We’ve talked about how to keep your investment decision simple in the previous blog post. Now, let’s see where some of the opportunities lay in current equity markets.

How’s the market going?

The market in loose ‘generalist’ terms has rallied to recapture pre CoVid levels. That in itself a concern as earnings and the way we generally go about things have definitively changed. Incidental spending is practically non existent and we are in Australia beginning to accumulate savings. These are due to two factors:

  1. Households are in ‘defensive’ mode due to the daily uncertainty of our everyday lives (work, enforced lock downs).
  2. The ‘free’ cash that has been made available.

Nothing comes for Free!

Cash support through the various ‘stimulus’ measures has largely gone straight into the Bank. Not for distribution into the wider economy. And this ‘free’ cash so to speak must come at a cost (you see nothing actually comes for free!). The majority of G20 (a group forum of governments and central bank convenors from 19 countries & the EU) members are effectively printing money. Japan, USA, Great Britain, Canada, Brazil, Australia, Germany quickly come to mind. This provides sovereign relief but has fundamental implications that have lasting effects. We only have to refer to quite recent history to see the fallout from ‘printing’ money.  Save making this a piece of political commentary let’s see how this could potentially play out in the investment markets where there is so much uncertainty right now.

Time for reality checks!

We have already seen dividends withheld, earnings guidance not being given and the traditional retail consumer space shut down. So exposure to businesses that cannot give guidance, pay dividends and are not open means you either have or about to experience some serious reality checks!

But right at this moment the market has (as a general comment) pretty much regained it early losses of the first CoVid sell off. A lot of companies have ‘telegraphed’ what is ahead for them, so either directly or indirectly a lot of companies have forewarned us of what to expect.

So where should we refocus?

All markets, sectors have boom and bust cycles. Financial, old world retail, and those aligned with what would be seen as incidental spending are going to be doing it tough. These businesses have said as much.

Perhaps, let’s look at some companies where it is business as usual where majority of their activities are within these ‘sovereign’ jurisdictions. Currently we can say we have WA, QLD, SA, & Tasmania acting as sovereign states.

Take this snapshot of companies that exemplify business that are going about things unimpeded in their ‘sovereign’ states.  So again companies that are experiencing ‘business as usual’, which is enabling them to give earnings and performance guidance to the wider investment community. Where output is not (at this point) being hindered by restrictions in the production and supply chain. Here are just some examples of companies that operate solely within the sovereign (covid free) states.

FMG – Fortescue – Now Australia’s 5th largest company (WA)
IGO – Independence Group – Nickel, Copper & Gold exposure (WA)
WSA – Western Areas – Nickel (WA)
MCR – Mincor – Nickel, Gold exploration (WA production, some NSW exploration)
SFG – Seafarms Group – Protein production (NT)
CSS – Cleanseas – Protein production (SA)
TGR – Tassal Group – Protein (Tas)
HUO – Huon Aquaculture – Protein (Tas)
PFT – Pure Foods Tasmania – Food products (Tas)
TFL – Tasfoods – Food products (Tas)
SFC – Schafer Corporation – Manufacturing (WA)
ASB – Austal – WA based Shipbuilder

For the Gold enthusiasts (Let’s look for closely at the wider Gold sector next edition)

NST – Northern Star Resources – Gold (SA)
RMS – Ramelius Resources – Gold (WA)

Again, just examples of what I am talking about and looking at the market with a different lens, a more micro observation of things.

Perhaps some opportunities exist here in this list, there are many, many more businesses that operate independently of the major eastern states, and some that have benefited directly from current conditions brought about by the pandemic.

This representation predominately has a mining and food theme. This is not coincidence as I will focus on these in coming comment as these sectors are seeing some enhanced support. Next edition I will look at the booming gold sector and some not so obvious fundamentals for consideration.

Remember we are buying business, so to that end we want to apply some informed, tangible, material data into the selection process rather than just chasing a ‘hot’ sector. But more on this in the ‘gold’ focus next time.

___

New to investing? Read about How to keep your investment decisions simple.

For more article on gold, read about Investing in Gold from our previous post.

Disclaimer:
This article does not take into account the investment objectives, financial situation or needs of a particular person or entity. Before acting on any investment strategy or advice you should first consult with your current ASIC accredited investment professional or seek out a compliant investment professional for such.