What an amazing two weeks!
It was only back on August 9 that I was explaining why I thought the market was simply having a correction and not a collapse.
Now, it almost feels like that sharp drop never happened!
US recession? Japanese carry trade? Huh?
Now it’s all about the Aussie earnings results.
That’s a good thing! It means we’re back to focusing on which companies are kicking some goals…and might make you a buck!
Let’s look at some of those now…
Last week I told you about a ripping trade my subscribers got away in DroneShield [ASX: DRO].
But the real star of the last 12 months is a stock called Nuix [ASX: NXL]. It’s now up about 370% since the original recommendation last May.
Why is this gain so big?
A big part of the reason is that Nuix had been so utterly flogged after listing on the market.
It collapsed around 90% at one point.
There’s a long and involved tale as to why that happened. We don’t need to go into that now.
All we need to observe is that occasionally the market absolutely smashes a share price…which can set the stage for an amazing return if the business can turn around somehow.
That’s a very tricky thing to measure, because plenty of shares DON’T turn around…and grind their way to oblivion instead.
However, in the case of NUIX, it has a saving grace: deep expertise in analysing data.
Data, some say, is the new oil because of AI and the cloud.
Earlier in the year I included Nuix in my AI report released in February, alongside DroneShield and 3 others.
To be fair, one of those other recommendations – the riskiest – has not worked, and is down 50%.
But, on an average basis, that report’s been a ripper!
I mention this to point out that you could have preoccupied yourself with ‘macro’ concerns like interest rates, Aussie housing, the Chinese economy and all the rest of it.
It’s much better to focus on the business potential of each company, and, more importantly, how that might change.
Then you just have to take the rough and tumble of the market as it comes along.
That’s not so easy at times…as we saw a few weeks ago.
But with that hiccup in the rear-view mirror, I know what you’re thinking now…
Are there some other shares still down in the dumps that might do a ‘Nuix’?
Sure there are.
There’s the non banks, for starters. And other smaller financial firms.
One of them, Judo Bank [ASX: JDO], lifted 10% yesterday after releasing a tidy set of results.
I take that as an extreme positive. Judo Bank is a business lender for small to medium sized firms.
Think about that for a moment.
All this heartache about the Aussie economy and you’d expect a business like that to report growing debts, troubled loans and sheepish customers.
That’s not what they said at all! Loans are up, they’re expanding and exploring new products they can launch.
See this interesting comment too…
‘The Australian economy has demonstrated resilience over the last two years, with many businesses able to maintain margins and preserve robust balance sheets.
‘However, some are experiencing stress with high inflation and interest rates impacting certain sectors, particularly
those reliant on consumer discretionary spending.
‘The economy also appears to be experiencing a significant structural shift, transitioning from being consumer-led to being business-led.
‘Sustained increases in input costs require businesses to increase productivity.’
One way businesses might look to improve productivity is using artificial intelligence.
This is why I have no truck with people who say that ‘AI’ is a bubble.
It seems to me we have no way of knowing the myriad and wonderful ways this might find application across all sorts of industries.
This is important in the context of the share market because anything that can bolster margins and profits is a good thing for firms on the ASX. And AI could cut costs radically…for some firms.
There is a sting in the tail to this sometimes.
I read the other week that the reason US shares have such elevated profit margins is because they either moved or sourced inputs from overseas over the last 25 years.
In other words, higher US corporate profits came at the expense of American labour. It was one big cost-cutting exercise.
Something similar might happen with AI.
We’ll see.
What we can know today is that firms that are executing well on their business plans are being rewarded with higher share prices.
There is plenty of opportunity for this to continue.
Regards,
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Callum Newman,
Editor, Small-Cap Systems and Australian Small-Cap Investigator
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