Clarity – Page 5 – Clarity Jiu Jitsu

July Folio Update – Week 4 and 5

Posted on July 27, 2020

After a slow Monday (20th July), the market burst upwards hitting a high of 6,150 points. This was off the back of a similar run in the US market.

We’ve moved 1 company from our watchlist into the folio. Purchase entry detailed below.

We bought a parcel in 1 other pharmaceutical company in the last week of July (27th July, Monday). Also updated in Purchase entries below for members.

Also worth checking out our member only article that answers the question: Will there be another share market crash in 2020?

CEO Insights

Employment & Workplace

“By the start of the second quarter, we saw the biggest workforce shift and reallocation of skills since World War 2, with skills needs shifting from aviation and hospitality to driving and information security at an unprecedented scale”
Jonas Prising, CEO, ManpowerGroup Inc [world’s second largest employment firm]

“LinkedIn continues to be impacted as fewer companies, including ours, need to hire at the same volume they did previously”
Ryan Roslansky, CEO, LinkedIn

“More companies will adopt more permanent remote work coming out of this crisis, which will have a positive environmental impact as congestion eases in cities and hopefully, improve quality of life for more people, and uptake in the use of technology by more people than ever before will catalyze change in many industries”
Larry Fink, CEO, BlackRock Inc

“I haven’t heard a great alternative that allows companies to build careers, build leaders, build culture, build camaraderie entirely remotely. But who knows, it may happen. I mean there’s all kinds of innovation happening so it’s possible, but our bias is that people will congregate in person in offices, again, in a meaningful way”
Joey Levin, CEO, InterActiveCorp [global media conglomerate]

Banking, Finance & Lending

“Do you keep using public finances to support companies or do you let creative destruction happen? This is going to be a real challenge particularly in the SME space around the world, I suspect this will be a big, big challenge next year. This means that you’ll start seeing a lot more default, which in turn means that you’ll start seeing the problems spill over to the financial sector”
Piyush Gupta, CEO, DBS Bank Ltd [multinational banking group]

Telecommunication

“If there was ever a moment in time for a resetting of the vision for the next 10 years for telecommunications, as we are on the sort of eve, if you like, of the rollout of the NBN, we’re in the dawn of the 5G era, we need a road map for the future”
Andy Penn, CEO, Telstra Corporation Ltd

Energy & Resources

“As economic growth returns, we expect the key producing regions to maintain productive spare capacity so they can quickly meet demand. Offshore, longer cycle barrels and new exploration activity will likely be the farthest out in terms of incremental contribution to the supply stack”
Jeff Miller, CEO, Halliburton Company [world’s second largest oilfield services company]

“In order to achieve a sustainable energy future, we have to have sustainable energy generation, which I think is going to be primarily solar and followed by wind, and those are intermittent. So, you need to have a lot of batteries to store the solar energy because the wind doesn’t always blow, and the sun doesn’t always shine. So, there’s three elements of the sustainable energy future: wind and solar sustainable energy generation; battery storage; and electric transport”
Elon Musk, CEO, Tesla Inc

Retail

“Consumers [will now] pay more attention to health and hygiene, meaning that there is an increasing need for products that can boost personal resilience and physical well-being. Hence, we see a clear demand for vacuum cleaners and for air and water purifiers, but also for dishwashers and washing machines”
Jonas Samuelson, CEO, AB Electrolux

Automotive

“Obviously over the medium to long term, the prospects of coming back to a positive trend line with the megatrends of increased population mobilisation, e-commerce, etc., they are still there”
Martin Lundstedt, CEO, AB Volvo

Aviation

“I can’t see any changes in the marketplace in terms of that countries will avoid continuing with protecting their societies and protecting their countries. And the geopolitical situation is not going really in the right direction. It’s actually becoming a bit worse during the COVID-19. So, I see still our prospects being extremely valid [for selling non-civilian aircraft components] going forward”
Micael Johansson, CEO, Saab AB

Media & Advertising

“Advertising demand in Q3 has historically been bolstered by factors that appear unlikely to materialise in the same way they have in prior years, including the back-to-school season, film release schedules, and the operations of various sports leagues”
Derek Anderson, CFO, Snap Inc

Technology

“The trend we see in the market is clear. Clients want to modernise apps, move more workloads to the cloud and automate IT tasks. They want to infuse AI [artificial intelligence] into their workflows and secure their IT infrastructure to fend off growing cybersecurity threats. As a result, we are seeing an increased opportunity of large transformational projects”
Arvind Krishna, CEO, IBM Corp

“Acute skills shortages in tech, cyber security, software development, and data analysts for example continue unabated, reinforcing that the need for skills revolution is here in force”
Jonas Prising, CEO, ManpowerGroup Inc [world’s second largest employment firm]

COVID update

Week beginning 27th July

Another all time high of 530+ cases in Australia with no surprises as to Victoria being the worst affected.

Week ending 17th July

An Oxford University team has released promising results showing it’s vaccine candidate triggers an immune response with minimal side effects. They’re partnered with a British-Swedish distribution partner AstraZeneca who has production facilities in Sydney. It’s not clear yet if they have he right to manufacture and produce locally.

Australia would have to negotiate with global health organisations on sourcing supply.

Victoria cases were up and down before recording a new high today with the latest update at 484 new cases. Recovery looks weeks away.

The rest of Australia continues to do well.

July Folio Update – Week 3

Posted on July 17, 2020

clarity

A slow, flattish week overall. The market is treating the 6000 mark like a magnet.

We’ve taken the opportunity to buy more shares in companies we already have positions in to bring our average purchase price down. We talk more about this strategy in our member only article: The secret to buying at the bottom.

We plan to continue doing this alongside new purchases, whenever we see prices falling and if none of the major fundamentals change in these companies.

CEO quotes

Healthcare

“With respect to the health care industry, we are encouraged to see many procedures starting to return versus what we saw in the back half of the first quarter across the globe”
Joseph Wolk, CFO, Johnson & Johnson Inc

“As vaccines become available, we would anticipate continued surveillance testing to monitor and assess for both natural and vaccine-related immune response, which would be followed by a steady state of ongoing monitoring and tracking of vaccine protection. Looking across the spectrum, it’s clear that the need for testing is large and it isn’t going away”
Robert Ford, CEO, Abbott Laboratories Inc

Retail

“I think e-commerce, if you see the growth of e-commerce, it is going to be quite strategic. I think whoever wins in e-commerce now and is able to capture those families that are trying this e-grocery service for the first time I think is going to win those families in the future”
Ramon Laguarta, CEO, PepsiCo Inc

“This [pandemic] will lead to a permanent shift away from regular retail to online retail to some extent”
Anthony Pratt, Executive Chairman, Visy Industries

Workplace

“There is a lot of discussions [with clients] on cost efficiency and automation, we [also] have discussions on cyber security and workplace transformation”
Salil Parekh, CEO, Infosys Ltd [top tier multinational consulting firm]

Travel & Leisure

“We have substantial new bookings, and we even have new to cruise bookings, which given the current state of the environment in the world is really a good testament to how strong a vacation experience and value cruising really is”
Arnold Donald, CEO, Carnival Corp

Entertainment

“TikTok’s growth is astounding, showing the fluidity of internet entertainment. Instead of worrying about all these competitors, we continue to stick to our strategy of trying to improve our service and content every quarter faster than our peers. Our continued strong growth is a testament to this approach and the size of the entertainment market. Growth [in streaming demand] is slowing as consumers get through the initial shock of Covid and social restrictions”
Reed Hastings, CEO, Netflix Inc

Food & Beverage

“Are consumers meaningfully changing some of their needs? I would say, there are few spaces where we’re trying to move quickly, immunity [beverages] being one, and we’re seeing that consumers are looking for immunity more. Our juice business is booming”
Ramon Laguarta, CEO, PepsiCo Inc

Mining

“Aluminium demand is starting to show some signs of recovery based on monthly data for some key end use sectors, particularly in China. For example, Chinese passenger vehicle production was up more than 11% in both May and June when compared with the same months last year. The most recent data on construction activities in China are also better than the monthly levels in May of 2019”
Roy Harvey, CEO, Alcoa Corporation [global aluminium producer]

Energy

“We are positioning to take advantage of a forecast global LNG supply shortfall later this decade”
Peter Coleman, CEO, Woodside Ltd

Groceries

“I’d say the basket size is significantly higher for home delivery [vs. in-store]. And so far we’re seeing it being very complimentary to our typical patterns [of trading]”
Brian Hannasch, CEO, Alimentation Couche-Tard Inc. [world’s second largest convenience store chain]

Transport & Logistics

“Every day may kind of bounce up and down a couple of percentage points, but the overall trend [in travel volumes] is an unmistakably positive trend. When I translate that to globally, that trend is absolutely positive on a week-on-week basis”
Dara Khosrowshahi, CEO, Uber Inc

Payments and Lending

“The difficulty for everyone is there is some uncertainty, we hear that a lot from customers. That’s probably been the dominant theme in the repayment check-ins… they still want the flexibility because they are not quite sure what is around the corner”
Matt Comyn, CEO, Commonwealth Bank of Australia Ltd

US Economy

“This is not a normal recession… the consumers’ incomes are up, savings are up, and home prices up. The recessionary part will come later”
Jamie Dimon, CEO, JP Morgan Chase & Co

Read on for a local update followed by purchase entries for this week.

COVID update

Melbourne Metro continues it’s 6 week lockdown. Today has been the all time highest in terms of new cases recorded in Victoria, over 400. There are talks of a stage 4 lockdown.

July Folio Update – Week 2

Posted on July 10, 2020

clarity

People generally use the phrases Bull market and Bear market for the upwards and downwards trends. We recently saw the current market trend referred to as the Kangaroo market.

6000 points seems to be a key zone as the market bounces around in it.

We’re quite happy with the companies and sectors we’re researching. There are still opportunities to be found for long term value investing. Looking for disruptors and companies that can withstand short term turbulence.

CEO quotes

Residential Property

“Whilst we’re seeing a more positive environment currently than we had seen during the height of lockdown, there are two things – it’s off relatively low bases of listings volumes because this is a traditionally slow period of the year, and secondly, it’s a very fluid situation”
Jason Pellegrino, CEO, Domain Holdings Ltd

Workplace

“We have all seen articles suggesting the office is dead, and we will all work from home. Those types of articles were being written 20 years ago, and they were wrong then and they are wrong now. They show up every time there is a new technology like laptops and then high-speed Internet and Wi-Fi and now low-cost videoconferencing platforms. The predictions are always wrong because it’s not about the technology, it’s about the people”
Jim Keane, CEO, Steelcase Inc [world’s largest office furniture manufacturer]

“Almost every company on the planet is and will have to re-imagine their business. And I believe in the next two years, there is going to be more change than in the last 10. Quite simply, different work needs to get done and work needs to get done differently and to get work done differently, companies will need to rethink their org structure, roles and responsibilities”
Gary Burnison, CEO, Korn Ferry Inc [global management consultancy company]

Travel & Leisure

“I will go on the record to say that travel will never, ever go back to the way it was pre-COVID. It just won’t. People will, one day, get back on planes. But one of the things that I do think is a fairly permanent shift is…a redistribution of where travelers go. I think a lot of people are going to realise they don’t need to get on an airplane to have a meeting”
Brian Chesky, CEO, Airbnb Inc

“We are expecting a lot of [holiday] bookings for Queensland out of NSW and South Australia and we are expecting a lot from Victoria when there’s certainty”
Andrew Burnes, CEO, Helloworld Travel Ltd

Food & Beverage

“From a nutritional standpoint our products match the protein quality and content of the animal products that they replace and they are clear winner from a health and nutrition standpoint. This is why I think people are increasingly aware plant-based products are going to completely replace the animal-based products in the food world within the next 15 years”
Patrick Brown, CEO, Impossible Foods Inc

Government

“A full recovery is unlikely until people are confident that it is safe to reengage in a broad range of activities. The path forward will also depend on the policy actions taken at all levels of government to provide relief and to support the recovery for as long as needed”
Jerome Powell, Chairman, US Federal Reserve

Energy

“We think, as far as we can tell, we’re the first ASX 50 company to put carbon goals into our long-term incentive scheme”
Brett Redman, CEO, AGL Energy Ltd

“The worst is behind us. We went from -$40 to +$40 with WTI [West Texas Intermediate oil]. In April we were looking at a demand of about 75-80 million barrels per day with significant supply at that time. Currently, you are looking at almost close to 90 million barrels per day. I’m very optimistic about the second half of this year”
Amin Nasser, CEO, Saudi Aramco [world’s largest oil producer]

Groceries

“I’d say the basket size is significantly higher for home delivery [vs. in-store]. And so far we’re seeing it being very complimentary to our typical patterns [of trading]”
Brian Hannasch, CEO, Alimentation Couche-Tard Inc. [world’s second largest convenience store chain]

Transport & Logistics

“While commercial volumes were down significantly due to business closures across the globe, there were surges in residential deliveries at FedEx Ground and in transpacific and charter flights at FedEx Express”
Frederick W. Smith, CEO, FedEx Corp.

Technology

“Clearly, certain trends that would have taken 2 to 4 years to develop have been accelerated into months. It is easy to see how these changes will drive higher consumption of memory and storage in the long term. The faster pace of digital transformation in the economy is here to stay. The outlook for calendar 2021 [smartphone sales] is promising, with 5G expected to drive a resumption in smartphone unit sales growth”
Sanjay Mehrotra, CEO, Micron Technology Inc [global manufacturer of computer memory/storage devices]

Read on for a local update followed by purchase entries for this week.

Local update

Melbourne Metro has been put into a 6 week lockdown. The market hasn’t reacted too badly to this. The worst is already factored in for now.

July Folio Update – Week 1

Posted on July 2, 2020

clarity

The ASX continues to be in a sideways trend. Broke the 6000 points support level.

We encourage investors to develop the mindset of ignoring the noise, and look at facts. The recession is going to end like every other recession before this.

The focus and market outlook appears linked to the risk of death from COVID, not so much the number of infections. Sentiment seems to be, life must go on, people need to work, children need to study, sport needs to be played.

J.P. Morgan conducted a recent survey of 130 CIOs around the globe (majority US). Here are some key insights from it.

IT budgets taking a big hit, bracing for the unknown, set to shrink around 5%
Pandemic fostering a faster move to the cloud and digital transformations

Some anecdotes form the CIO survey:

“Surprisingly perhaps, as a healthcare organization we are currently realizing a 40-50% reduction in company revenue as services are deferred or patients are staying home. At this point in time, we have cancelled or slowed down capital spend in IT by 60% and furloughed/laid-off approx 20% of IT staff. It remains to be seen what year-end will be like, but it appears Q3 will remain mixed and Q4 could end with a dramatic rise.”

“We have seen an elevated interest and support for advancement of technology, especially around the elements of mobility, data access and remote working. On the flip side, tension in the economy has forced us to rethink priorities – we are not taking things off the list, just shuffling around the order of the list. We will likely reduce our spending through 2020 by 10% – 20% but expect 2021 to increase by more than that.”

“Investment in support and expansion of remote technology to support production workflows will increase. Developing more relationships with larger service providers where we can leverage a cross set of skills to deliver quicker. COVID-19 is costing us on average a 20% impact on budget due to replacement of older technology that does not support a lot of remote platforms or the applications that are more often run in a fat client environment locally on premise.”

“IT will play a strong role in supporting the business during the post COVID-19 era. Technology will become more embedded and automation through robotics will gain focus and push to optimize business spend. IT budget will expand as it will continue to generate more value to the business through advancement of technology. Further expansion of spend will come with introduction of collaborative tools to support a remote workforce.”

“2020 spending will be reduced by about 10% primarily through headcount and travel freezes. We expect 2021 to pick back up to pre-2020 spending levels and expect incremental investments in digital solutions to support COVID-19.”

Local update

June Market Update – Week 4

Posted on June 23, 2020

clarity

Market appears to be in a sideways trend. Bouncing around the 6000 points support level.

The US market corrected on 11th of June (a dip of 5.5% Nasdaq and almost 7% dow jones) The Australian market tends to follow the US often so we might see the same. Worst case some sectors and stocks will be panic sold. Best case, some selling to take profits and stop losses being hit.

In either case, we expect a lot of investors to see reds in their portfolio today.

Our thinking is, corrections are healthy. They allow the market to return to true value and offer buying opportunities.

With each company in our folio, the strategy to manage things regardless of what is happening in the market is to answer the 5 questions below:

Has anything changed for the companies specifically?
Any negative announcements for any of our holdings?
Has the management changed?
Are the reasons why we bought the stock for the long term still valid?
Would we buy more of this stock now for the long term?

If the answers to the above are yes, we hold, we increase our stop losses or remove them.

Our approach with our entire portfolio will be the same.

Hold.

A loss is not locked in unless you sell.

Further to the above, if we see any of our holdings drop to a value which we feel is a discount and under their true value, we will actually buy more.

That is our plan, formulated in advance. We execute and avoid reacting with emotion. Our research and hard work have made us successful. We have repeated this year after year and it is the same strategy that led to us doubling our investment in the last correction.

As always, any updates to our portfolio and watchlist will be shared as close to realtime, on the same day, whenever possible.

We are working hard on getting our new articles and videos out soon. Stay tuned.

In addition to in-depth company research and macro-economic trends, we also keep an eye out for CEO and Director comments. Here’s a snapshot of some relevant comments made recently both locally and overseas that reflect on the sentiment and market conditions.

Food and Beverage

“We’re seeing cafes increasing now and other channels. There’s some more confidence out there”
Rolando Schirato, Managing Director, Vittoria Coffee

“History has proven many times over that during a recession…people are much more careful about where they spend their dollars and that just means more meals at home versus away from home”
Steven Spinner, CEO, United Natural Foods [US listed international food wholesaler]

Technology

“The shift to remote work has driven a surge in demand for digital documents, with use of web-based PDF services, up nearly 40% quarter-over-quarter”
Shantanu Narayen, CEO, Adobe Inc

“We’ve all had the internet for years…but now because we’ve all been locked in, people are doing things online they haven’t had to do before”
Michael Kelly, CEO, Fineos Corp Holdings PLC [ASX listed insurance software provider]