Australia’s stock picking sweet spot

‘Coles rockets 8%.’

So went some of the headlines yesterday.

The team at the big supermarket said shoppers were feeling a bit more chuffed about the world – and spending more in store.

That said, I just can’t get excited by the idea of owning a supermarket.

Rational? Maybe not. The shares have had a decent run lately…

Either way, all this is consistent with the idea we’ve floated in these notes.

Confidence is going up. Rates are coming down. The share market is marching higher. The world doesn’t look so bad.

We know that the earnings growth hasn’t been there for the last few years. The market is going up anyway.

Some people are surprised by this. They shouldn’t be.

What happens in a bull run like this is that the earnings “multiple” rises.

They say that the Aussie market averaged 14x for a long time. Now it’s about 20x.

That’s what happens in a bull run. The US market is sky high, near 30x.

But I don’t get caught up in these numbers. They have no predictive value, historically, anyway.

There are simply too many other variables at work.

I remember, about 10 years ago, my boss Bill Bonner rejecting the idea of buying big into the US market, “…at 25x earnings. No thanks.”

But you know what happened?

Donald Trump came in and cut the corporate tax rate. US corporate earnings got a free kick from the US government. The P/E therefore went down!

In hindsight, we also know that US technology companies have made staggering amounts of moolah over the last ten years too.

Investors back then were RIGHT to back them at the “high” multiples they paid at the time.

Bill was wrong.

My friend Chris Mayer wrote a great book a while back. It’s called “100 Baggers: Stocks that Return 100 to 1 and How to Find Them”.

The secret for a monster winner is you must find a company that grows its earnings at a high rate.

And the market multiple – what the market is prepared to pay for those earnings – needs to expand in a big way.

These are the “twin engines” of a monster stock return.

For the market to pay up in a big way, think 30-60x earning, it must see huge growth ahead, or at least the potential of it.

That’s why Life360 ($360) trades on a P/E of 88!

Look at the chart of this screamer…

Let me put my hand up and say: I missed this one. It’s not that I studied it and dismissed it.

But I was so deep in other ideas I never had time to work out what was going on here.

There are only so many ideas one brain can contain.

That’s all by the by now.

The point is that, to get a screamer in the stock market, you need the multiple to go sky high, usually.

That takes me back to Coles, and why I can’t be bothered with it.

For sure you can make a buck out of it. Take the dividend every 6 months.

But the market is never going to pay 88x for a supermarket with a limited and contained domestic market.

That puts a lid on the shares.

It’s also why smaller to mid cap shares should be on your radar, at all times.

Only these have the Life360 kind of potential, at least in the Australian market.

The Aussie “blue chips” are too well known, too established and…generally speaking…just flat out too boring to carry a “blue sky” premium.

People can project all sorts of scenarios on to Tesla ($TSLA) for example, or Uber ($UBER). Potentially they could capture the entire car transport market.

Such wild ideas are not going to happen with Coles…or Woolworths…or Telstra.

So, as far as Australia goes, it’s the smaller companies that interest me.

Callum Newman,
Small-Cap Systems and Australian Small-Cap Investigator

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Source: TradingEconomics.com

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After a remarkable run in 2023, uranium fell back to Earth in 2024.

But after a weak start to 2025 we are again seeing signs of life in the uranium price.

India announced they will be ramping up their nuclear capacity 13 times current levels over the next twenty years. Also more data centres are entering deals for nuclear power.

The long-term trend looks solid as you can see in the image above.

A fall below the 2025 low would switch off the current bullish outlook. But until then I consider the uranium sector to be a buy with the correction over and the next bullish wave just getting started.

Regards,

Murray Dawes,
Retirement Trader & International Stock Trader

All advice is general advice and has not taken into account your personal circumstances.

Please seek independent financial advice regarding your own situation, or if in doubt about the suitability of an investment.

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