Good afternoon,

ASX 200 index went nowhere in aggregate, up 0.18% and the mainstream media didn’t raise an eyebrow. Meanwhile, those paying attention saw a 4% jump in resource stocks and a 2.5% decline in telco and property stocks. Industrials and consumer discretionary also significantly (>2%) weaker. There’s no money in headlines!


You can’t go wrong with Property

I saw a note from UBS last week which showed that the two main reasons borrowers took out an interest-only loan were “repayment flexibility” and “maximise negative gearing”. 11% of borrowers said that they “expect house prices to rise and sell the property before the IO period expires”… this worries me a lot.

Based on this report, it appears a significant amount of borrowers are utterly unaware of the terms of their loan, the effect the decline in house prices may have on their wealth and how interest rates might affect them going forward. 34% of respondents (one third!) “don’t know” how much their repayments will rise when their interest-only period expires.

This is terrible news for the banks. In a post-Royal Commission world, tighter lending criteria (both concerning scale and scope), potential changes to negative gearing and borrowers migrating from interest-only to principal-and-interest, UBS (and I) believe the risk of a credit crunch is rising (and banks aren’t that cheap.)


What’s worth buying?

US Tech
There’s been a dip in some of our favoured technology names of late, and I’m still of the view that the 2018 world doesn’t quite appreciate the importance of these companies in a 2025-world.

As you know, I think the best pick in this space is Spotify (SPOT-US), down 10% from its recent high. A fantastic product that has scope and skill to expand both it’s offering and user base.

Also in a similar vein, I like Adobe Systems (ADBE) at $260 and Amazon (AMZN) sub $2,000. To me, not owning these stocks now (and probably throw Facebook in there as well) is lunacy.

Amazon last week bought out a smart microwave. Seemingly not a big deal… Wrong! It’s a huge deal. Pairing an Amazon microwave with an Amazon Alexa, meh. But think about it, grocery is one of the biggest markets in the world ($614B per annum in the US alone) and the battleground for grocery is in the kitchen and to quote Scott Galloway from Gartner L2:

“…the Seattle firm is about to molest it with media (Echo Show), recipes/information (Alexa), and heat (AmazonBasics Microwave with the new Alexa Connect Kit). The kitchen was the end zone, and Amazon got there first.”

Locally, it’s pretty simple for me, stick to my usual rules around quality, earnings momentum, valuation and then it’s really about avoidance:

  • Avoid expensive – I like Altium (ALU), but on 48x growth, I’d rather own something that’s more recession-proof (see ADBE)
  • Avoid old world – I’m not buying Flight Centre, CTD or Webjet I don’t care what you think their earnings will be next year. I’m also not buying Nine/Seven or any other old TV network, radio station etc.

So what’s left:

  • Breville (BRG) – looks interesting again in the mid-$12’s, though the AMZN move listed above get’s me worried and excited (as I think BRG can get in front of this with innovation and R&D – management are no dummies.)
  • I still think Ansell (ANN), Integral Diagnostics (IDX), Ausdrill (ASL), Huon (HUO), Boral (BLD) all look near enough good value to me. Clients will find lots of these stocks in their portfolios.
  • Data Exchange (DXN) – I swear… you’ve been warned. I will have no sympathy for you when I’m right about this and you tell me how you wish I bought that” in 6 months.
  • Gage Roads (GRB) – back at 12c this morning, top up territory.

Do you have GF tickets?

First things first, how about those West Coast Eagles!!! I wrote in this note at the start of this footy season I expected the Eagles to bow out in their usual semi-final style however after a great start to the season and despite some injuries they’ve made it to the big dance!

Now, loved and loyal readers, you’ll be upset to hear that I’ve missed out on the member’s ballot and I am currently in search for 2 (or more) grand final tickets. Happy to pay a premium so that I can take my Dad who’s over from Perth to the game. If you’re so-so on the game or just feeling generous, and got tickets, drop me a line, I’d owe you one.


Seneca Media

We’ve been busy getting all kinds of social the last couple of weeks. If you haven’t been over to our YouTube channel  in a while, there are two new interviews up with  Melbourne Food Experiences CEO Allan Campion  as well as  Ellie and Emily from Spray Aus. Both worth a look.

Jordan and I have also been busy podcasting. You can catch our latest episode which is all about why stockbrokers put young or relatively low-value clients into risky, often binary outcome stocks. You can catch it on the below links (click your preferred) as well as on Google Podcasts and wherever else you listen.

 


Movers & Shakers

I’ve trimmed the universe back to the ASX 200 this week. I’m a bit all over the shop with how I want this part of the note to look each week, so bear with me while I figure out what I want to do.

Lots of mining names are unsurprisingly making up the top spots on the charts this week, though as QTD & YTD numbers show, haven’t been great investments lately.

Nice to see our tip from last week Ausdrill (ASL) getting a nice little bounce.

Solly Lew’s Premier Investments (PMV) took a decent hit this week on the back of an unconvincing result ex-Smiggle. Like for like sales growth was up 3.3% on a constant currency basis with improving momentum observed. The stock looks pretty fully valued to me on 24x FY19.

Lynas (LYC) down on speculation about a government review of their operations in Malaysia.

Have a good week,
LL