Stocks Down Under Concierge goes global, a look at NIC and crunch time for the NASDAQ in 2023

 

Stocks Down Under Concierge goes global!

We will start trialling international stocks on Nasdaq, NYSE and LSE soon!

Also in this week’s investor webinar we take a look at Nickel Industries (ASX:NIC).

And the Nasdaq needs to make up its mind about where it wants to go.

See full transcription below.

 

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Transcription

 

Marc: Good morning. It’s the 19th of April. And it’s time for our weekly investor webinar. Good morning, Stuart.

Stuart: Good morning.

Marc: How are things in Hornsby?

Stuart: The sun is shining, and the bulls are out in our beloved capital market, so there’s a lot to like.

Marc: All right. So, we’ve got a couple of things to talk about. It’s crunch time for the NASDAQ, we think. So, we’ll have a look at that, either up or down, in a big way. Then we’ve got nickel. Stuart’s going to talk about an interesting play in that space. And we’ve got something interesting coming up for our Stocks Down Under Concierge subscribers because we’ve been… And we’ll start with that right now because we launched Stocks Under Concierge, our stock-picking service for ASX shares May last year. First stock on that list was Weebit Nano, and that’s done really well. But we’ve had a couple of more since then that have done really well too.

And on average, performance has been pretty good. So, we’ll show you that. But what we’re thinking now is to start testing the waters on international shares, and we’ll start with looking at the performers of Concierge to date. So, we launched it, like I said, last May. The average performance across all our trades, including the ones that we closed, has been 20.5%. And this includes the shares that we made a loss on, where the stop-loss was triggered, where the investment case didn’t play out as we hoped. So, on average, it’s been 20.5%.

The trades that are currently open still have so far delivered more than 36%. And if you look at what the broader market has done, our benchmark basically is ASX 200. It’s done just 2.3% in that same period. So, this is a massive outperformance. We’re really happy with that. Our subscribers are really happy with that. And it made us think if we can replicate this for international shares, especially U.S. shares, because a lot of investors don’t just look at Aussie shares, but also internationally. So, the idea is to focus on areas that Stuart and I have been traditionally very good at, that’s life sciences, healthcare, technology, and specifically, semiconductor stocks.

I’ve been following the semiconductor space since ’95, roughly. And over that time, this segment has grown tremendously to be one of the major sub-sectors within technology. And it used to be different back then. But today, it’s a massive sector with plenty of opportunity. So, that’s what we decided to focus on. There may be a few stocks sort of in other areas, but our key focus will be these two spaces, life sciences, and technology. So, if you want to participate in that, just check your trading platform.

We know CommSec offers it. There’s a few other trading platforms that offer international trading as well, so not just Aussie shares, but international. And what we’ll do in the next coming weeks, we’ll probably launch our first international stock for Concierge, to just see, engage, if there’s enough interest from our subscribers. And of course, we need to be successful with these picks as well.

Stuart: So, to that end, Marc, I’m really excited about international shares. I’ve found a really good stock that’s headquartered in the Cayman Islands, and I’m wondering if we can afford for me to do the site visit to the Cayman Islands.

Marc: Yeah. I’ll join you then, Stuart, as long as it’s not Bitcoin-related or crypto-related.

Stuart: But coming back to your early point. You and I were discussing, well, what markets are we gonna offer? And so, what we’ve discovered is that Aussie investors are really interested in U.S. listed stocks, NASDAQ, and New York, and London as well. So, if it’s a European stock, Marc, you know the European scene fairly well. But generally, the companies that we’re interested in will have a secondary listing on NASDAQ with a fair bit of liquidity. So, it’s those three markets, NASDAQ, New York, and London.

Marc: Yeah. And of course, like Stuart said, there’s plenty of stocks in Asia and Europe that have an ADR in the U.S., either on NASDAQ or… So, there’s plenty of opportunity. You don’t limit yourself too much, really, if you just focus on these three markets, I think. So, stay tuned. The first international pick is coming soon. If you wanna trial that out, get a free trial to Stocks Down Under Concierge. So, if you go to the website, stocksdownunder.com, right in the middle, you see a little button called Concierge, you can sign up for a free trial. You’ll get a call from our customer services rep. He’ll talk you through the process, and you’ll be in regular touch. And you can see how it works. And especially if you’re looking for international shares, hopefully, that can be of added value for our subscribers.

All right. China has opened up. China actually reported better-than-expected numbers yesterday, GDP numbers. And with that, you’d expect all these commodity prices to do a lot better than they have so far. But if you look at what’s happening in copper prices, if you look at the chart, it looks like it’s sort of stabilizing. You can see it for agricultural commodities as well, sort of stabilizing around the current levels. But we found that nickel play, Stuart that is expected to shoot the lights out going forward.

Stuart: Yeah. Nickel Industries, ASX: NIC, I’ve been a big fan of this company for the last few years. Let’s talk about nickel the commodity first, and then we’ll talk about Nickel Industries. Now, take a look at that chart, Marc. 2020 up to the present time, there’s a big spike in 2022. And the commodity gives up most of the ground from that spike. It was like briefly on LME, the commodity was cornered. So, the people who run LME had to intervene to unwind that corner. But look what happened after that was over. The bull market pretty much resumed. So, you can see their higher highs for the commodity.

And even after a poor 2022, the stocks having a pretty good… well, the commodity’s having a pretty good year. So, nickel’s long-term trend is up, and I think this is a story that’ll play out for the next several years. So, what’s nickel used for now? Traditionally, stainless steel soaked up about 80% of all the demand. But over time, the industry has come up with more uses for it. Anytime you’re putting out an alloy that needs to function in a harsh environment such as chemical plants or jet engines, there would be nickel alloys in it. Medical equipment, cookware, cutlery have stainless steel, makes it easy to clean and sterilize.

But here’s the big change, which no one who knew the metal space in the ’90s could see coming, and that’s lithium-ion batteries, which we’ll talk about in a second. But this struck me, BHP recently reported that about 85% of the nickel metal coming out of its big Western Australian operations, and it’s fully integrated in Western Australia. They own the mines smelters and a refinery at Kwinana. 85% are going into batteries now. And in 2017, it was only 21%. That’s telling you a lot about where nickel demand is going. World demand, about 3.2 million tons at the moment.

And if we kick over the next slide, world demand is probably gonna be 40% higher by 2030. And I’ll give you three little letters, which I get quite excited about. NMC, nickel manganese cobalt. They’re the metals that are used to stabilize the lithium and the graphite within the whole lithium-ion battery package. And, N, nickel is 80% of that. So, I’ve probably quoted the great Elon Musk once before on this. He says, “I’ve been calling up nickel miners saying, ‘Get me more of the product because I’m gonna need all that you could produce.'”

Now, that could just be Elon exaggerating, but I don’t think by too much, because of this interesting supply constraint. China, which dominates the market for just about every commodity in the world, doesn’t have much nickel. You wanna find nickel, you’ve gotta go to three countries, our own, Australia. We’re the world’s sixth-largest nickel producer. And then Indonesia and Brazil. So, you wanna find a good nickel play, you’re more likely than not to find it out on our exchange. And now, let me tell you about what I think could be a good one going forward.

Marc: Before we go there, Stu, let’s just go back one slide. So, the current world demand is 3.2 million tons. What is supply like right now?

Stuart: Supply’s okay, but not fantastic. And that’s because, as I say, if China owns a lot of commodity within its territory, it can generally step up the action and monkey around with the price if it can. It’s not really in a position to do that for nickel. So, supply-demand is tight, but not out of control. But, you know, the tendency for those kinds of spikes we saw two years ago is still there.

So, let’s talk about Nickel Industries, ASX:NIC. Market capital, a couple of billion dollars for this one. So, it’s a top 200 company. What do they do? They’ve been making nickel pig iron in Indonesia for a number of years. They’re now moving to make nickel matte. Matte is the smelted product, which is intermediary from mines [SP]. If you take matte product, you put it into refineries, and you come out at the end with 99-point-something pure nickel. So, this company is well placed because they’re partnered with Tsingshan, which is the world’s largest stainless-steel producer out of China. Most of the factories are on the island of Sulawesi at a place called Morowali on the eastern side of that island. The project’s called Hengjaya and Ranger.

Recently, they invested in another one on a neighboring island called Halmahera. And they also bought another factory recently again, back on Morowali. Those names might not mean much to you, but it’s the lower-cost parts of Indonesia in what is ordinarily a lower-cost country. So, you’re producing nickel products, and increasingly value-added nickel products at a very low price.

Here’s what the consensus forecast look like for Nickel Industries going forward. Set to be a great 2023 of the better prices that we’ve been enjoying, but double-digit growth for the next couple of years in terms of earnings. And you look at that multiple, we can buy this kind of growth for an EV to EBITDA of only five. Now, Marc, ask me, what the market’s missing here?

Marc: What’s the market missing, Stu?

Stuart: I think there’s a China discount, goes into stocks like this. If you’re too friendly with a Chinese company, you tend to trade at a discount on the expectation that if Australia’s prime minister says something nasty about Xi Jinping, then these stocks are headed down. So, that’s a factor that you need to grapple with. Nothing the market can’t overcome. It’s not like Tsingshan are a big shareholder of Nickel Industries as such, they’re just partners in the factories.

I think the second factory is in Indonesia. A lot of Australian entrepreneurs have gone up to Indonesia looking for their company maker. Very few have succeeded. The one guy who has succeeded is Justin Werner, who’s the managing director of Nickel Industries. Who, as you can see here, he’s built a business that does a couple of two or three billion a year in revenue, and in excess of 800 million in EBITDA, this year, thanks to good relationships both with Indonesia and with the relevant players in China. So, it’s possible. I think that’s what the market is missing here.

Now, admittedly, it’s a commodity producer, so you’re subject to the vagaries of the nickel price. And mining companies really trade on double-digit multiples. But I think one can make an exception, given that… Now, tellingly, the company changed its name from Nickel Mines, because its foundation asset was a Nickel Mine on Sulawesi, to Nickel Industries. So, I think the market will come around, thinking this is more of an industrial growth company than as a miner per se. In which case, potentially, you can push the EBITDA multiple up to close, even beyond double digits.

Marc: Right. Just to be devil’s advocate or the bad cop for one second, Stu. In 2025, you can see revenue growth, EBITDA growth, but EPS is sort of flattish. What’s going on there? Do you know that?

Stuart: I think what happens is they’ve got then some debt, which they would wanna retire possibly with increased equity. And maybe there’s a change in the amortization profile. That would warrant a little further attention. I mean, the other thing I would say in terms of devil’s advocate is this stock has traded, as Marc you were pointing out to me before we started recording, a fairly narrow range. The all-time high is about a buck 20 for this stock. And it’ll bump up towards there, and then go back down again. It’s never traded like a growth stock before. So, you wanna be pretty careful, to time your entry on this, if you’re convinced that there’s a long-term growth profile going on.

So, what’s it like right now? Just bought 10% of another project on Morowali. And that links them in with a Chinese company called Shanghai Decent, which would be a major player in the EV battery space. The Angel project, which they recently bought onto their books that started to produce. They’re talking about more downstream product, particularly the sulfate and the cathode where the big money is. And Justin Werner, you can see pictured there, has bought some more stocks. So, the guy in charge has put another vote of confidence into the future of this very interesting company.

Marc: Right. And so, yeah, you mentioned, we spoke about a chart before we started recording. Probably in terms of timing, Stuart, you should either wait until it’s at the lower end of the trading range, right? Which could be driven by nickel prices or strong [inaudible 00:13:43] potentially?

Stuart: Let’s just show that chart again on the presentation for the benefit of the viewers here.

Marc: Yeah. So, this is the nickel. Oh, here we go. Yeah. So, the support you saw just early this month and in March, that’s probably a range where you could get into the stock safely. If you look at early 2023, that peak that you see there, sort of in the middle, that’s the top end of that range. So, right now, we’re smack in the middle. So, I’d suggest wait until it comes down a little bit, if that happens, or you want to see it breakout out of that trading range and test that breakout.

And so, yeah, in terms of timing, just give it a bit more time, see what happens to nickel prices, because there’s a lot of… In China in terms of, you know, how that’s progressing this year, there’s a lot of uncertainty around commodities, right, so, even for copper. So, I suggest, you take a bit of time, see what happens with this one in the next couple of weeks before you jump in. So, there’s no immediate need to jump in, I think.

Stuart: Absolutely. I mean, keep on. We’re just doing our homework on this one, but it’s looking very interesting. Now, the other thing I’d talk about is, a couple of years ago, Tsingshan was in the news talking about a new method of making battery-grade nickel out of lower-grade lateritic ores. A lot of experts didn’t think that was possible. Well, Tsingshan said, “Just watch us.” Now, Nickel Industries, the company we’re talking about, is closely aligned to that view of the world that Tsingshan is potentially revolutionizing the ability to get good supply of nickel for the EV industry.

So, if that proves to be real going forward, there’s plenty more growth beyond those numbers that we’re looking at there.

Marc: All right. Good stuff. Final topic, NASDAQ. So, NASDAQ has bounced off the lows in October. But right now, I think we’re at a point where the NASDAQ needs to decide where it wants to go because… Well, we’ll start with the sort of slightly longer-term chart. You can see here, NASDAQ…

Stuart: NASDAQ looks like a bull market to me. I can hear the roars of the bulls.

Marc: The running of the bulls. Yeah.

Stuart: Absolutely. This is a [inaudible 00:15:55] here.

Marc: So, it’s coming down all the way through 2022. It broke out early this year. It tested at breakout, as you can see there, early March. And right now, we’re back to where we were, just a bit earlier this year. So, moving on to the next one. There’s a lot of lines here, but let me explain that. What you can see now is that upper horizontal line where we are now, that’s close to resistance around 12,220 for the NASDAQ composite. If you then look at these lines that are moving across the chart, those are moving averages. And what you can see, the blue line, it’s the 100-day moving average. And the 200-day moving average, that’s the red one. You can see that it has been crossed by the green line, the 50-day moving average.

And typically, that’s a good sign because if the short-term moving average breaks the longer term, that’s usually a good sign for whatever you’re looking at, in this case, an index. And so, hopefully, in the near term, we’ll get to see the 50-day moving average. Also, across the 200-day moving average, we’re close to that level. And again, that will be pretty positive. And we’ve circled those two instances where… Sorry, the 100 days should cross the 200 days. So, these instances are circles on the right, that’s where those lines have crossed, and those are positive signs.

And for us, that means, yeah, something’s gotta give for NASDAQ. Either you break that resistance at roughly 12,200. And then, in that case, we see upside towards slightly over 13,000, which is a bit more than 7%. If it fails to break that resistance, the likely scenario is that there’s downside towards 11,000, which is about 10% down. So, in other words, from a risk-reward perspective, it doesn’t favor anyone, you know, to take a bet either way because the upside is just 7%, downside 10%. Typically what you wanna see if you take a bet is that your upside is, you know, at least three times your downside, right?

So, in this case, it doesn’t make sense to do anything at the moment. You, first of all, wanna see what happens, because that’s very unclear at the moment. So, wait and see indeed what happens, and then start to make your move. But the real point of what we’re trying to say here is, yes, Stuart, you’re right, I think we’ve left the bear market territory for sure, and right now NASDAQ needs to make up its mind about what it wants to do. And of course, key drivers for that will be interest rates in the U.S. So, we might be very close to peak interest rates. But at least looking out six months, nine months, expectation is that interest rates will start to come down.

And as we’ve emphasized here a bunch of times already, that is very good news for high beta stocks like technology, life sciences, semiconductors, so all that sort of stuff.

Stuart: Like the stuff we’re gonna be talking about for our new SDU Concierge International.

Marc: Exactly. Exactly. So, that’s just a message that we wanted to give. Keep an eye out for what’s happening in this space, because I think we’re at a, I wouldn’t say pivotal moment, but, yeah, something’s gotta give in NASDAQ, either up or down.

Stuart: And what you’re saying, Marc, if I could summarize it, is, in this intermediate period, once we go up another 7% or so, that confirms the bull market suspicions that I was talking about before.

Marc: Yeah, I think so. You get to that resistance level, of course, you wanna break that as well. But if we zoom out for a second, regardless of what happens in the next month or two, if you look out to the rest of this year to 2024, I think we need to be very bullish on the sort of stocks that you and I have been following for 20 years, Stuart, because we’ve seen those changes in the industry a bunch of times. I looked at your favorite NASDAQ biotechnology chart a couple of days ago. It’s not there yet, but again, it’s slowly improving, and we’re seeing the same for NASDAQ. So, definitely keep your eyes open for some interesting stock peaks going forward in this space.

And with that, Stu, I think we should wrap it up. We’ve been going for almost 20 minutes, which is longer than most people’s attention span. So, we’ll wrap it up right here.

Stuart: Thanks for staying with us, guys.

Marc: And we’ll see you next week.

Stuart: Bye.