ASX Stock Advice: Take Profits

Richard Hemming

The Global ASX Stock Market Rollercoaster

After falling just over 37% in just over a month, the S&P/ASX All Ordinaries Index has bounced back aggressivelys in the past month and is now 23% off its 21 February 2020 record high. Moreover, this move has been mirrored by stock markets around the world, for example, the S&P500 Index fell 34% and is now only 13% off its mid-February record high.
 
After those heavy initial falls in Under the Radar's stock report we told subscribers to buy quality ASX stocks – both Blue Chips and Small Caps – in small parcels; and not to chase on those days where the market bounced. This has proved to be the right strategy. What to do now is the question? First let's look at what's happened. 

Why has the ASX Stock Market rallied?

The ASX stock market's rally reflects several factors, including:

  • Emerging consensus that 4 April marks peak COVID-19 infection in Australia, offering the prospect that we have passed the height of the crisis, at least in health terms;

  • Heavy monetary stimulus in developed economies ie Quantitative Easing, causing interest rates to fall close to zero;

  • Animal spirits in the ASX stock market, causing investors to be optimistic, mainly due to the US Federal Reserve effectively saying that it will step in at any cost, and then doing just that. 

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Under the Radar Report's Current Advice is to Take Profits Where you can

Hence Under the Radar Report’s investment advice has changed in the past two weeks. We now advise for subscribers to be looking for places to raise cash by realising gains. We believe you should be looking at taking profits on ASX stocks that have risen 20% or more during the past month; as well as ASX stocks that are relatively expensive, i.e. trading at a premium to the current forecast market PE of 15 times.
 
This market multiple should be treated with much caution. As we have repeatedly said in our stock reports, PE means something only if you get a handle on E!

To view how this has worked for Under the Radar's own portfolio, sign up for a 14 day free trial here.

Economy Uncertain so Take Proftis: GDP Will Plummet This Quarter

There is an increasing disparity between ASX listed companies that are sinking and those that are swimming. Put another way, the market is now more about stock picking because there is increasing dispersion.
 
This isn’t reflected in the current market tide that is lifting all boats, however.
 
The facts are that unemployment is going to surge; house prices are historically high and stock valuations are not cheap. If you are a small cap investor and get a chance to take a profit, take it!
 
We are talking about overall bad outcomes, which are not currently reflected in stock prices. The bottom line is that a lot of consumer facing companies will lose money this quarter as GDP plummets in the three months ending 30 June.

The Impact of Real Market Data

As Under the Radar Report have spoken about in our stock reports, there will be the sticker shock effect, which happens as real data hits the delusionary mindset factored into some stock prices. We also think we will see the exposure of corporate debt issues over the next 3-6 months, with some big ASX listed companies, sometimes termed “zombies”, propped up by government handouts and reluctant bank support. We are starting to see the fracturing of fixed obligation market, a prime example being landlords pushing back against non-paying tenants.

We are Cautious Because of Uncertainty

The reason we are so cautious about the market is because there are so many unknowns that are not in the current data or even being contemplated by it.

Trading Opportunities: Best Way to Make Money Now

Under the Radar is committed to providing our subscribers with trading opportunities, which is the best way to make money out of this uncertainty. It is a stock pickers market where investing in the market through index linked ETFs won’t cut it. We have been quick on the foot to buy and now we’re quick on the other foot to take profits. The only certainty is uncertainty right now.

Small Cap Portfolio Transactions

Find out our latest portfolio transactions and what we are buying today by taking out a free 14 day free trial here.
 

About the Author

Richard Hemming

Richard Hemming (r.hemming@undertheradarreport.com.au) is an independent analyst who edits www.undertheradarreport.com.au, which provides investment opportunities in Small Caps that you won’t get anywhere else.

Under the Radar Report is licensed to give general financial advice only (AFSL: 409518). The author does not own shares in any of the stocks mentioned.

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