Market Commentary February 2011
by Lance Spicer - Editor, Trident Confidential & Investment Manager, The Trident Global Growth Fund, 19 Feb 2011, 2:45 PM
The Sector to Soar in 2011
Recently, everybody has been obsessed with commodities, China and the gold price as the big stories in the markets and quite frankly I think they are missing the most important story, technology.
In the coming year we’ll see the bond bubble continue to burst as investors switch to stocks and as a consequence we’ll see gold and gold stocks also soften as confidence in the global economy is restored.
Of course, commodities will remain popular as the remarkable Chinese economic expansion continues. However, we are getting closer to a high in commodity prices. There will be a point where supply will catch demand and the prices will plateau. There is also the issue that if commodity prices were to continue rising as we saw with oil in 2008, that "price destruction" would occur if commodity inputs pushed finished product prices too high.
The strength of the global economic recovery will depend on commodity prices not getting out of control, but these things have a way of self adjusting as we have seen over the last three years.
The Global Economy
I see the global economy gathering strength during 2011. China’s careful tightening of the economic screws will moderate growth there to about 9% annually. Europe will grow the slowest of the major regions as it digests bailouts of two mid-sized economies (Greece and Ireland) and tries to prepare for any possible crises in Spain, Portugal and Italy.
The US economy will benefit from the stimulative effect of tax cuts, and unemployment should begin to abate. Once the employment situation improves, hold on to your hats, because the US economy will grow rapidly.
As for Australia, we’ll continue to be held back until our dollar falls, as it probably will in the second half of the year as the US$ strengthens.
Technology – A new golden age
I see the heart of the technology industry, semiconductors, or computer chips, heading into boom times in much the same way as we saw booms in the 1980’s and 1990’s.
Products such as a new generation of smartphones, tablet computers, laptops, PCs and commutations infrastructure will push demand for chips way beyond current capacity. This will be very different from the previous booms due to the fact that the number of technology consumers has grown by a factor of 4, thanks to China, Latin America and the rest of Asia having insatiable appetites for technology.
In addition, the internet is expanding at rates that during the 1990’s were never anticipated due to China not being considered the way we now do. This ever-growing demand for speed and capacity is changing the technology landscape so rapidly that demand for more complex software and hardware is keeping tech companies producing new products and services. Cloud computing will also place a strain on the capacity for communication networks to provide the access and speed we need. It wasn’t so long ago, that the Internet and email was a “novelty” and a mobile phone, was convenient and “kinda cool”.
Now, that’s all changed. The mobile phone is now your business and personal lifeline and you need it for email, web access, personal diary, text messages and many other uses… and yeah making phones calls too. The same applies to laptops and PCs - who doesn’t have one or two? You are also replacing them more often as well, as you want more functionality sooner.
What about set top boxes, blu-ray players, downloading music and movies and the advent of the home theatre? All these things need chips. Even cars, trains and planes these days rely on computer chips, lots of them. Is it any wonder the semiconductor industry will do well?
You think the Internet revolution has matured? Not by a long shot! We are not even at the end of the beginning of the Internet, we are still at the start of the beginning. There’s a very long way to go.
We’ll see a boom also in data management and storage as businesses will require greater capacity and more complex solutions for storing and accessing data.
The “green” industry will also rely on semiconductors. Without semiconductors there would be no solar or wind energy industry.
The stock market is only just now realising the potential for technology to be not just a cyclical fad, but for technology to become the core portfolio investments going forward into the next decade. No longer will fund managers consider core investments to be the usual non-cyclical businesses like the big banks, retailers and utilities, but also include technology companies who keep the world “working”.
At Trident Confidential, we picked up on this change as we were exiting the GFC over a year ago and as early adopters we have done extremely well with so many of our current stocks in Trident Confidential.
Our average technology stock, held for more than 3 months, has returned over 80% in 2010, and our overall portfolio has returned over 75% this year so far. While that may sound a startling return in such a “flat” market – I expect to do even better in 2011!
4 Exciting Investment Prospects for 2011
I have looked at 4 existing Trident Confidential technology stocks and their prospects for next year (and beyond) and have come to the conclusion that they are still undervalued and the market has still not caught up to what these companies have to offer. They are all "game changing" semiconductor companies and I expect them to grow sales and earnings at up 40% next year as the economic recovery continues. These 4 stocks represent bargains in my opinion and I don’t expect them to stay that way once they announce their quarterly earnings in the new year. However, as many technology companies are still very undervalued, I wouldn’t be at all surprised if they repeat their 2010 performance and stack on another 80% in 2011.
These stocks, and other great buys will be revealed in tomorrow morning's new issue of Trident Confidential.
As I say, the technology boom is only just starting and while it may not be like the craziness and speculation of the tech boom of the 1990’s, it is far more sustainable now that technology has become mainstream and not just some fad or oddity whose future use is nothing more than wild speculation.
In 2011, Trident Confidential and Trident Global Growth Fund will be seeking out more great companies in not only technology, both here in Australian and overseas, but also companies at the heart of the global economic recovery. It's sure to be another great year for returns after our 75%+ performance this year.
Call us on (02) 9544 5135 if you have any questions.
The Trident Global Growth Fund
We are starting to build positions in some of the most exciting and well managed companies, not only on International markets, but also right here in Australia. They are companies that will not only undergo significant sales and earnings growth in the coming year, but many are as yet undiscovered by investors.
Fund managers have tended to shun companies such as these due to their low impact on the stock market index. As you probably know, most fund managers are "glued" to the index due to the fact that they are frightened to underperform the market. My attitude is a little different - I'm only interested in making good profits regardless of the market condition, as I have done over the years with Trident Confidential, while still observing my strict rules of capital protection as I do with Trident Confidential. Why would I change now?
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