Electric vehicles, shopping sprees: How to cash in on growing trends
Less than a fortnight into the new year and we are off to an eventful start. There's new COVID outbreaks, lockdowns, the rollout of the vaccine in the United States and UK (and promise of a vaccine rollout in Australia in February), while there is unrest in the US. But, these are just a few of the major events dominating headlines.
With the COVID outbreak impacting each country at differing rates of severity, the reopening of the global economy is on its way, but occurring slower than expected. Of course, many are hinging on a vaccine which supports the global economy's rebound.
The latest report from the World Bank - 2021 Global Economics Prospects - reinforces this, suggesting the global economy will expand 4% this year, pending the successful rollout of vaccines.
As we navigate the first month of 2021, here are three insights to help you identify opportunities in the market.
Commodities remain strong
As the economy continues to grow, major commodities have continued to strongly perform.
Off the back of my December column, the iron ore price has hit another nine-year high. With supply/demand constraints set to continue for the next six months, consider miners who are well-positioned to benefit - Rio Tinto (ASX: RIO), Fortescue Metals Group (ASX: FMG), Mineral Resources (ASX: MIN) and Mt Gibson Iron (ASX: MGX).
Copper is continuing to rally strongly and recently hit an eight-year high, following increased demand from China and declining production in Chile. The extra price kick was caused by one of Peru's largest mines being disrupted by a protest, which restricted supply. Given the various uses of copper, from electric cars to construction, the popularity of copper is set to continue as the world becomes increasingly cleaner and greener. Consider the larger miners such as Sandfire Resources (ASX: SFR) and Oz Minerals (ASX: OZL), and smaller miners such as Castillo Copper (ASX: CCZ) and Metals X (ASX: MLX).
Lithium is another commodity set to shine in 2021 and beyond, as it claws out of two-year bear market where it lost about 260%. The lithium price is now being pushed higher as electric vehicle (EV) and hybrid demand is increasing. Companies like Tesla, BMW and Toyota making plans to boost investment and introduce new models in the years to come, with hopes that EVs will be the car of choice by the middle of the decade.
With the lithium price emerging from a bear market, most companies in lithium production and exploration, as well as those in affiliated sectors, are seeing strong share price uptrends. Affiliated sectors include:
- High-purity alumina, which is increasingly being recognised in advancing lithium-ion battery efficiency and safety. High-purity alumina is expected to be chronically undersupplied.
- Graphite, is another key component of key component of lithium-ion batteries, used in electric vehicles and energy storage, both also rapidly growing markets.
When looking at stocks leveraged to the lithium markets, the key is to look for companies with good resources and offtake agreements with lithium producers and or electric car providers. For example Galaxy Resources' (ASX: GXY) major customer just bagged a 5-year Tesla deal. Other companies in the sector to watch include Orocobre (ASX: ORE), Pilbara Minerals (ASX: PLS) and Syrah Resources (ASX: SYR).
Retail shopping bonanza
The latest Australian retail sales data outstripped expectations, with sales surging 7.1% in November. Victoria was the star performer, with sales rising 22.4% as the state emerged from lockdown and flocked to the shops.
Black Friday and Cyber Monday were highlighted as key contributors for the month and have been cited as the most successful to date.
The next dataset to look out for is the December retail sales, which is also expected to be strong with Australians preparing for Christmas and splurging during the Boxing Day sales. Over the medium-term, CBD-based brick and mortar shops and department stores, like Myer (ASX: MYR), can expect a continued bump as workers return to the city.
From a clothing, footwear and accessories perspective, those set to continue to benefit include City Chic Collective (ASX: CCX), Accent Group (ASX: AX1) and Lovisa (ASX: LOV).
From a hospitality perspective, expect cafes, restaurants, and fast food to get a boost as lockdowns are lifted. Consider Dominos (ASX: DOM) and the owner of KFC, Sizzler and Taco Bell, Collins Foods (ASX: CKF). Pubs are also seeing increased patronage, so ALE Property Group (ASX: LEP) and Redcape (ASX: RDC) are others to monitor.
Additional US stimulus boost on the horizon
US President-elect Joe Biden, to be inaugurated on January 20, has been hinting at another round of stimulus payments on top of the US$2000 handouts already rolled out. Another round of stimulus would stoke even more fire into the economy and explains why optimism in the market has been so high.
The US remains hugely impacted by COVID-19 and while the vaccine rollout is underway, it's happening slower than expected.
For many of Australia's largest companies, an enormous portion of business occurs in the US. As vaccination gains momentum, consider what this means for some of the ASX stars that have an American consumer base, such as CSL and Afterpay.
For CSL, their blood therapy arm is set to perform well over the long term. While it's taken a hit recently, due to low levels of blood-plasma donation, once a vaccine has been circulated in the US, citizens will be encouraged to donate again.
For Afterpay, their US expansion is set for a large boost as more US residents are vaccinated and return to the shops. Foot traffic is already on the up and could skyrocket as life returns to 'normal'.
Remember: as volatility continues to rattle the market, use your down days to buy quality stocks which are impacted in the short term. Over the long term, companies with good management and strong cashflow should shine brightly.