In this briefing:
- Overview of My Winners and Losers in 2018…and 5 High Conviction Ideas Going into 2019
- Universal, SegaSammy & Dynam Sit Best Positioned Among Japan Companies in Race for IR Partnerships
- Manias, Booms & Bears: BDI & Shipping Vs Bitcoin… Lessons for Stock Markets
- Time-Out Not Time up for Trade War
- Semiconductor WFE Outlook. Things Just Got Really Ugly
1. Overview of My Winners and Losers in 2018…and 5 High Conviction Ideas Going into 2019
In a follow up to my note from last year Overview of My Winners and Losers in 2017…and 5 High Conviction Ideas Going into 2018 I again look at my stock ideas that have worked out in 2018, those that have not and those where the verdict is still pending.
Last year I provided 5 high conviction ideas and here is their performance in a brutal year for Asian Stock Markets:
Company | Share Price 27 Dec 2017 | Share Price 20 December 2018 | Dividends | % Total Return |
0.70 HKD | 0.88 HKD | 0.01 HKD | +27% | |
0.20 SGD | 0.27 SGD | 0.0 SGD | +35% | |
2.39 HKD | 2.82 HKD | 0.147 HKD | +24% | |
0.84 SGD | 0.85 SGD | 0.02 SGD | +3.5% | |
1.44 MYR | 0.32 MYR | 0.0 MYR | -79% |
4 out of 5 had a positive performance.
Below I will make a new attempt to provide five high conviction ideas going into 2019.
2. Universal, SegaSammy & Dynam Sit Best Positioned Among Japan Companies in Race for IR Partnerships
- We’ve reviewed 10 companies in the sector. Of those, three are the consensus favorites of our Tokyo based panel of industry, financial and economics observers of the IR initiative over many years.
- Based on pachinko alone, the stocks of these companies are fully valued. Based on potential tailwind from a license award within 6 months, they could be vastly undervalued.
- Each of the three noted here brings strength to a bid less based on financials than corporate focus, outlook and experience in the field.
3. Manias, Booms & Bears: BDI & Shipping Vs Bitcoin… Lessons for Stock Markets
Most of us are following the relatively deep correction in stocks, which has been sparked by a change in psychology reacting to small rises in interest rates coupled to the US – China Trade War, some economic data rolling over, and some growing concerns over Trump thrown in for good measure. The market overall should be able to learn some lessons from the 10+ year bear market in shipping (our contention has always been to expect only a slow rebound in shipping, but the recent risk off has brought these names right back down along with many deep cyclical stocks).
First, we consider the current trajectory of stock market corrections, learning from some behavioral excesses in shipping in the run up to 2008 – and what made the correction so deep for so long.
Second, we look back at the 2006-07 Baltic (BDI) Shipping Index Boom and 2008 crash and contrast a few parallels and differences we see with the Bitcoin Madness of 2017. Maybe we should consider adding a quick comparison of Marijuana stocks, but we don’t yet have the same distance.
In all cases, including Marijuana stocks recent rallies, the big boom came as supply was squeezed as demand went beyond physical, and developed a life of their own. With small market caps gaining a world audience, the game is easy to play initially, with those having the greatest foolhardiness or courage possibly getting to time exits or partial exits toward tops. Analytically, we usually see the madness way ahead, and the first tricks are to make up stories on why we should continue to buy. And then comes the brick wall.
4. Time-Out Not Time up for Trade War
- Xi and Trump walk away from Buenos Aires with something to sell at home
- But trade negotiations will be dominated by fraught disagreements
- After 90-day negotiations, further delays to tariff escalation are likely
5. Semiconductor WFE Outlook. Things Just Got Really Ugly
SEMI, the global industry association serving the manufacturing supply chain for the electronics industry, published three different forecasts for wafer fab equipment (WFE) sales in the past week. While the forecasts differ in approach and detail, they all agree on one thing, WFE revenues are continuing to fall and the outlook for 2019 is sharply down on previous estimates.
Specifically, Q4 2018 WFE revenues are set to decline 20.8% or $3.3 billion QoQ and the forecast which had just six months ago predicted 7% growth in 2019 is now calling for an 8% decline next year.
These latest forecasts cast a dark shadow over the predictions of the leading WFE manufacturers that H1 2019 would be stronger than H2 2018 and we anticipate a strong downward revision of forward guidance in the upcoming earnings season.
There may be a glimmer of hope on the horizon however as SEMI forecasts a strong rebound in the second half of 2019 leading to a return to growth of ~20% in 2020. Let’s see.
