Why 2019 could see these three stocks rocket

Tuesday, 28 August 2018
Melbourne, Australia
By Bernd Struben

  • From NAFTA to ChAFTA
  • Morrison hamstrung by international pressure on Paris Accord

Donald Trump. Master of the deal, or just muddling through?

We’d argue for both.

You may have heard that US and Mexican negotiators reached a breakthrough on revamping the North American Free Trade Agreement (NAFTA).

Trump has been critical of the 24-year-old agreement since his days on the campaign trail. His efforts to ‘level the playing field’ have been widely disparaged by his political opponents and the mainstream media. But those efforts now look to be paying off.

From The Australian Financial Review:

The Trump administration is hoping to have the new deal in place by late November, and will write to Congress on Friday seeking its support for the changes within 90 days.

We won’t go into all the details of the new deal here.

Some of the biggest changes involve the automotive industry. More vehicle components will now need to be produced regionally. And 40% of Mexican production workers will need to be paid a minimal of US$16 per hour. That should take some of the sting out of the cheap labour available south of the US border.

Reuters reports that there are also provisions on the quantity of American steel and aluminium that must be used.

But, we hear you asking, how about alcohol?

Rest easy. As Bloomberg notes:

The two sides agreed to a truce on alcohol. The U.S. will continue recognizing tequila and mezcal as distinctive Mexican products, while Mexico will keep recognizing bourbon and Tennessee whiskey.’

Now, nothing is officially settled yet.

The new agreement still needs to be approved by the US Congress. And negotiations with Canada remain ongoing. Though in typical Trump form, he appeared indifferent to whether Canada signed a new deal or suffered through new import duties on cars.

In fact, Trump wants to rename NAFTA in a way that takes Canada out of it entirely.

We’re going to call it the United States/Mexico Trade Agreement,’ he said.

That’s likely more bluster in an effort to rattle Canadian trade negotiators. They’re in Washington this week to hammer out their differences.

In the meantime, don’t expect to hear much praise for Trump from the mainstream. His critics are already busy trying to explain why the new trade deal with Mexico might not be such a good outcome after all.

Though global stock markets, most tracking higher on the news, would beg to differ. Don’t forget that NAFTA — once Canada is included — covers more than US$1 trillion in mutual trade annually. And just as with Mexico, I have every expectation that the Canadians will reach a deal.

In Thursday’s Port Phillip Insider, I offered you a way to potentially profit from a successful US trade deal with Mexico. Here’s a snippet from that edition:

There are already promising signs coming out of renewed negotiations between the US and Mexico. Yes Mexico. The same nation Trump has done his best to alienate since before taking up residence in the White House.

I suggested that one way you could gain exposure to the potential upside was via the iShares MSCI Mexico ETF [NYSEARCA:EWW].

The exchange traded fund seeks to track the investment results of a broad-based index composed of Mexican equities.

EWW closed up 2.01% in overnight trading. The ETF is now up 2.47% since market opening on Friday. If Canada does sign onto the new three-way trade pact this week, it should see more investor interest in Mexican stocks.

Now remember, this is not an official recommendation. Just something you can consider and research in your own time.

And now to the markets…

Markets

In the US the S&P 500 again closed at new record highs, and major indices across Europe and Asia are all well into the black.

Overnight the Dow Jones Industrial Average closed up 259.29 points, or 1.01%.

The S&P 500 gained 22.05 points, or 0.77%.

In Europe the Euro Stoxx 50 index finished up 28.57 points, or 0.83%. Meanwhile, the FTSE 100 was closed for Bank Holiday, and Germany’s DAX closed up 143.79 points, or 1.16%.

In Asian markets, Japan’s Nikkei 225 is up 90.27 points, or 0.40%. China’s CSI 300 is down 0.08%.

In Australia, the S&P/ASX 200 is up 37.63 points, or 0.60%.

On the commodities markets, West Texas Intermediate crude oil is US$69.00 per barrel. Brent crude is US$76.44 per barrel.

Turning to gold, the yellow metal is trading for US$1,209.33 (AU$1,639.33) per troy ounce. Silver is US$14.86 (AU$20.25) per troy ounce.

One bitcoin is worth US$6,920.01. That’s up 3.8% since this time yesterday.

The Aussie dollar is worth 73.37 US cents.

From NAFTA to ChAFTA

While free trade in North America largely benefits Australia — directly and indirectly — China remains our most important trading partner.

And with the explosive growth of China’s middle class, that relationship is only set to grow.

One of the biggest areas of concern for the newly wealthy Chinese is quality food and health products. And in ever growing numbers, Chinese consumers are turning to Australia for quality they can trust.

Vitamin producer Blackmores Limited [ASX:BKL] was an early success story in this flood of Chinese demand for quality.

You can see the impact on its share price between June 2013 and January 2016 in the chart below.



chart image

Source: BigCharts.com
Click to enlarge

The 658% surge in share price in only two and a half years came largely on the back of the company’s efforts to market itself to China’s fast growing middle class.

Blackmores had a few issues with supply and access to China the following year. But today the company remains firmly focussed on its biggest growth market, as revealed in its latest reporting results.

From the Australian Financial Review:

Chief executive Richard Henfrey said the Asian business generated record sales in June and was producing the strongest growth in the business. Sales to China, comprising export accounts and in-country sales, were up 22 per cent to $143 million.

But Blackmores sales in Australian and New Zealand were flat at $266 million.’

At time of writing Blackmores’ stock is up 9.73% in intraday trading. Though that’s still about 27% down from its all-time highs in January 2016.

The trick — easier said than done — is getting in on these kinds of explosive growth stocks early in the game.

Which is why small-cap expert Ryan Dinse has chosen to largely ignore NAFTA and focus his investor radar instead on ChAFTA.

As we looked at last week, the China Australia Free Trade Agreement is due for an important upgrade on 1 January 2019.

While ChAFTA came into effect in January 2016, tariffs are being removed in a staged process. One that will continue through 2024.

Tariffs on beef, for example, will be gradually reduced over the next six years. But on 1 January 2019, tariffs on wine and seafood will be cut entirely.

This presents a potential, erm, sea change in opportunities for Australia’s leading seafood and wine makers with expansion plans in China.

Over at his entry level small-cap investing service, Exponential Stock Investor, Ryan Dinse spent weeks poring over the ASX listed companies most likely to benefit from the coming elimination in tariffs.

And he’s singled out three Aussie companies that could potentially see their share prices rocket as we approach January 2019 and the next round of the ChAFTA deal.

But as with Blackmores, it’s those investors who get into these small-caps early — before the mainstream begins to trumpet their potential — who have the best chance at making five or even 10-bagger type gains.

Ryan explains everything, including the risks involved in small-cap investing, in his new whitepaper.

You can read that here.

Mailbag

The Port Phillip Insider inbox has been a bit quiet of late.

If you’ve got something you’d like to share with our other editors or your fellow readers, we always enjoy hearing from you. Even if you’re writing in to disagree with us!

Send your letters to letters@portphillipinsider.com.au. If we publish your email, we’ll only use your first name.

Finally, here’s the latest on the government’s energy policy from The Australian Tribune:

‘Morrison Hamstrung by International Pressure on Paris Accord’

In your business and private life, you’re likely careful about what you sign. The contracts you put your name to may be committing yourself to legal and financial obligations you could find very difficult to get out of down the road.

This is the situation newly minted Prime Minister Scott Morrison finds himself in when it comes to the Paris Climate Accord.

While it may be in Australia’s best interests to exit the…’

If you’re fed up with sanitised, politically correct dogma cut and pasted from one mainstream source to another, then The Australian Tribune is for you.

And it’s absolutely free.

Sign up here to get The Australian Tribune delivered free to your inbox five days per week.

You can visit our website at https://www.theaustraliantribune.com.au/ to read the complete article above now.

Cheers,
Bernd