In her monthly review, Julia discusses:
- Why March has performed poorly (0:15)
- Stocks & sectors in an upgrade cycle (2:00)
- Big movements in retail (2:51)
- Hospital under pressure & the impact on private health stocks (4:18)
- Easy money in lithium has been had (5:29)
- Valuation & growth by acquisition (6:25)
ASX200 has performed negatively in March – this is the third negative month in 2018 and the worst monthly performance since May last year. March is usually a good month, driven by dividend payments but losses have been driven by weaknesses in the US stockmarket, concerns around trade wars and the implications on global growth.
Stocks in an upgrade cycle include:
A2M, ALU, CSL, CTD, NXT and NEC
Mining services: whilst we didn't see strong earnings coming through the sector in the last reporting season, there were more positive outlooks
Oil stocks who tend to perform well in late cycle
We've seen some big movements in the retail sector: RFG has closed 150-200 stores; MYR has been reducing their footprint and BBN's First Half results comparable sales were down but its online sales were up 56%. What we're seeing is the traditional brick and mortar stores either closing down or reducing in terms of footprint, when companies with a strong online presence are outperforming.
Hospitals are under pressure: the first warning sign was from 2016 with a profit warning from Healthscope. We're also seeing some structural changes in private health insurance with the ratio of young policyholders versus old policyholders at levels unseen.
2017 was a strong year for lithium and cobalt but we're now seeing a supply response with one of the largest and low cost producers in the world, SQM, saying that they would be dramatically increasing production. This suggests that easy money in lithium has been had.
There are many companies currently looking for growth by acquisition (GEM, IVC and GXL). This is a winning model until you see higher interest rates or/and competition coming in, which makes this strategy more expensive to achieve. An example of this is G8 Education (GEM).