacancy rates are low.

Residential building is slowing, no doubt. But it’s not as if anyone is unaware of this by now. Bank arrears remain low.

There’s bound to be opportunity between the harshly negative perception and — possibly — the more nuanced reality.

I mentioned this to a colleague yesterday and he threw back at me a big objection to the idea.

Timing. I agreed.

I don’t mean picking an exact bottom. But, by its nature, real estate is fairly slow-moving. That means the associated stock ideas tend to be slow-burners that can work out over time.

But they can take a lot longer to fire than some other sectors.

However, picking over some stocks bashed around by the property market wobble might make for interesting reading if you’re the patient — and contrarian — type of investor.

Cheers,

Callum Newman Signature

Callum Newman,
Editor, Profit Watch

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