Dollar-exposed stocks are the play, apparently!
Today I want to focus on three 2013 winners I think will keep winning in 2014. They should all offer strong total returns under the macro and micro scenarios I forecast for the year ahead.
One thing I have learnt over the years, sometimes the hard way, is the no.1 variable in successful stock selection is management. The no.2 variable is management and the no.3 variable is management.
…Industry position, barriers to entry, ROE and free cash generation are also measures I focus on in terms of stock selection.
In the case of all three stocks below I feel I know management extremely well. They also all have very tight registers due to their billionaire majority owners.
My three key picks for 2014 are Crown Resorts (CWN), Fortescue Metals Group (FMG) and Platinum Asset Management (PTM).
All three are major beneficiaries of the falling Australian Dollar and have leveraged to major macro themes I believe in.
…2013 was broadly about identifying the dividend yield compression theme. 2014 will be the year where the market focuses back on EPS growth. Cyclicals and growth stocks will lead global and local equity markets, while big Australian dividend yield stocks will stay supported by domestic investors seeking income in what will remain an ultra-low interest rate (cash rate) world.
I remain strongly of the view the best total returning asset class in 2014 will be equities, but in an Australian equity context we all now need more exposure to global growth equities.
USD earning global earners will lead the ASX200 in 2014 and that is why my three key picks for 2014 are exactly that.
That is the slight change to my Australian equity strategy. More of a focus on global earners in 2014, but specifically USD earners.
Better late than never, Charlie.
I’m not a stock picker so have nothing to add on the internals of Charlie’s preferred. But I will add that he should have a macro risk warning stamped on FMG. It’s success or failure next year has nothing whatsoever to do with management. It is about an opaque clique of Chinese communists and whether or not they decide to build more uneconomic stuff or instead to roll out their reform plan.
China is slowing. It’s infrastructure pipeline is emptying. By Q1 or 2 next year its growth will be heading back to 7%.
In the steel intensive private sectors, there is mixed news. The export recovery will keep manufacturing ticking over and property curbs do not appear to be on the agenda but they will not be needed if interest rate reform proceeds. The cost of credit will take care of residential overbuilding.
For now, credit is still expanding at a good clip even if in a broad downtrend:
But only so long as shadow banking is allowed to run:
Buying FMG for next year is a bet that as this year’s two trillion yuan stimulus peters out, it will be replenished with more. If not, iron ore will fall hard. I expect it will do so anyway as the Q1 seasonal bounce ends, whether it rebounds will hang on stimulus.
If you know what the Party is going to do then you should be running a very large hedge fund.
