Five stock winners in six months. Here ’s why…

Monday, 16 January 2023 — Albert Park

[6 min read]

Dear Reader,

I was chatting with a friend of mine yesterday.

He rumbled about the worries we all know about in the market: rising interest rates, a possible US recession, and high oil prices.

‘Yes, those things are true,’ I conceded. ‘But lately a few recommendations of mine have been on a good roll anyway.’

Later, at home, I looked up the results from the last six monthly issues for my service, Australian Small-Cap Investigator.

Check them out as of last week’s close:

That’s not bad going in a pretty tough environment.

That’s why I say many of the things that worry investors (you?) are built into prices now…and some of the more positive developments are lost in the noise.

Take that October recommendation I allude to above. That’s a company called SiteMinder [ASX:SDR].

SDR works within the travel industry, using software to monetise the hotel industry.

Travel stocks are firing lately (Qantas, Webjet) on the news that Chinese travellers are on the move again.

The Sydney Morning Herald reported last week:

‘Flight Centre’s head of global air Greg Parker told this masthead China’s reopening is the best news the Australia’s tourism industry has received in the last three years and expects increased pressure on Australia’s carriers to increase their services and lower airfares.’

SiteMinder, in particular, is a global business and will benefit from this in a major way.

I don’t think it’s a coincidence that its share price began moving as this news on China broke.

SiteMinder also has a high revenue growth rate…something not so easy to find with the economy slowing down.

Here’s the other thing…

When I was researching SiteMinder, I noticed the company had hit its targets in its 2022 financial year results.

I found that impressive…but also noticed that the share price had been dumped anyway…down 50%.

Here’s what I liked…you didn’t have to look too far ahead to see that Chinese travellers would come back eventually.

I concluded that October issue and SiteMinder recommendation this way…

‘The big daddy of the travel world is China. Pre-COVID, this was on track to be one the biggest trends of the next 20 years as rising incomes in China flood the world with spending and visits.

‘Xi Jinping’s “zero-COVID” policy is locking down millions of potential travellers. We don’t know when it will end either.

‘However, at some point it will, and Chinese tourists will roar back into the skies. This could be a huge uplift for the travel industry when it comes, including SiteMinder.

‘I hope you can see why this opportunity is so compelling.’

This is the kind of situation that bear markets, like we saw in 2022, create.

Investors stop focusing on the future potential of stocks in general and just want to get their money back.

The result is that good stocks get sold down alongside the genuinely troubled (Magellan, for example).

To me, there are cheap stocks like this all over the market.

I just found another company where its results last year were great…and yep, the share price has been dumped anyway.

These kinds of situations are the ones I love as an investor.

It’s much less risky, to me, to buy shares in a company that’s doing well of its own accord but sold down because of the ‘macro’ background.

Eventually, the macro issues sort themselves out, one way or another. But the good business remains.

I’ve been doing this a long time.

Remember Chinese ghost cities? Remember Donald Trump’s trade war? Remember the COVID lockdowns?

All these issues that seemed — and were — so acute when they happened, have now faded in importance. Last year’s surprise inflation breakout will go the same way, in my view.

But now you have the chance to build your portfolio up while prices are still down...

See the table above for the potential results.

I expect them to be even better in six months’ time.

What more can I say?

Here’s a final thought…

2022 was a dud year for the stock market.

However, it’s highly unusual for the stock market to have two bad years in a row.

My colleagues in the US created the following table to show that US stocks have only had two instances of consecutive negative years since 1950:

I don’t see why 2023 should add to these two, in particular.

The odds tell me stocks go on to make new highs.

Intrigued? Pumped to make some gains? Join me on my small-cap hunting journey here.

Of course, if you’re more after a strategy purely designed for safeguarding your wealth, I’m not the man for you. Thankfully, the diversity of our team here at The Daily Reckoning Australia means we cover all bases when it comes to investing approaches.

Starting today, Vern Gowdie and Bill Bonner are hosting a four-day strategy session aimed at wealth protection during these sensitive markets, including a low-risk way to get into markets once the dust settles. Get your spot now for free by clicking here.

Best wishes,

Callum Newman,
Editor, The Daily Reckoning Australia

Dear Reader,

Paris is grey. But not grim. People are out and about. Face masks have almost disappeared.

But everybody grumbles…and in France, as in the US, elite deciders are making everyday life harder. One thing: they’ve banned the use of outdoor heaters, which were ubiquitous in sidewalk cafes. You used to be able to sit outside near the gas heater and enjoy the street life. No more…

Meanwhile, we’re working our way through a list of things that can go wrong. The World Economic Forum (WEF) calls it a ‘polycrisis’. We prefer the half-word ‘cluster’ as it’s more descriptive of the disaster to come.

Inflation, for example. The WEF’s Global Risks Report signals higher living costs as one of its near-term flash points. And here’s the latest. CNBC reports: ‘Inflation just dropped to 6.5% — but the “most important” factor in predicting if it will keep falling is up 0.4%’:

‘In Thursday's CPI report, “services less rent of shelter” showed a 0.4% increase in December…since wages are “the largest cost in delivering these services,” [Powell] said, that might indicate out-of-control wage growth…’

There is ‘sticky’ inflation…and inflation of the Teflon variety. The non-sticky inflation includes things that go up and down readily — such as oil and commodities. The ‘sticky’ inflation comes from things such as wages and shelter, that don’t get marked to market on a daily basis.

Yesterday’s numbers tell us that the sticky part may become a tar baby — hard to get rid of. In the ‘services including rents’ category, for example, prices are up more than 7%. Much of that is wages. And nobody takes a wage cut to fight inflation.

‘Davos men’

WEF is a sinister organisation. It believes the common man is a dope — which, of course, he is. But it also believes that (or rather its adherents) the great and the good from all over the world are geniuses — which they are not. They are human too…just better at school…or better at getting their names in the paper…or simply lucky enough to have no tender feelings nor nuanced thoughts that might keep them from making fools of themselves. With no real weight — neither inner dignity nor outward-facing principles — they rise to the top, like plastic bottles floating in a fetid swamp.

The list of attendees has recently been released. It includes the usual public policy jackasses…as well as a large group of people in private industry who have become ‘Davos men’ and are ready to lead the rest of us to the Promised Land.

The problem is that when you look more carefully at the land they are promising, it looks more and more like a prison, one constructed by true believers who think they know what’s best for us.

Which brings us to their polycrises…and to our cluster. Included among the coming tempests — at the top of both of our lists — is the deflation of asset prices and the potential for a worldwide, 1930s-style depression. But looking out further…over 10 years…their survey focuses on bigger threats. Its top five are all related to ‘climate change’. They think human activity is ruining the planet.

On our list, by contrast, in number four position, is a very different crisis — a man-made catastrophe, a little like the disaster in China of the ‘Great Leap Forward’, in which 50 million people died — caused by an almost religious faith in ‘green’ power.

This tilted world

WEF could be right. Maybe the planet really is warming. And maybe it will pose problems. But there are a lot of unknowns. Is the planet heating up because of something we do? We don’t know for sure. Is a warmer Earth a bad thing? Don’t know. Could we stop it? We don’t know that either. Would we be better off if we tried…how much would it cost? Again, question marks. Would it be worth it? Who knows?

The risk we see is not a climate disaster, but a much more likely public policy cluster. The odds are in our favour. We know of no major, ambitious, and costly public policy that wasn’t a catastrophe — from the Crusades and the Inquisition to the trenches of the First World War and the jungles of Vietnam…all were disasters.

Yes, there are plenty of squishy unknowns in our cluster too. But the ground is dry. Fossil fuels are 1) cheaper than green energy, 2) already in place and ready for duty, and 3) reliable — they do the job even when the sun doesn’t shine and the wind doesn’t blow.

Replacing fossil fuel with ‘green’ energy, even gradually, will almost certainly lower living standards. (Today’s standards of living depend on energy at today’s prices.) In our developed world, we sit on a fat cushion of wealth, made possible by economies using traditional energy. Would lower living standards be a bad thing? We don’t know. But what about those billions of people who sit on hard benches…for whom air conditioning and automatic transmissions are still a dream? They live on US$5 a day…and barely stay alive.

We don’t know. But combined in a cluster of market correction, war, and other calamities, tilting the whole world towards an expensive and untested new energy system is risky. Some of the world’s eight billion humans are bound to fall off.

Regards,

Bill Bonner,
For The Daily Reckoning Australia