THE PERFECT STORM (share), page-34

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chuk

14,362 Posts.

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11/02/22

13:48

Post #: 59511282
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Originally posted by chuk: ↑

This is looking like a great small company and a great investment from these prices with a lot more upside likely over the next 12 months. However, from day to day there seems to be no escaping this market volatility. US markets were down again last night on more US inflation data. Same old story. Up a few days and down again with markets reacting to any bit of news.
High PE stocks like the tech stocks that dominate US markets are hit harder with inflation fears. Higher inflation means likely higher interest rates. A high PE stock promising high growth is more susceptible to higher interest rates. Some of these company's have warned that growth may slow. That's a double whammy if growth slows when steady strong growth is priced in and worse still if interest rates rise at the same time.
Think of a stock on a PE of 50. Earnings are around 2% of market cap. That's ok if earnings are growing strongly each year (markets are forward looking) and interest rates are at 1-1.5%. Now put out guidance that your growth may slow while the market expects interest rates to rise and then valuations don't look so good. Hence the larger correction for the Nasdaq compared to the DJIA and our All Ords.
Like MNB, our All Ords has exposure to resources and unlike Tech, resource stocks trade on much lower PE's so are much less susceptible to moderate interest rate hikes and instead, more closely follow commodity prices. Higher interest rates won't matter much to MNB but these higher fertiliser prices will. Resource stocks are a natural inflation hedge. MNB should easily outperform as the company moves into production late this year but it won't be a smooth ride with markets remaining volatile.
As for these inflation/interest rate fears, even that has seen plenty of debate. There are arguments by some central bankers, including ours, that the current high inflation may be transitory, brought on by an increase in demand as we came out o flock downs while supply constraints remained. if down the track, those supply constraints clear, markets might come roaring back. I'm not betting on that and staying very much selective with my stocks. MNB should be much higher in 12 months regardless of any moderate rise in interest rates.

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"resource stocks trade on much lower PE's so are much less susceptible to moderate interest rate hikes and instead, more closely follow commodity prices."
BHP (+1.7%), RIO (+2.8%) and FMG (+2.5%) are illustrating that this afternoon while the all Ords is down 0.77%. Perhaps surprisingly, ANZ and WBC are both up marginally and NAB is up half of a percent so they seem to be shrugging off the interest rate hike fears. However, moderately higher rates can be a positive for the banks as they get better margins at higher rates. Nothing is black and white with markets.
More cash in the bank for MNB with director placement shares approved on the last cr.

Last edited by chuk: 11/02/22

MNB Price at posting: 15.0¢ Sentiment: Buy Disclosure: Held
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