Rudi’s View: August 2020 Fits The Post-2013 Narrative

rudi-views
Always an independent thinker, Rudi has not shied away from making big out-of-consensus predictions that proved accurate later on. When Rio Tinto shares surged above $120 he wrote investors should sell. In mid-2008 he warned investors not to hold on to equities in oil producers. In August 2008 he predicted the largest sell-off in commodities stocks was about to follow. In 2009 he suggested Australian banks were an excellent buy. Between 2011 and 2015 Rudi consistently maintained investors were better off avoiding exposure to commodities and to commodities stocks. Post GFC, he dedicated his research to finding All-Weather Performers. See also "All-Weather Performers" on this website, as well as the Special Reports section.

Rudi's View | Sep 03 2020

Dear time-conscious investor: August reporting season has been a positive experience, with multiple new trends and highlights

August 2020 Fits The Post-2013 Narrative

By Rudi Filapek-Vandyck, Editor FNArena

As we leave August 2020 behind us, dominated by a domestic reporting season that on multiple levels proved better-than-feared, it is my personal observation that investors in Australia now can be clearly divided in two opposing groups:

-those who are elated and chuffed as exposure to the sharp rebound in equities has paid off in spades, or at least it has seriously mitigated the losses incurred earlier in the year;

-those who feel deeply frustrated as most of their money is not in the share market, or it is in equities that have not fully participated in the strong recovery off the late-March low.

Probably the stock that illustrates the 2020 share market narrative the best in Australia is Afterpay ((APT)), a local payments facilitator that only started life as a publicly listed company in mid-2017.

Who could ever have imagined that a little over three years later, this company is now the global leader in a newly emerging online segment of the global payment processing industry, one that now has everybodys attention, with Afterpays market capitalisation rallying into the local Top20?

The Afterpay story is two-fold: on the one hand we have an increasing number of newly listed technology disruptors who start from humble beginnings but potentially have a great future ahead of them.

On the other hand, the covid-19 pandemic and global lockdowns have pushed newly emerging societal shifts and trends into acceleration, with the unexpected result there are companies and business models out there that are not just benefiting, they are thriving.

When I met up with an old mate of mine recently, whos a mortgage broker, I was perplexed to hear many of his customers who run a caf or restaurant are, post the initial scare from lockdowns, currently experiencing extreme boom-time conditions.

Lockdowns are bad news. The human instinct is to focus on the sad stories that emerge. Many cafes and restaurants in my neighbourhood are still closed, or have vacated the premises.

But those re-opening in the right place and with the right adjustments and operational costs are meeting huge pent-up demand.

Every crisis shares that same common core characteristic: the strong will become stronger.

This time around, the global pandemic has created a separate group of lucky winners, so to speak, and their growth potential has been turbo-charged.

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Afterpay might be among the few truly lucky ones on the ASX that are enjoying two firm, beneficial shifts driving their business and the share price, they are certainly not the only one.

In many ways, the Afterpay story is not dissimilar from NextDCs ((NXT)), or from Xeros ((XRO)), or from Carsales ((CAR)), and a number of others.

Not every sustainable growth story listed on the ASX is equally witnessing their customers spending going ballistic, but if they are truly carried by market leadership, a defendable moat, a commercial advantage, and they are not weighed down by too much debt, an inability to amend or cut costs, or by delusional or bad management, they will come out stronger, if they havent already.

Short-term threats and issues aside, beneath the surface of daily moving share prices, the dominating narrative of successful investing in the share market has not changed since 2013: its about finding growth, and sticking by it.

You certainly wouldnt want to bet against it.

Goodman Group ((GMG)) just beat its own guidance, yet again, for the ninth time in succession. Nick Scali ((NCK)) has guided for 60% growth in net profit this half to December.

ARB Corps ((ARB)) order book is at an all-time record high.

NextDCsquintessential dilemma is that demand growth for data centres is so strong, it may potentially run out of capacity before the next phase of expansion becomes available.

Of course, for long term investors as opposed to shorter-term momentum followers, the crucial question is the longevity of it all. Reading through analysts research reports in August, this is equally front of mind for those who need to put a value and a recommendation on these stocks.

Most question marks involve retailers currently shooting the lights out.


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