While a country was being invaded, the stockmarket actually went up!
With buildings pummelled, lives destroyed, and women and children fleeing to safety in the freezing cold – how did we watch all this horror and still say, “It’s a good time to buy gold” … or “oil” … or “lithium”??
We also had floods twice in the same month impacting parts of NSW and Queensland – leaving families homeless and businesses in crisis. But shares in dumpsters, fertilisers, Coles and Woolworths rose with the waters.
TIP: The market is heartless. It senses opportunities from calamities and rewards those who sniff them out!
I kept to my routine of researching, making notes and reading through investor updates – but the images of the suffering and devastation in Ukraine kept flashing through my mind. But for the first time in years, I lacked my usual enthusiasm.
In spite of 2 World Wars, civil wars, terrorist attacks and natural disasters, the sharemarket survived. At the end of each disaster, it climbed higher. Will Ukraine survive as well?
In times like these, my granny Azizah would encourage us to pray. Her faith was unyielding and unshakeable. She was our shining light of hope and we turned to her for reassurance. Dad’s approach was different. “Don’t waste time on what you can’t control – work on things you can and be there for the people who need you!”, he’d say. (I took in a bit of Gran and a bit of Dad.)
So let’s look at what’s happened since our February 2022 investment update.
I believe that agriculture stocks – the term is now ‘agribusiness’ – will grow and do well, with technology (e.g. sensors for efficient water use and to detect weather patterns) to boost production and minimise risk in the event of crop failures and natural disasters. Demand has never been greater for Australian cattle, milk, cotton and wool, water, cereals, vegetables and fruit.
If this interests you, I suggest you look at the top 50 Agribusiness list in the AgJournal (their magazine was included with The Australian on March 26th). Companies from 1 to 50 were listed with their ASX codes, with financials for the 2020 and 2021 financial years. Commodities included eggs, potash, goat milk, ginger and macadamias, olives, hemp, and rice. Companies included:
- A2 Milk (#3)
- Bega Cheese (#7)
- Bubs (#18)
- Maggie Beer Holdings (#20).
I closed my eyes and pictured hectares upon hectares of land … lush with green, golden wheat, grazing cows and sheep and beautiful fruit trees. We have so much to offer!
AgJournal also mentioned fertilisers. There’s a world shortage: demand is high and prices are soaring. Recent floods have all but swept away nutrients in the topsoil which must be replenished. Here’s an excerpt:
“Deep in the remote mining areas of Australia, a quiet revolution in precious minerals is evolving. It’s not the gold that has captured fossickers’ imaginations going back 170 years or the modern day hot property of lithium or rare earths … it’s the farmer’s version of gold: Fertiliser. …
“A number of Australian mining companies are working towards developing local sources of potash, urea and rock phosphate fertilisers – products which Australia largely had to import … ”(Agjournal, p.12, March 2021)
Something else I read that was interesting: a serious supply shortage for an additive called ‘Adblue’ – “A diesel exhaust fluid used in vehicles with Selective Catalytic Reduction (SCR) technology to reduce harmful gases being released into the atmosphere … ”
Incitec Pivot (ASX: IPL) makes AdBlue in Australia. We learn from the web page that with federal government support, it’s “ … committed to mobilise its expertise and assess the expansion of AdBlue production at its Gibson Island plant in Brisbane to meet Australia’s needs, following limited supply from overseas markets”. Established in 1919 and Australia’s largest supplier of fertilisers, it’s #2 on Agjournal’s top 50, and is now up on our watchlist!
Lithium, copper, nickel, gold and uranium stocks are still making headlines, but please be wary of those still in the exploration and development stages.
SAM’S COMMENT: While higher commodity prices will certainly make some mineral deposits more attractive, which will lead to higher share prices, beware of what mining analyst Mickey Fulp refers to as ‘frogs masquerading as princes’ in this space, as these stocks are still quite high risk!
April share updates
- AAC: One of my favourite agribusiness stocks, still at a price that’s attractive. Their half yearly financial report was released on 18 November 2021.
- CWY: Continues to grow with a small dividend. Their half yearly results were released on 17 February 2022.
- HUM: Made a half-yearly profit of $27.8m (see their interim financials that were released on 22 February 2022) – the only BNPL company to do so. Look out for further ASX announcements in relation to the sale of its consumer finance business to Latitude.
- POS: My fling with a cheapie. So far, no announcements on production. Good results from nickel samples which continue to be analysed. I’m patient!
- TLS: Still my favourite. We need 5G and all the devices that go with it. Plus, the dividends keep me happy.
- Don’t be put off by the “red ink” in April’s table. Remember the lesson from the start of this post – the market is heartless and will savage stocks at the first sign of bad news. Investing is not for the faint of heart. However, if you have the right temperament to be able to grab opportunities when they arise, then it can be rewarding. Above all, know thyself.
- HUM’s share price has been underwhelming, but all BNPL stocks have been hit hard of late. There is a good reason for this – the market is likely concerned at the number of “bad” loans in this space. The consumers who turn to BNPLs often do so because they are experiencing financial stress. These consumers are also more likely to default on their loans, which is bad for business.
- The good news, however, is that despite HUM’s share price being dragged down with the other BNPLs, it appears to have less exposure to these “bad” loans. (Apart from its BNPL arm, HUM also operates profitable credit card and commercial lending businesses.) To illustrate, HUM’s “30+ days arrears” rate fell by 28% in the six-month period ended 31 December 2021, from 2.9% to 2.1%. This means that the number of customers who are late in making payments is falling, which is a good indicator of the creditworthiness of HUM’s customers.
- I believe that BNPL companies that employ responsible lending practices will be rewarded by the market in the long-term. HUM is a signatory to the BNPL code of conduct, which is a great start, but I would still like to see more protections for consumers in this space. Fewer BNPL customers experiencing financial hardship means fewer bad loans, which is better for business (and for society).
- Also, remember that “growth” stocks such as VHT and POS are valued based on their potential to generate future “IPD” (remember stockbroker Alec’s advice from Invest 1.0!), meaning patience is often required. Picking winners in mining and technology stocks is hard, as the path to profitability is long. But the payoff can be worth it if the business succeeds. Small bets are preferred here.
Most tech stocks fell since our last update in February. Were they too high to start with and were we unrealistic in thinking they would keep going up? Is there an opportunity now to buy? Maybe not yet.
Last year, on-line shoppers spent $62b out of the total $350b that was spent on retail. Companies delivering quality goods via efficient delivery networks with a friendly refund policy will grow and grow. Who wants to spend hours in traffic and spend more time looking for a park? We’re saving money on petrol now, and only shopping for fresh fruit and vegetables at our local supermarket.
My advice as always is BE CAUTIOUS. Though many ‘finfluencers’ have good intentions, they may not always have your best interests at heart. Analysts’ newsletters can be useful. Opt for a free trial, don’t forget to cancel your credit card payments if you change your mind. The ASX website is excellent and always free.
Your best investments will be made on what you have observed, read and researched. Please read (and re-read) my 6 ‘About Investing’ posts.
Be patient. Everything that’s worth building takes time. In between times, even if you’re not feeling lucky, a $2 lottery ticket wouldn’t hurt.
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