Dear Readers,
Hope you are enjoying this seasonal change in weather in Japan or elsewhere, and the post-election rally. It goes without saying that 2020 has been an upside-down
year for living and investing. As the physical economy grinds to a halt in the
west, and retail, F&B, and tourism sectors suffer, the stock market rally
continues on anticipation of more fiscal and monetary stimulus. When the roller
coaster US election results trickled in two weeks ago, markets were once again
off to the races after a pre-election sell-off. Hopes of a COVID vaccine at Pfizer
and BioNTech stoked markets just after the election as well. It’s a goldilocks
scenario politically in Washington D.C. They say that Biden won’t be able to
raise taxes with a Republican Senate retaining power, but he may well stimulate
the economy with spending increases. No one mentions or cares about that poor fiscal
deficit, but alas, as long as they turn the machines back on!
What’s a person to invest in during this upside-down year? Warren
Buffet is buying gold! He may be on to something as some of the smartest
investors (Druckenmiller, Dalia, Tudor Jones, etc.) are also scooping up gold
citing the “inflation trade” and excessive central bank easing. I also own gold,
silver, and recently picked up Buffet’s holding Barrick Gold (GOLD) when
it dipped last week. You should probably keep some gold or precious metal in
your portfolio in these turbulent times.
What Drukenmiller and others are even more interested in is bitcoin. Drukenmiller has said recently, “I own many, many more times gold than I own bitcoin, but frankly if the gold bet works, the bitcoin bet will probably work better because it’s thinner and more illiquid and has a lot more beta to it.“ The limited bitcoin in circulation versus the massive interest certainly is enticing. Of the 18 million bitcoin in circulation, supply increases by a mere 0.9% per year. This bitcoin rally does remind me of the mania of three years ago when every other guy at a party was talking about it. Is it 2017 all over again or does it have legs this time? The difference this time is the lack of mania surrounding 2017 ICO (Initial Coin Offerings), more pro investors looking closely at bitcoin, and more demand. We will have more on bitcoin in future months, but it wouldn’t hurt to own some crypto for the long term.
Some follow up on names mentioned in July related to COVID.
e-learning: Last time we wrote about two education companies, 2U
(TWOU, Nasdaq), and Edulab (4427). Both firms provide education services
and materials over the web and had rallied since the March bottom, but continued
to outperform since July. Edulab had strong earnings in Q2 and raised its full
year OP forecast by 22% to Y2.2bn. The stock soared in August/September before
coming back to earth, but it is still up 20% since July. TWOU rallied into the
summer but has tapered on talks of a vaccine.
Masks: We also touched on three mask companies in Japan, all micro-caps. Kawamoto has been a winner so far, while Shigematsu and Koken had brief moments of glory, but have been relatively flat recently.
Shigematsu (7980), high industrial use mask market share. The stock is up 3% since July.
Koken (7963), #2 mask maker. The stock is down 1%
since July.
Kawamoto (3604), masks and medical supplies. Kawamoto popped last week on huge earnings and an upward revision to its full year forecast, raising OP forecast 66% to Y1bn from Y400mn. Reasons for the revision were higher than expected demand for infection control products owing to the coronavirus. Sales of masks and hand sanitizers to China and domestically exceeded expectations. The stock is up 43% since our July note.
Final word on sectors: Its been tossed around Wall Street that there is market sector rotation from growth to value stocks following the election and vaccine news. Or is this simply a wall of central bank money trying to find a home in the stock market? Whatever the reason, extreme beaten-down names such as Nissan (7201) and JFE (5411) come to mind. Nissan (0.5x PBR), the #3 Japanese automaker, trades like a distressed stock at a massive discount to Toyota and Honda, but it ain’t going bankrupt. Nissan had better than expected results last week and may divest its stake in Mitsubishi Motors. JFE trades at a 0.3x PBR (Nippon Steel 0.48x) after it halved in the first half of this year, trading in a tight low range for the past 6 months. With more vaccine news coming in day after day, these beaten-down industrial names should do well.
Until next time, good luck and happy thanksgiving!
Please remember to contact me if you have any questions on investing. My firm Argentum can help you put your hard-earned money to work.
