Spur and Calgro M3, two stocks I have been watching and both have seen their prices break higher.
Charts by Koyfin 15% discount for first 2 years
Chinese data keeps disappointing, every since the -7.5% export data from April. Expected was a strong rebound after they lifted zero-covid restrictions. But not happening.
Just this week;
Aspen (JSE code: APN) announces a acquisition in Latin America for US$290m on a price/sales of ±3x and PE of ±5x. This is a classic Stephen Saad sort of deal. Strong cash generation to pay down the debt.
After having gone quiet when the balance sheet case under serious pressure (with debt of ±R50billion) Aspen is back?
Chart looking good for a break higher.
Forward PE of ±12x is below 1 standard deviation over last twenty years and looking cheap.
Central bakers have very few tools to achieve their mandates around inflation (and in some cases also protecting a currency and aiding GDP growth). Interest rates have a blunt lagged effect and their only other tool is what they say and we need to understand this central banker speak.
Last week it was the South African Reserve Bank MPC rate announcement that left prime unchanged for the first time since November 2021. The vote was close and the governor spent a lot of time saying they had not finished hiking, this was just a pause.
The Federal Reserve FOMC has been saying the same about pausing before more hikes.
But any hikes will surely be data dependent which is what they always say. So the threat of more hikes is central bak speak for don't get too excited.
As expected Local CPI for June came in at 5.4%, lowest in twenty months and well within the 3%-6% target range from the South African Reserve Bank. Yes base effect as June last year was the first +7% inflation print of this cycle.
When do we start talking rate cuts? Truthfully not yet, a pause would be nice eve as the gov always targets 4.5% not the range.
Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia and Tesla are the magnificent seven. They account for 55% of the index.
A phrase coined in the late 1990s for Microsoft, Intel, Cisco Systems and Dell Computer as they stormed higher in the dot com craze.
All had horrid collapses and took o a decade plus to recover their dot com levels and Cisco and Intel have been modest investments at best with Dell delisting.
Are we seeing the same with the magnificent seven?
Yes, no, maybe.
It is different this time, they all have real tech and make real profits. But have they gone wild on the AI bonanza? Absolutely. Now sure, AI will only get better and all seven have a real chance of be the real leaders in the space (in different ways). But valuations are stretched and this current earnings season is important as are the next few as well.
Two-pot system is confirmed, here all the details
Building a list of stocks that are cheap, very cheap, and could give good return n the next year or three. Criteria;
Using Koyfin I get 46 stocks including REITs and detail them in the podcast. I'll create a watchlist on Google docs and share that link in time.
What about just the mid cap ETF from FNB? FNBMID. Sixty stocks but problem is the top holdings are; Sibanye-Stillwater*, Discovery*, Nedbank, Bidvest and Remgro. That's already ±25% of the ETF and none really for my requirements as above.
Local CPI 6.3% for May (lowest since April 2022) from 6.8% in April and vs expected 6.5%. A very good number and we should see June below 6% as June last year was the first +7% in this cycle at 7.4%. Simple base effect should put some serious pressure on inflation over the next few months.
So is inflation largely over locally? Probably.
Can we start talking about when the MPC starts cutting rates? The next MPC rate announcement is July, the day after we get June inflation and we'll see that the governor says. But cuts are maybe fourth quarter fo this year, at soonest. Standard Bank thinks another 0.25% hike later this year and consensus is cuts only starting next year.
Just this week Spar (JSE code: SPP), MultiChoice (JSE code: MCG) and Telkom (JSE code:TKG) have all cut dividend to zero.
We had big dividend payer Coronation (JSE code: CML) drop theirs to provision for the SARS fine and historically good dividend payer Pick n Pay (JSE code: PIK) reduce theirs.
This shows the pain that companies are experiencing, not all, but certainly some, It perhaps also shows quality, for example Shoprite* (JSE code: SHP) increased their dividend.
The problem is we love dividends for cash flow and they tend to grow ahead of inflation, sometimes well ahead of inflation. They're also taxed better than traditional income from bonds or cash (albeit not as low as CGT). But the downside is that any dividend can disappear at any time.
For investors such as myself, reduced dividend is not a big problem. I like the cash flow but don't need the income for expenses. For those living on dividends the pain is real. If the income is required you need a good amount of bond and cash investments and REITs that aside from the pandemic pay consistently, albeit REITs reduced over the last 5 or 6 years.
Another option is something like dividend aristocrats (we have a local and offshore ETF for these). Here we have companies with decade long track record of paying dividends, but remember Steinhoff (JSE code: SNH) was in the local dividend aristocrat ETF, so even this is not guaranteed. But a basket or ETF works well.
Sun City visit. Excellent resort, but very quiet which many commentators suggest is because it's a random weekend in June?
I sent this past weekend at Sun City, vacation club. Some thoughts.
The resort is world class, well maintained with a ton to do for kids and adults.
— Simon Brown (@SimonPB) June 5, 2023
Not yet but building a watch list with the plan being to buy 10-15 stocks over the months ahead.
If you held the share yesterday at close on Tuesday 23 May you will see PPEN in your account. 10.20567 for every 100 Purple shares you held.
Each PPEN (letter of allocation or LOC as some are calling it) entitles you to buy 1 new Purple share at 81c.
If you do NOTHING by 6 June they disappear with ZERO value
Sanlam will take their R45m and of the R105m public offer they will take up to ±R76m of the R105m if nobody else does. Existing large shareholders have promised to take up their rights at ±R28m. So at the end of the day they will get the R105m.
I have been talking about a cracking (broken?) consumer for a few months now. Two recent surveys show exactly this data.
Bretton Woods essentially created teh US$ as a reserve currency
Now all commodities trade in US$
The end of the US$ is as old as time, really kicked off with the advent of the Euro in 1999.
But who take over?
That said, the US$ will lose influence over time. It has been and will continue to do so. One day it may well be over, but we're a very long way from that.
But my worry is it is priced +2x valuations of the other four big banks and it is now largely a mature bank. Sure low cost base, but I do not think it deserves that high valuation so am likely exiting after holding since 2009.
Current open trading positions, long everything
My 7/21 trading system has me long all the indices I trade as below;
Top40 stocks, top and bottom performers pic.twitter.com/zwZlJkRpwX
— Simon Brown (@SimonPB) April 3, 2023
They are great
Dividend Withholding Tax (DWT) is 20%. The maximum Capital Gains Tax (CGT) is 18% after the annual R40k exclusion.
And DWT you pay along the way, eroding your return over time whereas CGT you only pay at the end.
Warren Buffett Berkshire Hathaway has never paid a dividend and he says they never will. Rather sell he says, more tax efficient.
Share buys backs are more efficient, but done at high valuations destroy capital.
No easy answer, but maybe we should temper our love?