Sharemarket highs and wobbles + sports-related stocks

Hi everyone,

No particularly important economic data has been released this week, but there’s plenty to talk about when it comes to investment markets.

In this week’s newsletter:

• Should we be worried about record sharemarket highs?

• Can success on the field translate to corporate wins?

• The world’s newest energy-guzzlers may surprise you

• How property has changed post-COVID

• Why now is a good time to buy Woolworths shares

Record sharemarket highs, extreme greed, a few wobbles… should we be worried?

Okay, I admit I get nervous when the sharemarket is on a record-breaking run and then it gets a few wobbles. I’m old enough to have been through enough sharemarket crashes to be spooked in these situations. 

I’m sure I’m not alone and a lot of investors would be wondering whether to trim or sell to varying degrees and go into the bunker with cash. But what if the bull market keeps going and they miss out on more upside? 

I’m a subscriber to the Marcus Today newsletter/website/podcast and am good mates with its editor Henry Jennings. He’s a regular on my sharemarket program The Call on the ausbiz streaming network (ausbiz.com.au and streaming on SevenPlus, Samsung smart TVs and Fetch). 

The Marcus Today team had some great comments and advice in their newsletter last Saturday. They pointed out the US’s S&P 500 is up 43 per cent, but that’s after a 25 per cent drop (2022 was a terrible year for US equities). Similarly, the NASDAQ may be up 61 per cent, but that follows a 38 per cent fall in 2022, and it’s only just got back to where it was.

Marcus Today reports: “So we don’t see anything precipitous happening, but we do have a few observations. The market is getting more vulnerable to a correction the higher it goes, Big Tech is likely to lead it, and the more the strategists talk about it the more likely it is that some big institution in its asset allocation meeting in its ivory tower [concludes] that they should start selling before everyone else does... And off it goes.” 

So, according to Marcus Today, here’s what to do:

• Nothing yet. Enjoy the ride.

• Don’t sell anything until it starts – the best bits are the frothy bits. Don’t miss out by being pious about “value”; this is about exploiting the herd not assessing value.

• Don’t buy anything when the market is high.

• Don’t predict the top ahead of time.

• When the selling does start, do something, make a decision. Even if you’re wrong to sell your only risk is not making money… I think you can handle that. 

Such great advice.

Sport and shares… can success on field be transplanted off-field?

Speaking of the sharemarket, to mark the start of the football season I had a special edition of The Call this week looking at stocks with a football theme. There are some sport-specific shares on the Australian market, but also a lot with directors who sit across football and corporate boards of directors. 

I picked 10 stocks in this theme and asked Mark Gardner from MPC Markets and Philip Pepe from Shaw and Partners to give their opinion. As I always say, while I try and bring you the opinions of investment experts in their field, you must always get your own individual advice before making any decisions. 

Brisbane Broncos (ASX: BBL)

Former rugby league champion and Broncos captain Darren Lockyer is director.

Yes, the Brisbane Broncos rugby league club is listed on the stock exchange in sport and entertainment businesses, gaming monitoring, and ancillary services businesses. It generates revenue from sponsorship sales, merchandise sales, royalties, membership and others. Geographically, the group operates in Australia only. 

Mark and Philip’s opinion: Avoid because the stock is so thinly traded that investors could get caught if something went wrong as it could be hard to sell. 

Catapult (ASX: CAT) 

A global sports data and analytics company that provides sporting teams and athletes with detailed, real-time data and analytics to optimise athlete performance, avoid injury, and improve return to play. Catapult's products and solutions are used by more than 4,000 sports teams and athletes, across more than 40 sports and 100 countries worldwide. 

Most of the GPS trackers in the back of AFL and Rugby League player jumpers are Catapult. 

Mark and Philip’s opinion: A Hold from Philip and Mark would be happy to “nibble” by buying a few sharers and seeing how well it goes. 

Sports Entertainment Network (ASX: SEN) 

A sports media content and entertainment business with content across multiple platforms including radio, print, television, online, in-stadium and events. 

Mark and Philip’s opinion: Avoid as, again, too thinly traded and it’s having to sell some assets. 

HitIQ (ASX: HIT) 

Operates in the health care equipment sector, providing and further developing a transformative, end-to-end concussion management technology platform. This platform aims to provide a total concussion ecosystem whereby HitIQ products support the identification, monitoring and management of sport related brain injury. 

Mark and Philip’s opinion: Avoid as it’s a very small company and thinly traded but has a really interesting product (basically a mouthguard for sportspeople which can monitor concussion). Both thought it needed to be bought by a bigger group and reckoned it should be on Catapult’s radar [see Catapult above]. 

MA Financial (ASX: MAF)

Chairman is Collingwood President Jeff Browne and director/co-founder is Sydney Swans President Andrew Pridham. 

A financial services company, specialising in managing alternative assets, lending, corporate advisory, and equities. Commonly described as a sort of ‘mini-Macquarie Bank’. 

Mark and Philip’s opinion: Buy from both Mark and Philip saying the recent pullback after its half year earnings has presented an opportunity. 

Seek (ASX: SEK)

Co-founder and director Andrew Bassat is President of St Kilda AFL club while brother and Seek co-founder Paul Bassat is an AFL Commissioner. 

Seek is the leading online jobs classifieds site in Australia and operates across Asia Pacific and Latin America. The company invests in artificial intelligence and technology to help connect candidates with jobs and to help hirers find candidates. 

Mark and Philip’s opinion: Take profits as the Seek share price has had a good run up and the employment forecast is for a weaker jobs market. 

Eagers Automotive (ASX: APE)

Director and biggest shareholder is Nick Politis who is chairman of Sydney Roosters NRL club. 

The largest automotive retailing group in the Australian market, with an estimated share of over 10 per cent of new vehicle sales. The company's core business involves the ownership and operation of motor vehicle dealerships covering a diversified portfolio of automotive brands. Its range of products and services includes the sale of new and used vehicles, vehicle repair services and parts, among others. 

Mark and Philip’s opinion: Hold. Both Philip and Mark say it is a great company but the share price has risen too high. They would look to buy on any weakness in the share price. 

Maas Group (ASX: MGH)

Founded by former Rabbitohs NRL player Wes Maas. 

Originating in Dubbo in regional New South Wales, the company provides above-ground plant hire and contracting services to civil construction and infrastructure projects as well as the hard-rock mining sector. 

Mark and Philip’s opinion: Hold and watch. One of the most interesting companies on the list. Very successful and surprised both Mark and Philip. Wes is a no-nonsense presenter, according to Phillip, who adds that he looks like he could still play. 

Qantas (ASX: QAN)

Chairman is Richard Goyder who is also chairman of the AFL Commission and of Woodside. 

Australia’s national airline operating domestically and internationally with an incredibly valuable frequent flyer program. 

Mark and Philip’s opinion: Speculative Buy from Philip and an avoid from Mark. Both prefer listed travel agents like Helloworld, Corporate Travel and Flight Centre in the travel space. 

Transurban (ASX: TCL)

Chairman is Craig Drummond who is also President of Geelong AFL Club and director Tim Reed is President of GWS Giants. 

One of the world’s largest toll-road operators, managing and developing urban toll-road networks in Australia and North America. It has 17 roads in its Australian portfolio, five in the United States, and one in Canada.

Mark and Philip’s opinion: Avoid. When interest rates were low Transurban was attractive for its dividend yield. But now interest rates are higher, there are better opportunities.

The world’s newest energy guzzlers… and they will surprise you

We read lots about big energy users and how they are adding to carbon emissions. Usually the focus is on the obvious culprits – power stations, steel mills, factories, airlines, and private plane users. 

But I was fascinated by the latest newsletter from Joe Hockey’s Bondi Partners which highlighted not only the skyrocketing value of bitcoin and AI companies but also that they have become among the world’s biggest energy guzzlers. 

In fact, large areas of the US are becoming more and more at risk of power outages and shortages as AI data centres, advanced chips, and cryptocurrency mining operations draw more electrical power from the grid than ever before. 

According to a new report from the International Energy Agency (IEA), global “electricity consumption from data centres, artificial intelligence, and the cryptocurrency sector could double by 2026”, while hubs for the new technology like North America could experience significantly higher demand. 

To put that into perspective, global data centres’ energy demand will roughly equal that of all of Japan by 2026 according to the figures provided by the IEA’s report.

Without immediate intervention national power grids could soon be pushed to full capacity and incur significant outages, potentially affecting anything from houses and schools to hospitals and critical infrastructure. 

Some companies like Google and Microsoft are looking at powering their operations with small, onsite nuclear reactors that will firm the grid and provide redundant power to standard operations as needed.

How property has changed post-COVID

Looking back it is hard to comprehend the way COVID stopped the world and its impact is still affecting many people, industries and the investment sector. 

CoreLogic has produced a report on the most significant property trends since the pandemic. 

1. Housing values have surged since the onset of COVID

CoreLogic’s national Home Value Index (HVI) surged 32.5 per cent between March 2020 and February 2024, adding approximately $188,000 to the median value of an Australian dwelling. 

Despite the strength in the headline figures, the housing market has moved through distinct cycles punctuated by changes in policy, interest rates and demographic shifts. Housing values initially dipped by 1.7 per cent between March 2020 and June 2020 before surging 30.8 per cent higher, finding a cyclical high in April 2022.  The market slumped 7.5 per cent as interest rates rose from their emergency lows, but as inventory dried up and migration boomed, housing values commenced a new growth cycle in February 2023, rising 9.5 per cent through to the end of February this year. 

2. Rental markets have tightened substantially 

Vacancy rates are holding around 1 per cent and rental growth surging.

Nationally, rents have jumped 32.4 per cent since March 2020, adding approximately $150/week to the median dwelling rent. 

3. Monetary policy has played a key role 

As interest rates rose from mid-2022, monetary policy both stimulated housing demand and temporarily quelled activity. 

A record portion of borrowers took advantage of fixed mortgage rates falling below 2 per cent through the middle of 2022, fuelling speculation of a ‘fixed rate cliff’ as the wave of fixed rate lending terms expired.  So far borrowers have navigated higher mortgage rates much better than expected with mortgage arrears holding below pre-pandemic levels. 

4. Inflation surged for a variety of reasons 

Inflation surged on the back of unprecedented peacetime fiscal stimulus and low interest rates as well as global supply chain disruptions that were amplified by the war in Ukraine. 

As COVID-related restrictions eased global demand strengthened. Inflation is now beating forecasts, fuelling speculation we could see rate cuts later this year. 

5. Labour markets tightened

Once lockdowns and social distancing measures eased, labour markets tightened significantly. 

Although labour markets are now loosening, RBA forecasts have the unemployment rate holding below 4.5 per cent through to at least mid-2026. 

6. Demographic factors have influenced housing trends 

Despite closed borders, housing demand remained strong during the pandemic due to a diminishment in household size. Internal migration trends favoured regional markets through the pandemic but have since largely normalised. Open international borders saw overseas migration spike to record highs.

7. Despite unprecedented housing demand, a supply response is yet to be seen 

Dwelling completions have held relatively flat through the pandemic to date, with supply chain constraints, materials and labour shortages, and a surge in construction costs creating a challenging environment for delivering new housing supply.

Property trend #1: Cheaper properties doing better than prestige

Historically, the upper quartile of the housing market tends to lead the cycle, both into the upswing but also into downturns. 

According to CoreLogic Research director Tim Lawless, this trend has once again played out through 2023 and early 2024, with the upper quartile of the market leading the upswing through the first seven months of 2023, but slowing more sharply through the second half of last year and into early 2024. 

This trend is most evident in Sydney, Melbourne and, to a lesser extent, Brisbane, where upper quartile values clearly led the 2023 upswing through the first half of the year.  The trend hasn’t been evident in Perth or Adelaide where lower quartile home values have consistently recorded a faster pace of capital gains through 2023 and the first two months of 2024.

Property trend #2: Houses continue to outperform home units

Have a look at this chart from Ray White chief economist, Nerida Conisbee, and the massive difference in performance between home and home unit values.

Over the past 12 months, house prices have increased by 9.7 per cent while unit prices are up 7.4 per cent. However, growth has accelerated quickly in the first two months of this year. And while last year was characterised by strong price growth in smaller cities, so far this year, it is Sydney and Melbourne.  

It has been a strong start to 2024 for Australian housing markets with house prices up already 2.2 per cent. If this rate of growth continues, it is possible that Australian house prices will increase more than 10 per cent this year.  

Population growth was extremely strong last year and we didn’t build enough homes. In 2023, we needed 250,000 new homes but only built 175,000. The pipeline is looking even worse. Over the past 12 months there have only been 163,000 homes approved.

Stock of the Week: Woolworths

“It’s a one in 10-year opportunity to buy Woolworths.” 

Wow, that made me stop and listen. That comment was made by Andrew Wielandt from DP Wealth Advisory on The Call this week… and was supported by Henry Jennings from Marcus Today. 

The supermarket giant has been seen as one of those foundation stocks you have in a portfolio which offers a safe, dependable return which you can almost set and forget and still sleep at night. 

But over recent months it has attracted criticism from politicians who have accused supermarkets of price gouging, fuelling inflation and taking advantage of farmers and other suppliers. Then there was the controversial media interview and subsequent “retirement” of the company’s chief executive. 

It has been a tough period for Woolworths and its share price has sunk to a 5-year low as a result. 

Both Andrew and Henry point out that nothing has fundamentally changed for Woolworths’ outlook. Despite the threat of government scrutiny of alleged price gouging, the latest Woolworths financial results showed the company’s profit margins were 1.8 per cent… hardly gouging. 

They both said the company has an incredibly powerful position in the market and while sentiment is against Woolworths in their opinion investors should be taking advantage of the price weakness.