Tesco is down 10%. Unbelievable. They’ve emptied out their old stock full price and selling twice the food they normally do. In for a bumper year. Sainsbury and Ocado too (their share prices have jumped big).
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No. I would never invest in (British) supermarkets. Supermarket margins are so slim even in good times that bad times can push them significantly. They won’t grow either. It’s literally the most saturated market.
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Agreed. I have a small position in Ocado. I personally think the German stores are going to wipe out Tesco and Sainsbury and the others long term. There are better bargains out there IMO.
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Wouldn’t touch them with a bargepole. Twenty years ago they were still just about respectable. But now their shops are among the grimmest I’ve ever had the misfortune of encountering on the high street. There’s no clear direction or identity to them any more.
In many respects I’m surprised they haven’t gone the way of Woolworths already.
I’ve been taking a look at Caterpillar.
Positives that interested me:
Dropped from $150 to $100 + Dividend Aristocrat + Market Leader in their industries + PE less than 10 and EPS of $10.74.
Then the concerns started to mount up after some digging:
High levels of debt
Offer financing products and have been supplementing earnings by reducing their coverage for bad debts. Big mistake in this crisis!
Forecasting reducing revenues and earnings 2020 even before the market crash on the virus.
Reduced R&D expenditure for 4 years > is this efficiency or going to hurt growth or competitive advantages.
As it was a cyclical, I looked at CAPE and found it to be marginally undervalued 16.7% against a historic average of 18.4%, promising but not discount of the century and certainly not margin of safety. The lowest CAPE is less than 10.
If it gets close to $75 then it looks good but until then the risk reward is not clear enough
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I also was watching good old Safestore again today as the stock dipped to £5.50 with a PE less than 10 and I have a target of £5.11 on the stock. Almost pulled the trigger on another tranche but it started to rise again. Will definitely add a few more shares as I like their compounding ability and super high margins and low debt.
Also funny, their stores are being closed as part of the covid-19 response in Paris and Barcelona as well as other areas in UK an whilst this is reducing their new customers taking up space, their old ones are still renting the space and therefore revenues are stable and occupancy is quite high already. Winner in this climate.
Still the most boring company in the world but very nice investment. Peter Lynch said it best when he noted it was good to buy companies that did something boring or disgusting or both!
Here was a video from last few weeks which analysed the stock and did a DCF valuation on the stock. Just like Walmart: Stock Analysis of Safestore Holdings PLC (#003 10th March 2020) - YouTube
Thanks @anon810895. Let’s take, for example, the NASDAQ 100 and arguably the most famous ETF in the world which tracks it (EQQQ). This is comprised of the 101 stocks which make up the index. However, these trade in US dollars so this value is then converted into GBP constantly to ensure an actual exact valuation of the underlying securities in GBP all the time.
The problem with this is if the stocks rise 10% but GBP rises 10% against the USD you have a 0% gain. You are not just betting on the underlying security but the exchange rate as well. Now nobody, and I mean absolutely nobody, knows what the exchange rate will look like in 4 years time and I do not want to add that risk into my portfolio (unless I choose to like right now with US cash ETFs).
There is a solution. EQGB is a hedged version of EQQQ. The management fees are slightly higher because you are obviously paying for the hedging. This then takes that value of securities in USD and hedges it back into GBP daily (at the fix in London by which most FX transactions are done). This then means that any change for that day (and therefore over time for that ETF) reflects only the change in value in the underlying stocks not the change in the FX rate as well (there is obviously going to be a tracking error).
I firmly believe that in 40 years time the USD will be like the GBP today. The renminbi will be the currency of choice alongside the USD with government bond holdings split 40/40/20 (US/China/rest of the world). Owing to this, I do not want USD exposure as I think the long term trend is to the downside. So I only buy US stocks/ETFs in hedged versions of by purchasing futures FX contracts.
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Otavio Costa a bearish analyst using buffet measure of valuation of US market. It’s startling to think where this could end to revert to mean only. What do you guys think?
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Hey @Theinvestmentjourney - just out of interest, how did you come up with that target price of 5.11?
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What if the opposite occurs? What if the stocks rise 10% (over time) and GBP drops 10% against the USD (over time)? What would be the best option then?
In principle I’m pro choice; I’m a firm believer of having options to choose from according to circumstances and scenarios
Edit: thinking in probabilities. Over time GBP will likely drop or rise against the USD? I don’t know, but would love to
You are absolutely spot on. All this strategy does is eliminate a variable it does not necessarily produce the best outcome.
I am a firm believer in 50/50 hedged/un-hedged splits as a strategy. However, when it comes to buying in USD I just don’t trust the value of the currency (although I am a firm believer in the companies themselves). This is why I want to eliminate currency risk as much as possible.
So to eliminate currency risk in some way, you do not purchase direct US equities. Could you simplify this explanation a little more? Tnx
I either buy hedged ETFs or I use 1-2 year FX futures in order to lock in the exchange rate.
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“Above: GBP/USD Exchange Rate Chart – Nominal Versus Real”
“Over the long term, the pound has been weak against the dollar, depreciating over the past 116 years by an annualised 1pc - that is largely attributable to Britain’s higher inflation rate, which had the effect of debasing the purchasing power of the pound.
Dimson added, “If you look at the real (inflation adjusted) exchange rate of the pound against the dollar, it has weakened over the past 116 years by a minuscule 0.22pc per year."
Commenting on the chart above, professor of pension economics at Cass Business School, David Blake, seconded Dimson’s interpretation, “The chart shows precisely what you would expect - that the real exchange rate shows no real trend from when sterling started floating against the dollar following the collapse of the Bretton Woods agreements,” adding, “This is because the nominal exchange rate will adjust to reflect differences in inflation rates in order to maintain ‘purchasing-power parity’."
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The best choice would be though to have a multi currency account, where you can transfer some of your money into a USD held pot and invest directly in the US stock market without any FX exposure.
I do appreciate, however, that from a technology perspective that may not be an easy thing to do, and I am not sure if an ISA could be wrapped around that.
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Very interesting, thank you.
I would generally agree with you, but I bought some tesco when they are really low as a short term holding and they have helped reduce my losses a little. Definitely won’t be holding them long though.
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I used a discounted cash flow analysis on a spreadsheet using a required return of 10% per year and using company WACC etc to calculate fair value, then discounted it by 30% to give my margin of safety to get target price.
I can send you excel sheet showing the flax if it is helpful?
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You, sir, are a legend - if you don’t mind, that would be great.
Thank you very much!