FYI | Feb 22 2017
By Peter Switzer, Switzer Super Report
One of the curious findings from our years of publishing the Switzer Super Report is that subscriber interest always peaks when the ‘you know what’ hits the fan! A rising market brings complacency and I guess happiness as set investments bring the returns hoped for when they were placed.
However, when a market is rising, we all know certain sectors or companies can be copping a caning. If you need reminding, just go back to late last year when the big fund managers got caught short of banks and the big miners — BHP, Rio and Fortescue — so we saw good companies such as CSL dumped.
That was a classic contrarian time to buy a good quality company and it reminds you of the Warren Buffett advice to be “greedy when others are fearful”.
At that time, the question that I asked most of my TV experts was whether these dumped companies were buys at that time. Only a few would sign up for the contrarian play.
The same happened when I pondered whether BHP at $14 was a good buy for an investor who could wait two to three years for his or her pay-off?
I must admit I used the Gary Stone method of investing and waited for the turnaround and establishment of a believable trend before I jumped in at around $16. However, it proved to be a good bet, especially it’s quick rebound way before I expected!
Here’s the CSL one-year chart to show what a contrarian play with a quality company looks like:
As you can see, CSL’s share price started falling around August and that’s when BHP broke $20 and the experts realised that they had got the big miners wrong! The likes of CSL had already been on a slide because of a few reasons but profit-taking in the face of great price rises and a high P/E were amongst them.
So what’s next?
Already the smarties are looking at other companies that might have been dumped because of the chase for miners. Last Tuesday, Bell Direct’s Julia Lee said she liked some specific mining services companies and Monadelphous was her number one pick. It was the best performer last week on the S&P/ASX 200 index.
It could still be too early for mining services but contrarians are into them already and doing work on these will be a goal for this Report in coming weeks.
One play I like for a few reasons is investing in companies that benefit from a lower dollar but my only concern is that the dollar might not go lower! It is one of the hardest commodities to forecast.
AMP’s Shane Oliver thinks it will go higher to around 78 US cents but as the Yanks raise interest rates — possibly four this year! — then the greenback will rise and the Oz dollar will fall below 70 US cents!
That’s his best guess and others agree but it’s still guessing.
The team at dailyfx.com thinks recent economic data were better than expected and has kept the dollar up at 76-77 US cents levels, but they expect things to change but not necessarily that our economy will worsen but it won’t surge. Here’s their summary:
“The upshot of all this is that the prognosis for Australian interest rates has not changed. They are low. They are likely to remain so until the RBA is convinced that the economy is revving durably. And it isn’t.”
They could get a surprise here but I won’t argue too much about this now but I think the following view is pretty well right: “It is going to take either the dialing back of US rate-rise expectations or the emergence of a more stridently hawkish RBA to really give AUD/USD bulls room to charge. Neither seems at all likely this week, so a neutral call it must be.”
So, what stocks are beneficiaries of a lower dollar? Macquarie (MQG), CSL (CSL), Amcor (AMC), Ramsay (RHC), the miners, Ansell (ANN), Resmed (RMD), Westfield (WFD) and others, which I will try and pry out of my experts on my TV show this week and share with you on Saturday’s Report.
Of course, some of these might not be ripe for a price surge from a currency drop right now, for specific company reasons, and the dollar might not follow the script and fall. Even still, however, you end up with pretty good companies.
This is always my ultimate approach to investing because time usually gets the best out of great business outfits.
Peter Switzer is the founder and publisher of the Switzer Super Report, a newsletter and website that offers advice, information and education to help you grow your DIY super.
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