Three key take-outs for investors during reporting season
All ASX listed companies are delivering their report cards. On the whole, we are seeing strong momentum and increasing dividends in this second half of the year.
Our Blue Chip Portfolio has been performing better than the market, which is rebounding. The benchmark S&P/ASX 200 index has rebounded almost 10% in the past two and a half months and sits just over 7% shy of the near-record levels in April.
Read more about Investing in Small Caps. Why we picked these ASX Small Cap gems and their outstanding performance.
THREE key take-outs for investors:
1. Sticking with companies that have strong fundamentals – cash flow positive with stable balance sheets – and preferably pay dividends. More often than not these companies, in the Blue Chip world, are in oligopolies. Our Portfolio’s performance highlights the importance of strong underlying fundamentals.
2. Stock picking is paramount in an environment of rising interest rates. You need to pick companies that can weather the inflation storm. That is they can pass cost increases on to customers and can also grow volumes. This is a tricky balancing act!
3. The takeover activity is only going to increase as Blue Chips hunt for growth at value prices (and yes, that is what we are hunting too).
The 12% drop in the index is unlikely to recur
The likelihood of throwing the baby out with the bath water event in June where the Index plummeted 12% is highly unlikely to recur.
PROTECT WITH BLUE CHIPS, GROW WITH SMALL CAPS
Our subscribers love our considered and detailed approach to selecting Small Caps. It gives them STRONG GROWTH RETURNS. We recommend Blue Chip stocks too to create a balanced portfolio, positioned for your future self.
The S&P/ASX 200 5-year chart
Where we think the market is moving now
But what we will have is a slow ratcheting up of interest rates, which will increase pressure on equities as discount rates climb.
The ability to lift prices is impressive, but eventually, it has a negative impact on volume. Each industry has differing levels of competition and pricing power. There is a tug of war going on between retailers and suppliers but eventually, the consumer’s pocket empties out.
Analysing the Coles (ASX: COL) Results
In the Coles result inflation was a key theme with food prices rising over 4% during the past six months.
The impact of high transport costs and supply chain constraints has thus far been limited but has the potential to become more embedded. This will reduce demand with interest rate increases already exerting pressure. There are signs of trading down such as substituting budget items for brands, frozen and canned veg for fresh, cheaper cuts and meats.
What Does All This Mean For You As An Investor?
For one thing, have a look at our Blue Chip Value Portfolio.
We are focussed on buying companies with strong fundamentals that can provide you with dividend streams during difficult times.
The other thing to do is to look at Under the Radar Report: Small Caps.
The market is coming to us, with more and more takeover activity occurring in stocks that are in our sweet spot. You need to be part of the action.
To learn more about this week's market update, head to our Stocks and Beers with Rich where he wraps up the week with you and talks about where he sees the opportunities in the stock market.
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