Increasing your chance of big gains before you invest

Thursday, 14 February 2019
Adelaide, Australia
By Bernd Struben

  • Good news from Goodman
  • 327% annual revenue gains…

We spend a lot of time here at Port Phillip Insider analysing the financial forest.

By that I mean things like sovereign debt issues…of which there are many.

Or political manoeuvrings likely to affect international trade, domestic energy markets, or corporate taxes.

It’s a challenge trying to put together all the pieces of the big-picture puzzle. Or as Agora’s founder Bill Bonner likes to say, connect all the dots.

But all these pieces have an impact on share prices. And when you get it right it, you can find yourself well in advance of the herd in deciding which stocks to buy…and which to sell.

This is why I try to keep you ahead of the curve on what’s likely to happen in the ongoing negotiations between the US and China. And with the potential for peace on the Korean peninsula and normalised relations with Russia. Or the opportunities and pitfalls posed by Brexit…if the global elites ever allow it to go through.

Yet while it’s important to try to map out the forest, you don’t want to ignore the trees.

In my admittedly stretched analogy here, the trees are individual companies. These are the stocks you invest in. The ones you’re hoping will double your money…or more.

There are a lot of boxes you should tick before investing in any stock. And I’d place earnings — recent and forecast estimates — at the top of that list. (Though you should note that many start-ups often run at a loss in their early days.)

A lot of earnings reports are hitting the ASX this week. Some good. Some downright rotten.

We’ll look at the good first, right after we look at the markets…


Overnight, the Dow Jones Industrial Average closed up 117.51 points, or 0.46%.

The S&P 500 gained 8.30 points, or 0.30%.

In Europe, the Euro Stoxx 50 index finished up 11.62 points, or 0.36%. Meanwhile, the FTSE 100 rose 0.81%, and Germany’s DAX closed up 41.34 points, or 0.37%.

In Asian markets, Japan’s Nikkei 225 is up 10.96 points, or 0.05%. China’s CSI 300 is down 0.17%.

In Australia, the S&P/ASX 200 is up 3.23 points, or 0.05%.

On the commodities markets, West Texas Intermediate crude oil is US$53.95 per barrel. Brent crude is US$63.61 per barrel.

Turning to gold, the yellow metal is trading for US$1,307.75 (AU$1,845.28) per troy ounce. Silver is US$15.60 (AU$22.01) per troy ounce.

One bitcoin is worth US$3,572.05.

The Aussie dollar is worth 70.87 US cents.

Good news from Goodman

First some good news on earnings, from the conveniently named Goodman Group [ASX:GMG].

The commercial real estate giant has a market cap of $22.6 billion. The stock trades at a price to earnings (PE) ratio of 21.07. And it’s handily beating forecast earnings.

As summarised by the AFR, Goodman ‘upgraded its full-year earnings guidance after operating earnings increased 10.4 per cent to $465 million in the six months to December on the back of surging global demand for new logistics facilities.’

The company now forecasts earnings per share of 51.1 cents. That’s up from the 50.0 cents per share forecast in November.

Investors clearly liked the news.

At time of writing, the share price is up 3.83% in intraday trading. But a rising share price is nothing new for Goodman.

Just have a look at the five-year share price below:

chart image

Source: Google Finance
Click to enlarge

The share price is up 148% in five years.

You would have done even better if you’d bought 10 years ago. The stock is up a whopping 862% since 29 May 2009.

Pity the investors who loaded up on shares in the lead-up to the GFC though. If you’d bought near the peak on 29 December 2006, you’d still be nursing a massive 67.21% loss.

So much for the old adage, ‘It’s time in the markets, not timing the markets.’

Having looked at the good in the earnings reports, let’s look at the decidedly not good.

Yep, I’m talking about financial services company AMP Limited [ASX:AMP].

The company has a market cap of $6.8 billion and trades on a PE ratio of 8.00. That sounds like an appealing PE. But tread carefully buying into stocks with tumbling share prices.

AMP has taken a big hit from the fallout of the royal banking commission. That is if you consider a 96.7% fall in net profit a big hit.

The company reported to the ASX that its net profit in 2018 was $28 million. That’s down from an $848 million profit in 2017.

The huge reduction didn’t come as much of a surprise. AMP stated last month that it was expecting profits to come in near $30 million.

Still, investors weren’t pleased with the announcement.

At time of writing, AMP shares are down 4.71% in intraday trading. That puts AMP’s share price down 55.5% since this time last year.

See what I mean about buying ‘cheap’ looking stocks in a downtrend?

327% annual revenue gains…

While we’re on the subject of earnings, a raft of ‘pot stocks’ are set to release their results as well.

Some of the biggest names in the industry are expected to report double digit revenue growth…or more.

That’s not surprising in a brand new industry.

To be clear, we’re talking revenues here. Not profits. Some of that growth will be offset by increasing costs as these budding companies scale up. And scaling up they are.

The demand for marijuana in Canada since the country legalised recreational use on 17 October last year has outstripped almost every analyst’s forecasts.

Who knew that smoking weed would be so popular?

And the myriad medical applications for medicinal cannabis are only now beginning to come to light. As I mentioned last week, a surprise potential application might be in treating men with low sperm counts.

South of the Canadian border, more US states are legalising cannabis each year. Michigan became the latest to give the green light to recreational sales following November’s midterm elections.

Even the US Federal government is beginning to see the light here. As Bloomberg reports:

The rally [in pot stocks] comes amid potential political catalysts in the U.S., including last week’s House Financial Services Committee hearing entitled “Challenges and Solutions: Access to Banking Services for Cannabis-Related Businesses.” The goal is to open up banking to the U.S. cannabis industry, which has faced difficulty getting financial services because of federal law.’

I believe it’s only a matter of time before progressive European nations and perhaps even Australia follow suit. Across the ditch, the Kiwis are planning a referendum on legalising marijuana next year. And it’s likely to pass.

With that kind of growth outlook, today’s best placed pot companies should be able to make hay tomorrow…if you’ll excuse the mixed metaphors.

Aurora Cannabis is set to report its 2018 earnings on Monday. And expectations are…erm…high.

From Bloomberg:

In terms of results, we already have some clarity from Aurora, which said last month that it expects to report revenue of C$50 million ($38 million) to C$55 million for the quarter ended Dec. 31, up 327 percent from the same period a year ago.’

Like most pot stocks — and indeed most stocks in general — Aurora took a big hit in October. The share price is still down 37.9% from its 15 October peak.

Year-to-date, however, it’s already up 38.6%, as you can see below:

chart image

Source: Google Finance
Click to enlarge

That’s the kind of chart you want all of your stocks to display.

With a booming growth market ahead of it, there’s probably more to come for companies like Aurora. Provided, of course, they’re properly managed.

That’s another box you’ll want to tick before investing your hard earned money into any company.

Returning to my rather dodgy analogy, sorting out which tree will bear you the most fruit is no easy task.

It’s why, over at Australian Small Cap Investigator, Sam Volkering works late into the night almost every day.

And in his latest research efforts he uncovered what he’s convinced will be one of the best performing pot stocks of 2019. And it’s listed right here on the ASX.

Of course, there are no guarantees. Investing in stocks with the potential for 1,000%-plus gains is inherently risky.

But if you have the stomach for that risk and the appetite for those kinds of gains, you’ll want to check out Sam’s favourite local pot stock.

Get all the details here.

Finally, don’t forget to check out the latest from The Australian Tribune:

‘US Democrats Pushing Extremist Climate Change Plan’

In Australia, the left-wing has seized hold of people’s fears on climate change to great effect. Mention a once in a decade drought or unusual heat or cold snap, and the mainstream media is quick to trumpet carbon emissions.

The issue is also dividing US voters. But the climate police have not…’

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.

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