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  • e.

  • I guess I have one of the most interesting talk today because I think as an investor, one of the most difficult things to figure out is what to invest in Is over 2500 stocks on the Australian share market alone.

  • So to try and research, all of them can be quite difficult to do.

  • And I remember when I started out in the market, the advice I got was go with the names that you know and trust.

  • I thought, Well, amount of uni and you know, I like my wine.

  • I'm drinking quite a bit of ETA, and I was at the time and I thought, Well, I'm going to buy into a wine company I'm contributing in terms of profitability to a wine company.

  • And so my very first investment was $500 which is the minimum investment into a company called South Cold, which made wine well.

  • A month later, I had doubled my money that $500 had become $1000 I thought, You know what?

  • This is pretty easy.

  • I'm going to give it another shot, and then I thought a little bit more deeply about it.

  • and I thought, actually, you know, I don't want my shares to go south, like in the name of Southcorp.

  • I want them to go north and there was a company at the time called North Limit and I thought, That's a great idea.

  • I put my $1000 into North LTD.

  • And hopefully the shares will go north or North LTD.

  • Got taken over by a company called W.

  • M.

  • C.

  • And a month later on, my $1000 was now $2000.

  • So I thought, you know, third time lucky I'm going to give it another shot.

  • So I'm looking through all the names of the air sex listed companies and across come across one called Julia Minds.

  • Now my name is Julia, and I thought, This is a sign I'm going to put my money into Julia Minds and I put my $2000 into Julian Mines and this was during the tech boom.

  • Julian minds suddenly became Julia Limited, a technology company, and I doubled my money once again.

  • I guess since then I've become really interested in trying to figure out what it is that move share prices and how to make money on the market, and one of my hobbies is, um, looking at the market and filtering the market, but also reading academic studies that have been done on markets around the globe.

  • And I know that there are certain things that you ve investors in edge in the market.

  • I know that companies with earnings momentum so growth in earnings they tend to outperform the market over time.

  • I also know that for the technical analysts, their companies with share price mo mentum also tends to outperform the market over time.

  • I know there's also been studies done on both earnings and price momentum.

  • So by combining the two and having both earnings momentum so earnings growing as well as price momentum, the share price rising, you get a much stronger effect and you're more likely to make money in your portfolio.

  • Also know that in terms of small caps will they're likely to have a small cap effect and should grow faster than large caps.

  • So all these things, I guess, combined to try and figure out what it is that makes stocks move and what stops do well in your portfolio.

  • So I guess my, uh, presentation is stocks to watch.

  • Obviously, I don't know each and every single one of your circumstances.

  • So please have a look in light of your own circumstances.

  • So I do mention specific stocks on dhe.

  • Please have a look to see whether they would be right for your circumstances, but for anyone who wants to have a little bit of a sleep, I thought I'd make it easy and just put all the stocks up in the beginning.

  • Sir, in terms of mining, my picks would be Rio Tinto sand fire in the lithium space if I had to pick one.

  • Who would be Mineral Resource is as well as BHP Billiton for a diversified play in terms of yield.

  • This is smart group as well as if I, for those of you who want more of a passive type of investment and don't want to do so much work.

  • And in terms of growth, Lovisa in the retail space after pay also in the retail tech space, lt m corporate travel and the Sox in an upgrade cycle, 80 milk costs a group mineral racehorses, treasury, wine estates.

  • But really, while my presentation is called stocks to watch what I wanted to do was to leave you with some thoughts and some tools that you could use in your own portfolio to make stock decisions.

  • And I guess when I'm looking at the marketing 2018 I'm looking at it in two different areas.

  • The first is in terms, of course, and in terms, of course, the picture still looks pretty good at the moment.

  • We're seeing synchronised global growth even though there is a threat of a trade war.

  • At the moment we are seeing the strongest growth rate for global course that we've seen in around about seven years.

  • We're also seeing corporate earnings growing both here in Australia as well as a U.

  • S.

  • So in terms of growth, things are looking pretty rosy.

  • I also look at the market in terms of liquidity, and this is where a lot of the volatility has come from in 2018.

  • And I think this is one for investors to watch, especially investors who are looking for an income stream from some of their stock investments in terms of liquidity.

  • I'm really just watching what's happening in the bond market.

  • The bond market is amazing in that some of these cycles in the bond market, they tend to last a whole career and the last bull market that we have seen in bonds has lasted around about 36 years.

  • That's a massive and so the fact that that seems to be coming to an end and we're at an inflection point is causing some volatility in the markets.

  • But all together, I'm very positive in 2018.

  • I think there is going to be a bit more volatility this year, so there's going to be a little bit more up and down movement compared to 2017 and 2016 where we saw extremely low levels of volatility.

  • But I think that throws up in opportunity as well.

  • So I really do think that we're late cycle and what we are going to see is energy prices and things like commodities outperforming in 2018 with a little bit more volatility.

  • Now just having a look at the macro backdrop.

  • So I guess when you're looking at the market and looking at growth, there's a macro factor, things that impacting on the economy and then there are the micro factor seems that impacting on the individual companies but having a look at a backdrop in terms of a larger cycle.

  • This is the S and P 500 from 1932 the current time.

  • So it's an extremely long term charm.

  • You can see that there are some boxes in red and there are some boxes in green.

  • The boxes in red are weather.

  • Market has tended to move sideways or even down during that period, and then the boxes in green, other ones where the market has tended to move higher over time.

  • So the red boxes are called secular bear markets, and then the green boxes are called secular world markets.

  • We have a lot of animal terms in terms of the market, and JAG in every industry has Jagan.

  • So for those of you who aren't familiar with them, the animals of the market, we have the bull, the bear, and we have a cat as well.

  • I'm a cat lover but quickly run through because I've mentioned bear and bull bears have claws and they tend to claw down things.

  • So a bear market is one where prices are being Claude Down there, they tend to be falling bulls on the other hand have haunts, and they tend to throw things up in the air.

  • So a bull market is one where prices are being thrown up in the air.

  • There's also the dick.

  • Did cat bounce?

  • I'm a lover of cats, so please don't hold it against me.

  • But a dead cat bounces where I've never tried to bounce a dead cat.

  • But apparently what happens is it sounds a little bit, but it's dead.

  • So it comes back down to Earth.

  • So a dead cat bounce his one where prices look like they're going up, but then come back down to us.

  • So there you have your three animals or the market.

  • But coming back to long term market cycles and the blacks on blacks, one you know is in Perth, and it's very unusual to find, but, you know, a black swan.

  • You can't really see it coming, so it's a little bit harder to predict.

  • So we have long term market cycles, and the last box there is a green box look.

  • These cycles tend to last around about 14 to 18 years, So in terms of the cycle that we're in at the moment, we're in a bull market cycle, but we're in the late stages.

  • Why is that important?

  • That's important because we can go back in history and have a look at what type of investments tend to perform well late in a bull market cycle.

  • So would you be curious as to know what tends to perform our well late cycle investments?

  • This is where inflation is starting to come through, and as inflation starts come through well, growth looks relatively strong.

  • Commodities is something that's reliant on that growth and that global growth coming through so commodities tends to perform well as inflation comes through, and that growth comes through late cycle Energy also is one of the best performance late cycle.

  • So oil prices have been performing quite well over the last couple of years, as you would expect, and I'm overweight energy coming into 2018 other sectors that tend to perform well what typically, these tend to be more defensive varias.

  • We start to see a bit of a shift into some of the defensive sectors of the market, like healthcare, utilities and staples, and the reason why we call these areas defensive is because people spend money on health care utilities and Staples is things like coals and Will was our groceries.

  • Even if the economy is bad or good, so they tend to be defensive type of cash flows, you tend to see these cash flows relatively stable throughout cycles.

  • Now, in terms of health care, utilities and staples.

  • I'm okay with health care, but I'm a little bit more cautious in terms of the utility sector because of what's happening in the bond market.

  • Sectors like the utilities, the property and the telecom sector have done extremely well since the global financial crisis.

  • And a large part of that valuation is because of the very low interest rates that we've seen around the globe.

  • As those interest rates start to rise, the valuations off some of these companies are going to four not because of what's happening in the company, but simply because what's happening in terms of interest rates.

  • These sectors are these companies.

  • They tend to have large amounts of debt because of their stable cash flows and, of course, the cost off that debt is going to be rising.

  • So as the cycle turns these investments, they tend to be falling, and we've already seen that anyone who aren't seeing the airport's Trans urban tell Stroh would know that we have seen the share price is coming under pressure over the last six months as we've seen bond deals around the globe rising over the last six months.

  • So for income investors that something to be careful about before a strain investors it's really commodities driving growth this financial year were predicted to see around about 7% owning score.

  • But if you have a look at the banks and the industrial sectors there, Arnie forecast to grow at around about 2%.

  • So the growth for the Australian sharemarket is coming from the commodities space Look.

  • The strong rebound in profits that we're seeing is probably mainly baked into share prices.

  • But we're going to get about bouts of volatility in 2018 as we're seeing now, and I think that's an opportunity to get back into some of these commodities stocks.

  • Strangely, dividend growth remains quite strong as well.

  • I think that most things in life moves in cycles and I think that a lot of industries move in cycles as well.

  • Commodities is certainly one that moves in cycles and it's one that's tied to the growth cycle.

  • So as long as the outlook for global growth is strong, you should see commodity based starts doing well.

  • As soon as she's saying concerns around global growth, well, you you'll start to see a bit of a backwards step and share prices falling.

  • Of course, the second derivative of that is mining service is cos the mining service's companies tend to follow that commodities price cycle, but a step later.

  • So as commodity and resold companies get stronger cash flows and more likely to spend those cash flows and mining service's companies benefit.

  • And really, I think the inflection point of the turning point for the mining service's cycle came last year in February.

  • So that February reporting season is where I became very policy of about mining service's companies and not so much because they were seeing great profit growth because they weren't.

  • But the outlook statements were a lot more positive, so that cycle turned in February and I became really excited last year because I know that when a cycle turns that a commodity cycle tends to be a multi year cycle and a mining service's cycle tends to be a multi year cycle.

  • So I've been riding this cycle for around about 12 months and it's been doing well.

  • So their stocks like Simek down there, Eddie I and Monitor Office, which have performed very well over the last 52 weeks.

  • So in terms of mining picks, look what we're seeing in China is they're clamping down on pollution and that means in terms of mining companies, where I want exposure is to higher quality product.

  • And we're seeing that especially in terms of the final markets where the higher quality product is selling and this is in terms of iron or valet BHP or Rio Tinto's product.

  • Fortescue has a lower quality product and so it's being becoming harder for them to shift this product.

  • As China focuses in on cutting pollution and they're going with the higher quality product that's better for the environment.

  • So I would avoid probably four disc you and I would prefer to go with BHP in Rio Tinto.

  • I like BHP Billiton because it also has that oil exposure and you know that I'm positive oil in the late cycle, the late part of the bull market.

  • There's a possibility for BHP Toe.

  • Also sell it Shell gas assets over in the US The possibility of a capital return to shareholders in this type of environment, I think, would be a positive catalyst for the shares and sand fire.

  • Copper debt free, strong cash flow.

  • Copper, they say, is the only commodity with a PhD in economics.

  • And they say it's got a PhD in economics because it tends to be a predictor off economic growth.

  • If you see copper rising, it's generally because global growth is rising.

  • And if you see copper falling, it's generally because global birth is or the outlook for global growth is falling.

  • Mineral resources is a little bit of a different one.

  • Its earnings is driven by lithium, which is part of that battery story.

  • Now I think the easy money in lithium has been made, and I say that because when you are investing in anything, I think that at some point there's a really strong demand response and especially in terms of commodities where demands very strong and you see prices rising.

  • But it's not that hard to find most commodities.

  • They say that Australians Australia is the best digger of dirt in the world.

  • It just takes a bit of time for a mind to be set up and to get your head around the processing in the technology part of it.

  • But at some point there's a supply response because prices are rising.

  • And for Mai, when I look at investing in commodities, it's when you get that large supply response.

  • That, for Mae, is a warning sign that perhaps the market is balancing so in terms of lithium.

  • Last, she was a fantastic year for lithium stocks.

  • But earlier this year we heard announcement from sq M, which is one of the largest producers of lithium in the world in Chile, and it's also one of the lowest cost.

  • And it came out with an announcement that it would look at increasing production by as much as four times.

  • Now in 2018 therefore cost to be producing about 63,000 tonnes of lithium by 2024.

  • They expect this to be 163,000 tons off lithium, so that 2 may is a signal that perhaps it's time to look at getting out some of my lithium exposure.

  • I'm still very positive about lithium but for me the easy money has been made and you're seeing a strong supply response and that some some point, I think that that tells me that this probably risks that there's going to be a bit more downside in terms of share price in a little bit more volatility and it's going to be more difficult to make money in that area.

  • But if I had to pick us lithium stock, it would be mineral resource is yield is a little bit more difficult and I think one of the features of this reporting season is that in terms of the blue chip companies, it was really difficult for a lot of income investors, people who look for those dividends to help support their life starts, and it was difficult because in the top 20 stocks we saw two major dividend cuts.

  • Telstra cut its dividend.

  • That was, well, flag, but we also saw Q B insurance cutting its dividend substantially this time last year, Q B Insurance was paying a 33 cent dividend this year paid a four cent dividend.