Market indices may be range bound but market breadth remains weak. From sources, positivity in sentiment is in selected areas notably mega techs, and closer to home, gold and more recently lithium as analysts begin to upgrade lithium stocks (again thanks to M&A).
Catalysts for price growth in stocks IMO in the current environment rest on prospectivity, expectations and valuations. Profitability and even Profit growth is not enough to cause increasing share prices, if that was the case large oil and coal stocks like WDS and WHC would continue rising unabated due to bonanza profits. We have recently seen NAB falling sharply despite reporting record profits, not something a fundamentalist could sufficiently comprehend, but here is where prospectivity, expectations and valuations all come to play. A fully valued stock with current record profits facing headwinds ahead or lower prospectivity could succumb to a double digit loss on either results or unmet guidance. And in this business cycle, it has become hard for profitable stocks to continue generating the growth expected of them by the investing community, which is not you and me but instos and analysts. Hence I see no merits in being involved in such profitable stocks when macro trends are unfavourable. In contrast, a low valued stock with a massive prospectivity capable of delivering to expectations can result in a strong outperformance. Risk reward is favourable when a stock remains undervalued relative to its prospectivity and with no lofty expectations. For those reasons I love under the radar stocks remaining cheap that has something special but not fully appreciated with a HC forum quietly optimistic without all the gusto and drumbeats.
