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Why the ASX All Ords doesn’t mean much

 

After the health emergency is behind us, one of the lessons investors will take away is the importance of ensuring that stocks that you own in a diversified portfolio are exposed to a variety of different sources of revenue.

 

The small caps Under the Radar includes in our Best Buys list are all companies that we believe will weather the COVID-19 storm. But we re-iterate that there will be continued volatility at least until the much talked about curve flattens in Europe and the US; and that you don’t chase stocks when they are racing upwards. Be patient and buy selectively in small parcels.

 

There has been a long period of time where diversification was an abstract concept (achieved simply by owning an ETF) led many investors to ignore the need to expose their portfolio to a range of different drivers of revenue.

Basically we’ve gone from being in an ETF driven momentum market, to going the other way because those same ETFs are not buying, they’re selling. It’s now a stock pickers market. Let’s look at the ramifications.

 

PE only means something only if you get a handle on E.

 

The average of all the companies’ PEs is the market. People talk about the market like it is a company. It’s not. You can invest in the market through index linked securities like ETFs, but this is very different from investing in companies. Investing in companies is ironically safer during times of increased volatility, because there are marked differences between those companies and their ability to handle the current conditions.

 

The key point is that there is increasing dispersion, which means that there is a widening divergence between the premiums or multiples investors are paying for the haves (consumer staples and the like) and the have nots (consumer discretionary stocks like travel agents).

 

Hence if you are buying a company you need to think about whether customers are still using its service or product. In this environment, more than any other time, revenues are the key, costs will be what they will be.

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Which stocks do you buy?

You’re still getting your telco bills; you’re still paying bank fees; you’re still buying groceries at the supermarket. So yes, we’ve been buying the banks, Telstra and the food retailers. These will be in the benchmark S&P/ASX 200 Index.

 

But we’ve been buying other stocks too, which won’t be in the benchmark indexes and includes our nine Best Buys, three of which I discuss in our “COVID-19 resistant small caps” article. And right now, Under the Radar’s analysts are also doing deep dives on what we call “accidental tourists”.

 

We are in an unprecedented time when many of companies that have been in the S&P/ASX200 Index are now actually small caps. These include producers of brands that you are familiar with. Under the radar is looking at 10 of these “accidental tourists” over the next few issues to work out whether they are buying opportunities.

 

Stocks I’m talking about don’t need introductions and include Myer (MYR), Seven West Media (SWM), Kogan (KGN) and Virgin Australia (VAH).

 

Can they make their way back to the big end of town, or are they value traps? We’ve already been making big profits from Kogan, so we’ve been off to a flying start. Over the next few weeks we’re having a look at a number of them and the good news is that this week we’ve found one that we think can withstand COVID-19 and generate profit growth into the future.

 

After the stock market rout since late February, there are companies that have found themselves in the unusual position, having previously been Big Caps with multi-billion dollar valuations and members of the S&P/ASX200 Index to being classified as Small Caps, with valuations of less than $600m.

 

These companies all have highly recognisable brands, which is the focus of our hunt to find out whether these stocks can leverage their brand once again and make current investors big profits.

 

This is what I’m talking about in terms of profiting from fundamental analysis, which won’t be reflected in any stock market index.

Which stocks do you buy?

 

You’re still getting your telco bills; you’re still paying bank fees; you’re still buying groceries at the supermarket. So yes, we’ve been buying the banks, Telstra and the food retailers. These will be in the benchmark S&P/ASX 200 Index.

 

But we’ve been buying other stocks too, which won’t be in the benchmark indexes and includes our nine Best Buys, three of which I discuss in our “COVID-19 resistant small caps” article. And right now, Under the Radar’s analysts are also doing deep dives on what we call “accidental tourists”.

 

We are in an unprecedented time when many of companies that have been in the S&P/ASX200 Index are now actually small caps. These include producers of brands that you are familiar with. Under the radar is looking at 10 of these “accidental tourists” over the next few issues to work out whether they are buying opportunities.

 

Stocks I’m talking about don’t need introductions and include Myer (MYR), Seven West Media (SWM), Kogan (KGN) and Virgin Australia (VAH).

 

Can they make their way back to the big end of town, or are they value traps? We’ve already been making big profits from Kogan, so we’ve been off to a flying start. Over the next few weeks we’re having a look at a number of them and the good news is that this week we’ve found one that we think can withstand COVID-19 and generate profit growth into the future.

 

After the stock market rout since late February, there are companies that have found themselves in the unusual position, having previously been Big Caps with multi-billion dollar valuations and members of the S&P/ASX200 Index to being classified as Small Caps, with valuations of less than $600m.

 

These companies all have highly recognisable brands, which is the focus of our hunt to find out whether these stocks can leverage their brand once again and make current investors big profits.

 

This is what I’m talking about in terms of profiting from fundamental analysis, which won’t be reflected in any stock market index.

Richard Hemming is Editor of Under the Radar Report (AFSL 409518). All prices and analysis at 23 September 2019. This information contained on this website is general information only, which means it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether a particular recommendation is appropriate for your needs before acting on it, and we recommend seeking advice from a financial adviser or stockbroker before making a decision. All information displayed on the website, is subject to change without notice. UTRR does not give any representation or warranty regarding the quality, accuracy, completeness or merchantability of the information or that it is fit for any purpose. The content on this website has been published for information purposes only and any use of or reliance on the information on this website is entirely at your own risk. To the maximum extent permitted by law, UTRR will not be liable to any party in contract, tort (including for negligence) or otherwise for any loss or damage arising either directly or indirectly as a result of any act or omission in reliance on, use of or inability to use any information displayed on this website. Where liability cannot be excluded by law then, to the extent permissible by law, liability is limited to the resupply of the information or the reasonable cost of having the information resupplied. No part of UTRR's publications may be reproduced in any manner, and no further dissemination of its publications is permitted without the express written permission of Under the Radar Report Pty Ltd. Whilst all reasonable care has been taken by WealthHub Securities in reviewing this material, this content does not represent the view or opinions of WealthHub Securities.