Two Sectors to Back Instead of Banks: Gold and Renewable Energy

ASX Stock Market Opportunities - ASX AMP Share Price

Your Profit Watch service doesn’t always get it right, but for much of last year I warned you away from buying the big banks.

Back in September 2019 Profit Watch opined…

Here’s why. Every time the RBA lowers the cash rate, it pressures lending rates down.

When rates are higher, banks can offset this via cutting what they pay for deposits. This can protect their margins.

But they can’t cut lower than zero — at least not yet, anyway.  

This may seem slightly obscure.

But every move down in rates damages the outlook for bank shares and especially their dividends. 

Today, the Australian Financial Review reports of the financial year taking its last breath…

But although several stocks have stood out over the past 12 months, most of the listed companies have performed poorly.

The major banks have been hardest hit, struggling on the back of the royal commission and declining interest rates.

I remember about 18 months ago some broker somehow managed to get my brother on the phone and wax lyrical about why he should buy bank stocks ‘as a long-term investment’.

My brother ran this idea past me — including the healthy commission this geezer was going to get for it.

(My brother is a sparky and doesn’t give two hoots about the stock market — or the news.)

I can’t remember my exact reply but it went something like this…

Cam, next time that guy rings up, hang up the phone. You don’t need to pay him to buy bank shares.

It costs $10 to do it yourself, and is the most blindingly obvious thing most people do when they want to dabble in the stock market.

By the way, the outlook for banks shares is crap. And when he calls them a long-term investment, that’s so you don’t ring up and blame him if you find yourself stuck wallowing in their likely mediocrity.

One of my recent regrets is not shorting Commonwealth Bank of Australia [ASX:CBA] when it hit the ridiculously overvalued level of $90 earlier in the year.

I even mentioned it here in Profit Watch. Ah, ‘couldas and wouldas’ in the stock market, eh!

This morning I revisited the work of Annie Duke.

Annie Duke is a poker player. I think every investor/trader should read her book Thinking in Bets.

Poker is like investing because it’s a situation of incomplete information and changing variables.

Here’s the key phrase that sticks out for me. Annie — who’s a multimillionaire from her poker winnings — says you need to ‘reduce uncertainty to make future decisions for yourself.

I just love this line. We don’t know what will happen tomorrow or next week with 100% certainty. How can we make this easier for ourselves?

Two Sectors to Back Instead of Banks

Right now, one way would be to focus on the gold sector.

My goodness. Practically every gold tiddler is flying up on drilling results, resource announcements and other deals.

There’s a lot of positive sentiment here.

Another, more obscure idea, is to start focusing on renewables and avoiding fossil fuels.

Take a look at this line from one of the big super funds…

First State was investigating the areas it wanted to divest from to transition its portfolio while protecting it, given that there were six companies in the ASX 200 that created more than 50 per cent of Australia’s emissions.

A common objection to renewable power is that it needs subsidies, and it fails when the sun ain’t shining or the wind isn’t blowing, and it’s for tree hugging greenies.

Perhaps all those things are true. As far as the markets go, I don’t know that it matters much anymore.

We might do well to remember many experienced and clever people rubbished the iPhone when it came out. The iPhone — the greatest consumer product of all time!

Anyway, governments will coerce and subsidise renewable power into being, and big investors will back it once the framework is clear.

I saw a story recently about Germany. The car industry over there is hurting and asked for subsidies and help. The government told them to rack off — except for one exception: electric cars.

Think about that. The car industry is enormous in Germany. But the government wants the fleet to go electric.

If that doesn’t slap us all across the chops, nothing will.

Of course, you could always listen to unimaginative brokers like my brother’s.

Does buying AGL — the ASX’s biggest polluter apparently — sound tempting to you?

Best wishes,

Callum Newman Signature

Callum Newman,
Editor, Profit Watch

PS: Australian real estate expert, Catherine Cashmore, reveals why she thinks we could see the biggest property boom of our lifetimes — over the next five years. Click here to learn more.