What’s Under the Radar’s view of the big picture?
Our view is that interest rates aren’t going anywhere. They’re going up, but not at a strong clip. This was Janet Yellen’s message from the Federal Reserve where they are clearly missing their 2% inflation target.
It’s especially the case in Australia where your average consumer is hamstrung by some pretty big debt obligations.
If market risks come from anywhere it’s from exogenous factors, such as the potential for conflict on the Korean peninsular, a trade war, or the Catalan independence movement in Spain.
What is the difference between big caps and small caps in terms of analysis?
There has been a lot of commentary on what interest rates will or won’t do and this highlights where the focus is in the big cap world, because that’s where people think they can add value.
It’s important to realise that a small cap that has good growth prospects and is cheap will perform well no matter what the economic conditions are.
Adding value in small caps involves looking at individual companies and deciding which ones measure up on the crucial criteria of return on invested capital and on earnings growth.
Are there recent examples of this analysis from Under the Radar?
Look I mean one of our stocks, Kogan. com has climbed almost 30% in two months. This is one of the big beneficiaries of the telephony deflation. It also shows that Amazon isn’t going to kill retail.
We’ll be looking for more Kogan’s obviously, but you have to look hard, which is what our team does.
We’ve had double-digit gain in less than three months from the retailer The Reject Shop, which we took profits on. You have to be careful with cyclical stocks because timing is very important here.
We’ve had double digit gains in recent weeks from technology stocks Nanosonics, Hills and LBT Innovations. Who would have ever heard of the little robotics company, LBT, automating the highly manual process of populating petri dishes?
We’re already seeing our recent tip on Billabong International bouncing. Of course whether this continues is dependent on results, but when you’re not paying much for a stock and its profit margins are improving, those incremental improvements can mean big profits can be made – both for the company itself and for investors.
What have you got in stall for subscribers?
Speaking of turnarounds, next week we’re covering a stock that is in turnaround phase and is trading at close to its net asset backing. This company has strong management and should benefit from the big spending that’s occurring on renewable energy front. We’ve been working very hard on it.
Other themes we’ll be looking to take advantage of in future issues include:
commodities such as lithium and graphite, which are leveraged to the electric vehicles theme.
We’ll be revisiting consumer finance stocks which are filling the gap left by big banks as they reign in lending.
Technology is also a theme that we constantly return to, as LBT and Hills most recently illustrates.