Can you hear that wheezing, fizzling, choking noise?
That’s the ASX’s retail sector deflating.
Yesterday the automotive firm Peter Warren came out with their latest update. The shares sank 13%.
What did they say?
Revenue is up, but margins are down. Costs are up too. Full year profit is likely to be down 20% against market expectations.
The cost of living takes another victim.
Why am I bringing this to your attention?
Some context is important here…
It was only back in February I wrote a piece in the Fat Tail Daily called ‘Revenge of the Retailers’.
It was how retail shares were ripping up in January.
Indeed they were.
One reason was that many were releasing better results than the market expected at that time.
In January investors became optimistic about multiple rate cuts helping retail firms later in the year.
Those rate cuts look off the table now. We may get one, but not many.
Retailers now confront consumers with little wage growth, high costs and not much sympathy from the RBA.
Look at the response from the share market over the last month:
- JB Hi Fi -4.82%
- Beacon Lighting -16.6%
- Temple & Webster -11%
- Myer -10%
- Peter Warren Automotive -17%
- KMD Brands -17%
I’m sure you get the point.
Now, it’s likely a long-term opportunity is forming here, for counter cyclical investors.
A retail sector sell down will throw up some interesting value propositions if you’re prepared to buy and hold for years.
However, that requires considerable patience and fortitude…and even then, it may all be for nothing if you back the wrong horse(s).
Point being retail stocks are unlikely to take off anytime soon.
That begs the question…
Where can we go looking some
‘heat’ in the market?
As you can probably tell, I’m a big believer in momentum. The best way to find potential profits is to focus on the sector already providing that. Just as the retail sector has come off the boil, a new one rises to take its place.
Perhaps you’ve already guessed:
Yep, mining shares!
Certain gold stocks, in particular, look very juicy right now.
The gold price is well over US$2,000 per ounce. This is giving gold producers very good margins (unlike retailers).
Investors are now willing to back development and exploration firms when they need cash to fund their ongoing operations.
We also have the prospect of industry mergers and acquisitions.
There is also big money that could wash over Australia from North America.
You see…
The gold price in Aussie dollars has been strong for many years now…thanks to the weak exchange rate with the USD.
For American investors, it’s only recently that gold has really busted out.
Naturally, this has kept US gold firms suppressed.
Now they look to have the wind at their back. And they’ll go shopping in a Tier 1 jurisdiction like Australia.
We also know the US government deficit can’t be sustained from taxes alone. That means the Fed must juice the markets with more liquidity at some point soon.
History says gold will respond to monetary inflation (or currency debasement, if you prefer).
And while no one knows what’ll happen next…
It’s all shaping up to form a multiyear bull run in gold and gold shares.
How to benefit from gold’s
coming bull market
The beauty of the gold sector is that there are multiple ways to play this.
You can buy bullion or coins directly. You can consider gold producers, or developers or pure explorers. You can buy large, mid, small and microcap companies.
You’re spoilt for choice. You can pick and choose the risks you’re prepared to run, if you decide to do so.
Perhaps that’s the real challenge. There’s just too much choice within the gold sector to know where to start.
Mining shares are also quite complicated because of their unique geology, metallurgy and processing.
My strong suggestion is to follow my colleagues James Cooper or Brian Chu…that both specialise in mining and gold respectively.
Mining shares could be shaping up for a huge growth run.
That’s why I sat down with another two men with vast experience in the mining equity space: Robin and Hedley Widdup.
They are the father-son team behind Lion Selection Group. Lion is an $80 million fund that specialises in junior resources.
We had a great chat recently about all things mining. You can see it on our YouTube channel for free by clicking on this link.
Enjoy!
Best,
 |
Callum Newman,
Editor, Small-Cap Systems and Australian Small-Cap Investigator
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