Is the long or short future most important? Investment ideas before the turn of the year

Is the long or short future most important? Investment ideas before the turn of the year

29 October 2021 from Mikael Syding

Right now, the world has growing pains in the aftermath of the Covid-19 pandemic, with painful symptoms in the form of semiconductor shortages and rushing energy and shipping prices. It hardly helps that few have the desire to return to their workplaces, at the same time as many truck drivers have had time to retrain and thus have permanently disappeared from the labor market. Of course, on the one hand, it is a positive development that the economy must finally recover so that we can all look forward to some kind of normality. On the other hand, it is not good that cramped sectors lead to skyrocketing prices and inflationary pressures that risk lingering for a long time.

Digital giants like Google and Microsoft are carving gold in the restart. For them, physical transport is hardly an obstacle. It should not do that for companies like SNAP, Pinterest, Twitter and Facebook either, but for the latter, logistics problems with customers have led to reduced demand for ads. Combined with increased criticism of dubious business practices and questioned business leaders, it has lowered stock prices significantly. What, then, is the appropriate way to proceed from here? What is the best way to position yourself when inflation is high and the transport sector is extremely strained, while the best technology companies are going like the train and second-hand sorting is on its knees? What is the right bet in the reasonably long term, with a solid fundamental value base and which takes into account environmental and climate issues, and preferably should not risk falling much in the short term?

Do you dare to snag this year's big winners, meme shares with names like AMC, GameStop and Lucid, or vaccine companies like Moderna and BioNTech? Or should we hope for a continued positive trend for large companies such as Nvidia, Alphabet, Oracle and Microsoft? Not to mention oil companies like Exxon or banks like Bank Of America and Morgan Stanley. In the longer term, I think both oil companies and banks will find it difficult to deliver high rates of return, while information companies in semiconductors, business systems, software, entertainment, sales and more could be the big winners. Typically, companies that have been strong in January-October also continue to move upwards on the final stretch towards the turn of the year, so the short and long term rhymes well for many tech companies.

Oil companies like Exxon are still disgusted and unjustifiably cheap, as if the market believes that oil prices will soon come down again. I think at the moment one should forget peak oil, electric revolution, climate anxiety and more and look at cold hard data and then the oil stocks have clearly more to offer. The same applies to the banks: In the future, the banks could be zero due to the fintech revolution with a number of other financial solutions for companies, individuals and states. But right now, banks simply seem too cheap. They too are treated as if the game is already over.

Maybe you can find next year's winner among relative laggards? How do Alibaba, Disney, MasterCard and Intel feel? Has Intel really lost the semiconductor battle once and for all? I really have a hard time believing that. Semiconductors are the air the world breathes and the water the world drinks. There is too little capacity in the sector, so even if Intel does not take back the first place, they have a given place in the center of the world economy for a long time yet.

In Sweden, all losers this year are called something with Medical or pharma. My aversion genes make me immediately want to deviate from my principle of not buying that type of research company to look for findings among biotech crashes. Perhaps in some isolated cases the market has unfairly pulled everyone over a ridge. No, I do not know the companies and then I actually have nothing there to do. I have enough opportunities in semiconductors, software, social media, banks, oil and car manufacturers. Right now, the stock market is shaking. Right now the inflation pressure is high. Right now, container vessels are standing still. Right now there is less advertising and both Halloween and Christmas are in danger for retail and advertising sales (Facebook, Twitter, Snapchat). But soon the problems are over and forgotten, soon the stimuli are back, soon the inflows to shares and cryptocurrencies continue in search of both index weight, cheap finds and return alpha.

The S&P 500 is at an all time high, OMX is only 4% below its maximum level, and Bitcoin reached new records just exactly a week ago. From a macro perspective for the financial markets, there is no concern, despite talk of everything from stagflation, debt ceilings and new virus variants to war on Taiwan and semiconductor shortages. No, the central bank trillions from the pandemic are still rippling around the system in search of a suitable parking space. But for every purchase, the money ends up in someone else's hands and, like a hot potato, must be quickly sent on and offer the price of other assets. It is difficult to decide whether it is best to look for cheap bargains or just buy the winners that have already proven to work. As long as the liquidity game continues, which it is likely to do in the foreseeable future, it is a proven winner to bet on: MONA: Microsoft, Oracle, Nvidia and Alphabet. And the biggest winners of all so far, of course: cryptocurrencies.

Value-based bargains can actually wait until the next market phase is around the corner. If you have time to change feet then… For me, large parts of the car sector still attract with names like Honda, Renault, GM and Ford, not to mention all kinds of mines - gold, silver, graphite, nickel, copper, electric motors, uranium with more. As a value investor, I also currently like Bank of America, Oil and JP Morgan (BOOM!). On the other hand, I have a bit of a hard time for the DAIM companies Disney, Alibaba, Intel and MasterCard, although they are also likely to come back after a dip. However, I like to wait for the decline to be real before I have to look all the way down in the lists.

In summary, I like to buy digital winning companies in a positive trend, and cheap companies with their feet screwed in the old economy: banks and oil. Most of all in both the short and long term, I like the interface between the two: mines with a focus on the raw materials for the new green economy, for example Leading Edge Materials with Europe's best deposits of natural graphite and rare earth elements. And as insurance against debt mountains and borderless politicians, I make sure to have a real exposure to both the old-time and new-age money: gold and cryptocurrencies in a sacred combination.

@Mikael Syding

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This information is in the sole responsibility of the guest author and does not necessarily represent the opinion of Bank Vontobel Europe AG or any other company of the Vontobel Group. The further development of the index or a company as well as its share price depends on a large number of company-, group- and sector-specific as well as economic factors. When forming his investment decision, each investor must take into account the risk of price losses. Please note that investing in these products will not generate ongoing income.

The products are not capital protected, in the worst case a total loss of the invested capital is possible. In the event of insolvency of the issuer and the guarantor, the investor bears the risk of a total loss of his investment. In any case, investors should note that past performance and / or analysts' opinions are no adequate indicator of future performance. The performance of the underlyings depends on a variety of economic, entrepreneurial and political factors that should be taken into account in the formation of a market expectation.

19/01/2022 14:09:00

 

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