Uber Can Give You More Than Your Next Ride

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I was at a party the other week and took an Uber ride home.

A friend of mine took the traditional route and went plodding around town trying to find a taxi.

I got a lot more sleep.

Car sharing is in the news right now.

You’ll need to think about this business if you fancy taking a stake in either Uber or Lyft.

Both are due to list in America this year. And they’re going to demand a lot of capital from investors.

Lyft looks like it will be the first to market.

The Financial Times reported last week that the company has posted the initial documents it needs to get things moving.

Lyft has 18 mln users and US$2 bln in revenue. It was last valued at US$14 bln. 

You should follow developments here even if you have no interest in taking a punt on these shares.

Today’s Profit Watch explains why…

It’s pretty simple. These massive IPOs are going to give us perfect insight into the availability of capital and the psychology of investors.

Let’s put some figures down to get some context here.

In 2018, 93 new companies listed on the ASX and raised $8.44 bln.

Now, Lyft is going to market in America, not here.  

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But you can see that Lyft alone will require double the amount of money raised in Australia for an entire year.

This year, the American capital markets must also absorb Uber (US$70 bln), Slack (US$10 bln) and possibly Airbnb (US$30 bln). 

And those are just the big, headline-making ones ones!

This will all only happen if investors are confident in the future and don’t expect the share market to get ripped out from underneath them.

So keep an eye on how easily these IPOs happen. It’s a fair way to gauge sentiment in the market.

It’s interesting to note that the IPO market here in Australia is currently lacklustre at best.

A recent report said only 17 companies had applied to list on the ASX at the end of 2018. The previous year, there were 37 companies around the same time.

There’s a nice angle we can infer from this: The companies that do get up are worth watching. They’ve raised money in a tough market. That implies a compelling business case.

However, the authors put this general IPO weakness in Australia down to poor sentiment. 

That’s a pretty good indication that we’re nowhere near a ‘hot’ market.

It’s another reason I don’t see much cause to fear a massive drawdown here in Australia…

Buy low, sell high

In fact, sometimes it’s astonishing to see how cheap some stocks are relative to their upside.

I’m not alone in thinking this. A well-known and respected hedge fund was cited in The Australian Financial Review recently.

Two of their ‘favourite’ Aussie tech stocks are on my Small Cap Alpha buy list

That was interesting to see. Here’s why.

The art of investing, at least in part, is to think for yourself.

But occasionally, you can wonder if you’re missing something when a stock doesn’t budge — or even goes down into bargain territory — despite having (or seemingly so) massive upside and management doing everything you could ask of them.

This is one way the market can test you. Price action can send very conflicting signals. 

Now, the men and women behind this hedge fund are as fallible as you and I. We could both be wrong on these two particular stock ideas. 

But it does at least support my contention that there are a lot of very good stocks on the Aussie market at great prices.  

2019 is better than 2018 in terms of momentum. But it’s nowhere near what I’ve seen in the past.

I remember trading in 2015 and 2016 and seeing stocks fly up on news. Those kinds of moves are much harder to come by in the current market.

Those days will come again, I’m sure. The key now is to draw up a watchlist for the companies building a great base from which to launch higher.

You could certainly focus on tech and resources. That’s what I’ve tried to do with Small Cap Alpha.

A heavy weighting towards the US is also a good idea, in my view.

The Aussie economy in general is a bit too limited for my taste. I like companies with a bigger scope. Luckily for us, the ASX is home to plenty of stocks that fit this criteria.

Yep. Now is a perfect time to be hunting for opportunity. I suggest you start here.

Regards,

Callum Newman Signature

Callum Newman,
Editor, Profit Watch

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