7
STRATEGY
Having gone all in a week or so ago at lower prices, we remain vigilant to the change in the wind. It
does happen fast. I was writing a piece the other day and not watching the market. It was up 150 when
I started writing and ten minutes later was square and then slipping into oblivion. A big turnaround.
Popping out for a coffee or going to use one of the 350 toilet rolls that I have stored up, can be wealth
changing. We remain vigilant, nervous but still long.
It is the start of a new quarter. The first one is best left to the history books.
Here are a few fun facts to tell the grandkids when this is all over: The March Madness.
• ASX 200 lost 24% in the quarter. Hero to zero in a month.
• European shares lost 20% for the worst quarter since 2002. Spain lost 30%.
• The Dow lost 23%. The Russell lost 31% (the most since 1979).
• The Dow had an 8889-point range in March.
• The biggest daily gain in March 9.5%
• Biggest March daily loss of 12.2%.
• The average March daily move 5%. Total decline of 12.5%
• Boeing down 54%. Chevron and Exxon fell 39% plus.
• Microsoft up 0.01%, only Dow stock to gain.
• The CBoE Volatility Index averaged 57 in March. Triple the long-term average.
• Crude WTI lost 67% in the quarter.
• Gold a winner for its sixth quarterly gain.
• Copper fell 23% and nickel lost 19%, both most since 2011.
There will be a quiz on this in years to come.
Simply the Best
Back in August 2018, I created the Tina Turner Portfolio. ‘Simply the Best’. The idea was to invest 10%
in ten stocks and all those stocks were world-beaters. Here is the portfolio:
It started with $100,000. It is still up. That is a good thing. The Index was 6300 at the time so it has
outperformed nicely. And still positive. Thank CSL for that. And RMD. Interestingly ALL and TWE are
the only two big casualties.
Now during this crisis, it’s time for the Corona Six Pack.
Now I am going to create two six-packs. One that is a pack of six stocks for the Recovery and the rally
in the market. The other will be for the cure.
The Cure pack will be speculative and just a bit of fun. Maybe some will keep an eye on it. Will not be
set and forget though.
Corona Six Packs
Let’s start with the Recovery Pack.
These are quality stocks with leverage to the rally and an end to CV19.
QANTAS (QAN) – Quality balance sheet management and a beneficiary of lower fuel prices. At some
stage, people will be flying again. Suspect flying will bounce back far quicker than cruises which will
be a serious issue for some time. Who wants to be stranded on a CV19 ship?
Santos (STO) – Oil will not be at $20 forever. No one can win that game. Everyone loses. Now there
are issues with storage but isn’t the best storage staring us in the face. It is in the ground leave it there.
Stop pumping it up and looking for a place to store it when it is best left in situ. It seems blindly obvious.
STO is a leveraged play on the oil price and March madness to be a temporary phenomenon.
Commonwealth Bank (CBA) – In a banking world where only the strong survive, CBA stands tall.
Balance sheet strength. Technology strength and good management and a great dividend yield (mind
you if you think they will not cut that you are kidding yourself it is just by how much).
Macquarie Group (MQG) – These guys invented the playbook on risk control. The new CEO has been
now tested under battle conditions and so far we have not heard much from MQG on the impact.
They are conservative, well run and never promise too much but have delivered time after time. It is
in the fund management business more than the risk business these days so it will have taken a hit to
earnings. BUT when the sugar hit of the big number stimulus wears off the next leg that governments
will drop is infrastructure. Trump is already talking US$2 trillion in infrastructure stimulus. This takes
longer. Even shovel ready projects cannot be started overnight. It still takes time. So it will be the leg
up when things normalise. MQG is an infrastructure expert. Plus should do well with capital raisings
for rescue packages.
BHP Group (BHP) – Solid as a rock balance sheet. Iron ore exposure is doing well. Oil not so but that
will change. New CEO with plenty of experience and given that global production is being shut in there
is a risk that we could see a sharp rebound in commodity prices. It is far harder to restart than to stop
production so a medium-term jump in the likes of copper, coal, etc could be a factor.
Aristocrat (ALL) – Digital gaming. It will not save the day. The hit from pokies and clubs closing is
significant. But if you are stuck at home, online gaming and gambling are a drawcard. It has been
knocked hard with its exposure to pubs and clubs and the slot machines of Vegas. But as the lockdown
eases and it will, then it will be back to business, as usual, quicker than you can say Jackpot.
So this is the basket.
There are plenty more you could act. Technology stocks like XRO, healthcare like COH and CSL, data
storage is exploding and plenty of potential winners there, MAQ, MP1, NXT and even TLS but these
six should do what the tin says. If you want, mix and match. Or make it a 12 pack?
Strong balance sheets and geared for a recovery
The Cure Package
This is the highly speculative one.
It is a six-pack of stocks that have exposure to CV19 either in test kits or products that kill it on surfaces.
Zoono Group (ZNO) – the company produces Antimicrobial products and services. Demand has been
growing strongly and is ramping up production in the UK and the USA. It has past many tests and
appears to help fight the CV19 threat. Zoono produces sprays, wipes, and foams suited for skincare,
surface sanitisers, and mould remediation treatments. The products are based on the ‘zoono molecule’,
a unique antimicrobial molecule that bonds to any surface and kills pathogens including bacteria,
viruses, algae, fungi, and mould. We wrote this one up around 60c-70c originally.
Biotron (BIT) – The company is working on restoring the immune function in HIV-1 Infections. It has
announced that it is testing its compounds on CV19. BIT has over 30 compounds with good signs
against corona style viruses. Testing is underway.
ResApp (RAP) – Respiratory telehealth company. It has been investigating using its technology and AI
to diagnose CV19 remotely and ensure further tests if needed. It has recently signed up with Coviu,
our leading telehealth platform to integrate its technology into the platform. RAP and Coviu have
signed a binding commercial terms sheet and have agreed upon a per-test fee for the use of ResAppDx-
EU on Coviu’s telehealth platform. The per-test fee received by ResApp is within the previously
targeted range of $5-10 per test.
Aeris (AEI) – Recent business update. AEI Is involved in environmental hygiene. Aeris Active listed as
effective for Coronavirus by Singapore NEA - Aeris Active Proven effectiveness against Influenza and
Norovirus (**). It has revenue already of around $13m if trends continue. 50% margins. It should be
profitable in 1H 2021.
CellMid (CDY) – Test kits. Its main business is consumer health products in Australia and Japan so it
has some issues. Japan is 68% of sales but is still expected to be delivering on budget. But what has
got the market all fired up is the agreement it has just announced with a Chinese manufacturer of
CV19 test kits. They are TGA certified and CE marked. The test is available immediately and is suitable
as a bedside test, can be used in hospitals, nursing homes, schools, remote areas and by corporates
when administered by healthcare professionals as well as in pathology labs. CDY had agreed with
Guangzhou Wondfo Biotech to supply Australia and will pay a fixed price for each test it will purchase.
The rapid diagnostic test is already used in several countries including the UK, Belgium, Spain, and
Germany. It is produced in a TGA approved facility in China and it is available immediately.
Genetic Signatures (GSS) – The company has submitted registration for its new 3base EasyScreen™
SARS-CoV-2 Detection Kit in Europe. Also, submitted it to the TGA here. The test kits are already
supplied here under and Europe under regulatory exemptions. GSS should be classified as an essential
service and will escape strict lockdowns. I wrote this one up yesterday before the big spike.
You will notice that there are no vaccine or miracle biotech cure companies in the bunch. Vaccines are
a long road. SARS has no vaccine. HIV has no vaccine despite billions being spent on it. Vaccines take
forever to prove safe and effective. The onus on proof of a vaccine is so much higher than a normal
drug. Giving healthy people a vaccine that could kill them or harm them long term takes time and
multiple tests. You wouldn’t want to have the cure worse than the disease. As far as a cure goes, that
would be nice and many will be working on it but it’s expensive and takes time.
This Six Pack is highly speculative and should be treated as such. They need to be monitored
carefully and will be driven by announcements. In some ways, it is a hedge. If they go down it means
we are getting on top of the CV19 pandemic so that is good. If not, at least these stocks should
increase in price.
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