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We think we have seen the bottom of the bear market: Investor Webinar 21 10 2022

November 17, 2022

Waypoint REIT, WiseTech, WPR, WTC

We think we have seen the bottom of the bear market!

In our investor webinar from 21 October 2022 we talked about the market bottom…we think we’re there!

We also took a look at Wisetech (ASX:WTC) and Waypoint REIT (ASX:WPR).

See full transcription below.


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Marc: Good morning, on the 21st of October. It’s a Friday. We couldn’t make it on this Wednesday, unfortunately, with our investor webinar this week. But, for good reason. We met with some interesting companies, and we’ll be posting an interview with one of them later today. But, Stuart, a lot’s happened over the last week. Let’s jump straight in with Waypoint, Australia’s obsession with real estate. This sort of, you know, ties into this. It’s a lot happening with this one, and I think, you know, it’s a pretty interesting one to have a look at.

Stuart: Right. Every time you pull up at a service station somewhere, if there’s a Shell brand out the front, you are gonna encounter the Waypoint REIT, ASX:WPR. And we wrote about it in “Stocks Down Under” on the 12th of this month. They’ve got 404 of these fuel and convenience retail properties around the country. Long leases, nine and a half years, is the weighted average lease expiry. So, if you’re gonna be in any REIT at the moment, this has gotta be one of them, because you get a fairly dependable revenue stream from the folks who run these Shell service stations, $3.1 billion worth of value. And the NTA is around $3.20. Current share price way below that level. So, that’s why we wrote it up as four stars recently in “Stocks Down Under.”

Why do we like it? High occupancy, 99%. Shell, recognizable brand name there. The network is irreplicable. If you were gonna go out and compete with Shell, in terms of getting the best sites through all the metro areas, you wouldn’t be able to do it. And the company’s actually actively managing its portfolio. It’s always buying other service stations elsewhere, buying back its units, and doing other capital management initiatives over time. So, actively managed, to try and get that NT…the unit price back up to where the NTA is.

So, why is it so expensive? Well, a bug bear for a lot of the property sector stocks recently has been the weighted average rent review. It’s below the rate of inflation right now, so people are saying, “Why should I own these stocks, given that, effectively, inflation is destroying value?” I think that’s not something to worry about, in the medium term. Our central bank, the Reserve Bank, is working to bring inflation under control, and when it does, those weighted average rent reviews will start to look quite attractive, given that the target for the inflation rate will ultimately be between naught and 3%. And then you can dismiss all the other concerns people have, such as the rise of electric vehicles doing away with the need for petrol stations, for example.

Sure, this company is dependent on Viva Energy. But Viva is gonna need the network that Waypoint offers. So, for that reason, this is a great way to play a return of normal on the inflation run, because you’ve got some pretty valuable properties trading way below NTA.

Marc: Good stuff. So, yeah, and we write about them every Wednesday, right? So we’ve got an awful lot of articles on these REITs in “Stocks Down Under.” So, have a look at those, and we might actually be working up a report on the best REITs, sort of, the top five REITs, because there’s a lot of demand for that, so we’ll probably come out with that a bit later on this year.

Stuart: Right. Right.

Marc: All right. Let’s move on to something that we’ve talked about a couple of weeks ago. But I just want to revisit it, because it looks like it’s gone more mainstream now. And that’s all to do with calling the bottom of the market. So, you may remember, in the webinar from a couple of weeks ago, early October, we looked at the market…the bottom…have we seen the bottom of it, and we looked at the NASDAQ price charts, and we said, “Look, there’s quite strong support level at the level that we were at at that point. So, 10,500 for the NASDAQ Composite, and if it fell below that, around 89…sorry, 9,800. The NASDAQ has actually held up above that level of 10,500, which I think is a really good sign.

So, we said, “Have we seen the market…the bottom of the market?” And basically, the answer was, “We think we’re extremely close, if we haven’t seen it already.” But what we’re seeing now, and this, I think this is really interesting, is that some of the bigger banks, Nomura in Japan, and also Morgan Stanley, are now starting to call the bottom for the market as well, in, initially, right now, Asia stocks. But, you know, as we all know, these markets are intertwined. So, I think, sooner or later, we’ll see more banks come out and say, “Look, we’ve actually seen the bottom, and we’re getting more bullish at the moment.” So, interestingly, if you look at when they said that, that was two days ago, the 19th of October, well, for all the dinosaurs out there, like us, Stuart, we’ve lived through 19 October, 1987. That was a disaster day, obviously. The Dow down more than 20% on that day. But it’s, yeah, it’s sort of the…

Stuart: So, Marc, how come you didn’t jump out the window on October the 19th, 1987?

Marc: Because I was only 17 years old. I thought there was other things to live for at that point, right?

Stuart: Right. And that turned out to be a good move, right? We’re still here to tell the tale.

Marc: We’re still here.

Stuart: Right. So, investors should do the same. Not jump out the window, but look through the current blip that we’re going through right now.

Marc: Yeah, especially since, I think, we’ve seen the bottom. We’re close to it. So… And obviously, with all this sort of stuff, this comes with a caveat that this is barring any unforeseen circumstances, right? As always, so, any black swan stuff, although it’s not that black anymore, I think. Nukes in the Ukraine, that’s been talked about by Putin, and no one knows if it’s just an idle threat or if he’s serious about that. Right? You know, China moving on Taiwan, that could potentially happen. And actually, looking at Xi’s speech on Sunday, some observers said the timeline for China to actually make a move on Taiwan has actually become shorter, so they might move in sooner. So, anyway, that’s a whole different world that we would live in at that point.

But if things… So, to say, if we can prevent that sort of thing happening, the markets are sort of close to bottom. And, so we think the bad news is mostly priced in. We wrote a little article about that on the 14th of October. So, have a look at “Stocks Down Under Insights.” So, the website where the free content is. And this is a news article that we wrote on that day, where we basically outlined what we’ve just talked about now. But we’ve passed peak inflation, or close to it, especially in the U.S., where the headline number has been coming down for three months. The core inflation has been going up over the last month. But, overall, we think it can’t get much worse than eight-point whatever percent it is in terms of inflation in the U.S., given the measures that the central bank has taken there.

I think valuations, company valuations, have incorporated further rate hikes already, and also earnings adjustments that might be coming later on. But we’ve already seen earnings revisions, and companies are actually now starting to beat those earnings revisions. They were downward revisions, but Netflix actually did better than the market was expecting. Overnight, we saw that Tesla was actually sort of disappointing on one end, but more bullish on another. They’re talking about share buybacks and that sort of thing. Still, market overnight, still punish it by 6%. But, if you look at technology in a broad sense, including some of the semiconductor equipment stocks that have been battered by Biden’s announcement that there will be further export restrictions, they’re actually going up.

ASML had good numbers the other day, and as you know by now, if you followed us for the last year, you know that ASML is the best company you’ve never heard of, but nothing ever, nothing happens in the chip space without that company. But also, Lam Research, they said they will take a $2.5 billion revenue hit because of the Biden, of Biden’s new export curbs to China. But still, the share price went up overnight. So, when that sort of thing happens, when you’ve got really bad news, but share price is actually going up, that’s usually… It’s always been an, sort of an indication, Stuart, for bottom-forming. And we might not spike right back up, but consolidation is probably the first step from here on.

Stuart: Look, get out there and talk to most investors, they’re a little bit pessimistic. But if you listen to two of us, that famous phrase from Warren Buffet comes to mind, “Be fearful when everyone else is…” What’s the phrase? “ greedy, and greedy when everyone else is fearful.” Now’s the time to be greedy, I think.

Marc: Yeah. And there’s definitely blood running in the streets.

Stuart: Right.

Marc: And, yeah, that’s probably the moment to get in. And what we said in that previous webinar is, you know, you don’t have to go all in, but, you know, start to build positions again in certain stocks that you’ve kept an eye on. Twenty-five percent, 50% of the budget for that particular stock, and then see what happens. If it goes up further, you can buy more, if it comes down, you can buy more as well, and you’re sort of averaging your entry price.

Stuart: Right.

Marc: So, that’s what we would advise. Then, talking about technology, Stuart, WiseTech Global, that’s a really interesting one. And that’s defying the laws of gravity in the current market, I think.

Stuart: Right. It’s indicative to me that tech, when it rebounds, will have a great 2023. And Marc, given you are the nation’s leading technology analyst, people ought to pay attention to what we like, right?

Marc: Yeah, I think so.

Stuart: Right. Okay. But WiseTech is probably the biggest, most successful company that many investors will never have heard of. What is WiseTech? It’s got a software platform that can help logistics companies move goods around supply chains. The product that made everyone the money is called CargoWise, and it keeps track of, in the cloud, for everything that’s moving around, for the logistics companies that it use. This company was only $3.35 when it went on the market back in 2016. It’s since been over $60 a share. Growing like Topsy. Richard White, who you can see there on the right, he still owns 40% of it. This stock has made him a billionaire. We revisited this one on the 10th of October, 2022, and kept it as four stars, on the reasonable expectation that the stock would defy gravity, and we’ll talk about why in a moment.

So, why is it a success story? It’s an end-to-end solution that 18,000 logistics companies use. When you’re that big, you get a network effect, where you keep on growing. And WiseTech keeps on putting new features into the platform. Any rational entrepreneur cuts back on their R&D. Rational, for a while, that is, until someone outsmarts them by having done more R&D than they did. That’s not gonna be WiseTech’s problem. They’ve spent $700 million on R&D just in the last four years. So, this platform just keeps getting better and better in terms of helping companies move around. And in an environment like this one, where there are supply chain shortages all over the place, WiseTech just becomes more and more valuable to be able to track where the shortages are and where the bottlenecks are.

So, Marc, it’s, I would argue it’s partly a timing effect. In normal times, when goods move more freely around the world, perhaps WiseTech wouldn’t be doing so well. But in this kind of environment, it’s had a bit of a leg up.

Marc: Well, it depends on how you look at it, because if you listen to what Tesla had to say overnight, they said, “We could have shipped more cars, but there were simply not enough sea freight containers, the rail cars,” all that sort of stuff…

Stuart: Right.

Marc: Right? So, actually, WiseTech might have made even more money if…under normal circumstances.

Stuart: Right. Okay. So, either way, we’re doing well here. But we live in unusual times, in terms of what’s going on in the logistics game, and WiseTech is a player.

Great numbers. Look at this consensus. By about 2025, this company cracks the first billion dollar in revenue, if the analysts are on top of the story properly. And they’re guiding to some pretty strong numbers for FY23 as well. So, you can kind of justify the multiples the stock is trading on, because it doesn’t look like it’s gonna slow down any time soon. Now, you need to watch it carefully. Every company will occasionally slip up, and then it looks like the world has come to an end. Doesn’t look like that’s happening for WiseTech at the moment. But if they miss all these numbers, or someone has to downgrade, you need to worry. So, it’s worth paying attention to. But, if this is the kind of growth profile we’re talking about, then WiseTech remains quite a valuable opportunity.

Marc: All right. Good stuff. Well, that’s it for us. Anything to add, Stuart?

Stuart: So, I just want to reiterate what Marc was saying before. Now’s the time to get bullish, because you talk to most people, they’re a bit depressed about what’s going on. We think we’re close enough to Christmas into the new year to see a serious turnaround in this market. Maybe not an aggressive turnaround, but at least a turn.

Marc: All right. And, on that note, we’ll jump off, and we’ll see you next week.

Stuart: See you soon.