We left yesterday with the idea that it’s probably best to be wary of holding coal stocks from here on in.
It might be time to get a little nervous if you’re a shareholder in Blackmores Ltd [ASX: BKL], too.
And if you’re not, keep your eyes peeled for an intriguing potential float to hit the ASX sometime in the future.
What’s the story?
The Australian Financial Review reports that a new business called Vitable is encroaching into Australia’s $5 billion vitamin market.
The company produces personalised sachets of vitamins and supplements.
That’s the first point of difference.
The second is they say they can undercut established players like Blackmores through selling direct to consumers.
But it’s the fund backing them that really caught my eye…
Rocket Internet is a firm based out of Germany. You can think of them as a billion dollar venture capital fund.
They have an undisclosed stake in Vitable.
That’s a very powerful resource for any small business.
Rocket brings huge financial muscle, execution ability and a long list of previous successful exits.
You probably haven’t heard of Rocket Internet. But it’s one of the most notorious companies in history.
The Rocket Internet clone factory comes to Australia
They’ve built up an extraordinarily lucrative business model of imitating other successful firms and replicating them in emerging markets.
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I call these ‘clone’ businesses.
For example, Rocket has been involved in creating or investing in companies that are copies of Ikea, Alibaba, UberEats and Amazon.
Rocket helps build up the cash flows and market share of the company.
Then it usually sells the start up to a bigger rival or floats the company on the stock exchange.
Earlier this year its Amazon clone — an African company called Jumia — IPO’d on the New York Stock Exchange.
Jumia is Africa’s first ‘unicorn’ — a tech start up that hit a billion dollar valuation.
Could Vitable reach as lofty a status as this? I have no idea — but I’m very curious to keep watching.
There’s nothing you or I can do about Vitable today. It’s a private company.
But it does show us that you can never be complacent when you’re a shareholder in any company.
I remember when Blackmores was the darling of the market in 2015 and 2016. It had an extraordinary run.
Its profit has been cut in half since ‘daigou’ traders stopped shipping so much of Blackmores’ goods to China.
Competition is always forming to attack companies with high profit margins or big markets.
It also shows how difficult it can be to find stocks that can keep going up in price over long periods of time.
One can never be sure if a pullback, like Blackmores has experienced, is just that…or the beginning of a long term decline or stagnation.
Companies can certainly run into trouble over certain periods…
Tough stuff over October to clear the deck
Australian banks are an example of that right now.
Last week we had NAB announce a huge remediation cost that will lop off hundreds of millions in profit.
ANZ has now come out and said the same thing. Its cash profit will be reduced by $559 million for increased provisions around customer remediation.
The stock is not down today, so this was clearly already factored in.
What’s happening now is important for 2020, concerning the outlook of the banks.
All the tough hits should be dealt with now.
That’s a good thing. It means they now get a clean slate and can go back to trading on their business fundamentals.
I suspect we will have a much clearer read on the market once October is over and we’re well into November.
Don’t forget that trade war talks resume this week and we still have the Brexit deadline on 31 October.
The stock market is likely to tread sideways until there’s clarity around all these factors.
That doesn’t mean you can’t make a buck. But as I’ve said before, it means we’re in a stock picker’s market.