- Back in July 27, I wrote to you in Money Morning about how the US housing market was looking stronger than many presupposed.
I also threw out a few stock ideas around this. One of them was building product supplier James Hardie Industries [ASX:JHX].
Their latest earnings result came out yesterday. Ka-boom! It jumped up by 14% after releasing a barnstorming set of numbers.
That’s a big jump for a 0 billion stock. Most other stocks on the market were flat.
Look at the ride this one has given in the last six months…
|
|
| Source: Yahoo! |
This is the kind of ride a momentum trader slobbers over, me included.
JHX is also moving perfectly in accord with where I think the market — and the world — is currently.
Expectations last year became incredibly depressed and negative. Now the stage is set for companies to surprise to the upside.
Remember how last year, and even early in this one, we heard nothing but recession, recession, recession?
Lo and behold, many investment banks and commentators are walking back their predictions.
Perhaps the hat tip for the biggest reversal I’ve seen so far goes to Westpac Banking Corporation [ASX:WBC].
In August 2022, their analysts were predicting an 18% drop in Sydney and Melbourne house prices.
They have now ‘significantly upgraded their expectations’, according to The Australian Financial Review. Sydney home prices could rise by 10%.
Lord have mercy on those trying to navigate the economic and market wilderness with such unsteady and unreliable guides.
Your best bet is to watch the price action on the stock market. Property stocks have stabilised since the wild volatility of last year.
I remember pointing out to my subscribers back in June that WA-based builder Cedar Woods Properties [ASX:CWP] didn’t sell off at the time when it downgraded its earnings.
That was significant. It told me that the market was now looking past the weak result for FY23 to the potential coming up in 2024 and 2025.
Why? You’ve heard the reasons: rising rents, big immigration, short supply.
There’s a heap of stocks out there depressed like JHX was three months ago and set up for a bounce-back run.
It does depend on what type of investor you are.
But I’m seeing enough strength come through to suggest long-term investors are now chasing stocks with a good growth profile and cheap valuation.
This is how you make a bear market work for you. Don’t let this opportunity go to waste. I’ve been preparing a special presentation on this idea.
Opportunities should abound in 2023 and 2024.
- I’m not saying this is easy, by the way. I happened to be chatting to a wealthy mate last week.
I’ve been telling him the same thing as above whenever I talk to him. It’s a time to be positive and aggressive.
I almost fell out of my chair when he told me he wanted to cash in his portfolio and stick it…well, he wasn’t even sure, but not where it is now (admittedly his stock selection is terrible).
Hadn’t he listened to anything I’d been saying? Maybe not. Or maybe he can’t quite see what I see. And I don’t hang him for that.
One thing I’ve found over the years is that I get a great privilege in being able to watch the market, all day, every day.
Not everyone has that luxury.
There is such a thing as intuition and instinct you develop over time. Or, at least, it appears so to me.
I recall it was about September 2021 when I first noticed weakness appearing in the small end of the market.
The reactions to positive news became muted, then almost absent. Any stock that looked weak began to get sold heavily. I started to become wary.
And we saw how 2022 played out…a dud, mostly. But the warning signs were there much earlier.
I feel now this dynamic is going into reverse. We’re not completely out of the woods. Myer Holdings [ASX:MYR], for instance, sold down heavily yesterday after giving muted guidance.
However, to my mind, Myer is an ‘old’ business. It doesn’t come with much excitement or investor momentum.
No one is going to pile into Myer with overheated expectations anytime soon. It’s not the type of stock I would buy, generally speaking.
That makes it vulnerable when the business cycle turns against it.
I’m thinking of the wisdom of Jim Rogers here. He ran a hedge fund with an extraordinary 10-year return in the thousands of per cent.
Part of the secret was finding ‘secular’ change and not ‘business cycle’ change. What he meant were companies that could flourish no matter what the economy is doing.
The best example in the world right now is the US chip firm Nvidia. The world is hungry for what they’re selling…interest rates and consumer spending be damned!
Now, what are the stocks to back in Australia?
More soon!
Best wishes,
 |
Callum Newman,
Editor, Money Morning
