Update No. 17 – 24/07/11

Like a kid before Christmas, I am counting down to reporting season.  I have found this useful link that shows what appear to be most of the ASX300 companies reporting dates.  Alesco (ALS) seem to kick-off reporting season on 26 July, only 2 days until I get a daily dose of Appendix 4E’s to keep me entertained…

I am, despite much of the media commentary pretty optimistic about the up-coming season.  Obviously retailers and many industrial companies are going to report some pretty weak results; as investors, we must be mindful to try to look past the end of our nose and really think about the underlying quality of the businesses we examine, and their long-term prospects – the stock-market is supposed to be a leading economic indicator, I don’t think it’s presenting much of a ‘lead’ at the moment.

For example, I can appreciate that the strong $AUD and consumers’ growing confidence with online purchases will ensure a (probably large) proportion of future retail growth will go to this sector, but I think many retail stocks are likely to do particularly (compared to the rest of the market) well over the next few years.  When David Jones (DJS) announced a profit downgrade recently, substantially all retailers were sold of indiscriminately.  For many, this is short-sighted and likely presents buying opportunities.

I have mentioned JB Hi-Fi (JBH) before as being beaten down beyond any recognition of its likely future results, The Reject Shop (TRS) is a stock that finds itself similarly downtrodden, despite the difficulties they currently face looking predominantly short-term and eminently surmountable.  Interestingly, Super Retail Group (SUL), which operates Super-Cheap Auto & BCF stores (among others) has not faced sell-offs in the same way, it has never gotten to the situation where I would refer to the stock as really ‘cheap’, but it is priced quite reasonably at present in my view given the sound business prospects.  These 3 stocks are approximately similarly positioned in their phase (i.e. with still considerable room to grow in their respective markets), trade with excellent ROE & cash-flow and have managements that have historically acted with shareholder interest’s front-of-mind.  For JBH & SUL, these businesses will pick up a good portion of the substantial disposable incomes much of the economy is generating.  Young FIFO workers are particularly prone to want to drive a ‘tricked-out’ (with SUL supplied ‘tricks’) car and enjoy a house full of reasonably priced electronics and accessories (JBH supplied).  I am less hopeful for example about David Jones (DJS) and Myer (MYR), as they are more exposed to the ‘slower speed’ of our ‘two speed’ economy, though I believe that said even they are somewhat oversold at current prices in my view.

I feel like a bit of a lone voice with my optimistic posts of the last couple of weeks, but to a reasonable extent, I think my optimism stems from my tendency to look a little further ahead than the majority of the market.  Buyers at current prices may be looking at some ‘red ink’ in the short term, but with a little care in the businesses selected, today’s astute equity buyer will do very well in my view.  When I still think the businesses facing extremely difficult conditions (such as MYR & DJS) look fairly priced, the market as a whole is probably reasonably priced and those businesses with sound franchises, solid balance sheets and brighter futures could probably be described as quite cheap – Tony Hansen 24/07/2011

EGP Fund No. 1 Pty Ltd. Up by 4.82%, leading the benchmark by 4.93% since July 1^st. Since inception, EGP Fund No. 1 Pty Ltd is Up by 13.62%, leading the benchmark by 17.74% all-time (April 1^st2011).

EGP 20.  The EGP20 index is Up by 2.78%, leading the benchmark by 2.89% since July 1^st.  Since inception the EGP20 is Down by 9.17%, lagging the benchmark by 5.05% all-time (since April 1^st2011).

S&PASX200TR  The benchmark index is Down by 0.11% since July 1^st. The benchmark is Down 4.12% all-time (since April 1^st 2011).