I had a blast from the past this week.
Way back in 2017 I wrote a report called the ‘Amazon Jackpot’.
My idea was that the pending arrival of Amazon would have no choice but to demand every Australian retailer invest in ‘last mile’ logistics to compete.
It was a good idea…and, in a way, still a powerful force in today’s market. Look at the boom in logistics and warehousing going on!
You don’t need me to tell you that now. It’s far more obvious than then.
I bring it up for a different reason. Back in 2017 I was digging around for investment ideas associated with Amazon in some way.
I came across a small company called Scout Security Ltd [ASX:SCT].
It’s a US firm that decided to list in Australia.
Back in 2017 I gave the company a good look but, in the end, decided against recommending it.
That was a good decision. Scout has never really managed to fire.
(As a stock, I haven’t followed the business since so it may be undervalued or underappreciated for all I know.)
But about that blast from the past…
Scout had a monstrous rally last week…in one day.
On Tuesday the stock closes at $0.076. You can see it’s a tiddler by the price. It doesn’t have volume either.
But something happened on Wednesday.
The price of the stock hit an intraday high of 20 cents.
How good is your maths?
I’ll give you the answer. That was a rise of 163% at the peak.
What was going on?
Such a rise can usually come from one thing…a big, bullish announcement.
All we have to do is go and look it up.
What do we find?
Scout released a market sensitive announcement that day.
What was it?
Amazon is integrating Scout’s home security system into their ‘Alexa Guard’ offering.
Here’s one thing I can tell you…
The market loves it when a big powerful company does some sort of deal or transaction with a smaller one.
You had to be in the stock beforehand to get a shot
It’s one of the most powerful ways to get a turbocharged gain in a stock I know.
This is a strategy where, much of the time, technical analysis cannot help you.
There was no clue in Scout’s chart that an announcement was coming.
You had to be in the stock beforehand to get a shot at capturing some of this rise.
The question becomes: could you have known that such a deal was possible, and importantly, imminent?
When it comes to Scout Security, I can’t tell you that.
But it would be an interesting exercise to go back and look at Scout’s previous announcements and updates to see if it was possible.
I can tell you from previous experience that it can be possible to anticipate these kinds of deals.
I’ll give a small example.
Back in April I wrote to my subscribers…
‘In 2020, we can look for this kind of play in one specific area.
‘I’m talking about the defence industry.
‘One way governments can offset a downturn is to funnel money via the military and navy into the private sector.
‘These firms are also more likely to escape operational restrictions around COVID-19, in the name of the national interest.’
And what do we see today?
From the Australian Financial Review…
‘Military bases will be upgraded, a new ship built for humanitarian missions in the Pacific and dozens of former Qantas and Virgin aircraft engineers hired under a $1 billion package to enlist the Defence Force to boost the economy and underpin 4000 jobs.
‘Prime Minister Scott Morrison will announce the stimulus package, which also includes increasing the number of days reservists can be deployed on activities as well recruiting an extra 500 reservists.’
This is not the first time such government largesse has been handed out this year, either.
I have a nice big watchlist of stocks that can be on the receiving end of this money.
And if I decide to pull the trigger on the trade, I liked the increased odds of a big bullish announcement coming my way, a la Scout Security.
Governments have a lot of money to throw around.
I’m not suggesting we can always anticipate gains like Scout, and we may get it wrong at times, but the Scout example certainly gives you an indication of what’s possible.
If you’d like to know more about this trading strategy, I’ll have more on this in a special event that begins later this week!
Editor, Profit Watch
PS: Profit Watch is a fantastic place to start your investment journey. We talk about the big trends driving the most innovative stocks on the ASX. Learn all about it here.