Market Musings 240623: Five investment themes to ponder
Market Musings 240623:
Five investment themes to ponder
What themes I am considering or investing in at present
This week’s podcast
Dax-cellent returns: exploring the recent highs in the German DAX index
What stocks have led the DAX back to this new multi-year high over the last 9 months?
Can this bullish trend be maintained on the DAX, in spite of a technical recession in Germany?
How is it then that the European Autos sector has returned close to its highest levels since early 2022?
The positive catalysts that we could see for the DAX moving forwards
Is the bad economic news already integrated into the DAX, despite the rally back to year highs?
Summary: Top ideas
Energy transition and nuclear energy: Uranium
Risk of deflation - Retail stocks could benefit
Grey pound power - transmission of housing wealth. Obesity
Recycling - circular economy.
Rise of Value-for-money retail, bundled services
Five of my favourite investment themes where I am currently invested are listed below:
1. Energy transition and the need for greater nuclear electricity generation in the short to medium term as a solution
Uranium is the fuel of choice, given that China and India continue to add new nuclear power plants to serve their greater energy needs, while Japan is restarting nuclear power plants idled after the Fukushima incident in 2011.
Europe is also maintaining the current nuclear generation fleets (with the exception of Germany), as a key plank in its energy security policy of reducing reliance on natural gas for electricity generation.
Moreover, the growth in electric vehicle take-up will put more pressure on the current electricity grid, requiring more reliable baseload electricity generation which cannot be provided by solar and wind power.
Pressure continues to build for US and other utility companies with nuclear power plants to enter into new contracts to buy uranium, which is slowly pushing the price of the yellow cake higher.
Long-Term Uranium price - rising steadily, but far from previous peak
Source: Cameco
The easiest way to invest in a rising uranium price over time is through YCA Yellow Cake, a listed fund which buys and stockpiles uranium.
2. As the inflation rate continues to decline and wage growth stays high with very high total employment levels, I think retailers could benefit.
Note the very strong trading statement put out recently by NXT Next. We may be at an inflection point for discretionary consumption despite higher interest rates.
Both non-food retailers and Travel and Leisure companies should benefit over the next few months from these combined tailwinds of a) lower inflation rates, and b) solid wage growth through to the end of this year.
Three UK non-food retailers which are benefiting from strong sales and profit momentum currently are Next, MKS Marks & Spencer and BME B&M.
Next, M&S and B&M all performing strongly since October 2022
Source: tradingview.com
3. The grey pound
The three obvious ways to play the grey pound (ageing of the wealthy post-WW2 baby boomer generation) are:
Health care, looking at age related diseases and also of course, obesity. PCGH Polar Capital Global Healthcare is a good investment trust to play this pharmaceutical-based theme.
Travel and Leisure in terms of consumption;
Financial services particularly those catering to the over 50s and those entering retirement thinking about for instance, wealth transmission to younger generations.
iShares and Global X propose Ageing Population ETFs
Source: tradingview.com
4. Recycling in the circular economy
The need for recycling continues to grow particularly recycling both of electronics and now of renewable energy solutions such as solar panels and of course, electric vehicle batteries.
The RECY WisdomTree Recycling Decarbonisation UCITS ETF seeks to track the Tortoise Recycling Decarbonization UCITS index. The Tortoise Recycling Decarbonization UCITS index tracks companies from around the world that are involved in waste-to-energy and recycling technologies as part of the global decarbonization megatrend.
Wisdomtree Recycling Decarbonisation ETF: weak performance so far
5. The rise of discount retail and a discounted services
Consumers want better value today. And those retailers and service providers that can give this should be long term winners. I have already mentioned BME B&M, one discount retailer that has performed well on the back of this “value for money” retail trend.
III 3I (the listed private equity fund) has performed well in part due to its large holding in fast-growing European discount retailer Action.
Other companies that can ride this trend include internet price comparison sites such as MONY Moneysupermarket.com, the owner of moneysavingexpert.com.
Conclusion: Uranium is my favourite theme
Of these 5 themes, I am most excited about the prospect for uranium over the next 12 months, given the confluence of positive factors coming together to support what could prove to be an explosive uptrend, judging by the behaviour of uranium in past bull market cycles.
Bonne chance,
Edmund
Disclaimer
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3 comments
Yellow Cake (LON:YCA) looks cheap, the other main point is that it is a diversifier. It does not move in lockstep with most other firms because it is very little affected by the economic cycle.
Thanks Edmund. I'm also a long-term believer in the uranium bull case. Supply is very limited and demand is increasing year on year - with the likes of China and India having ambitious plans for the number of reactors they are building over the next few years. The Uranium price will have to rise to incentivise new production. There is also a bifacation of the market in that the world's biggest producer is based in Kazakhstan and the East - China, Russia will absorb all of that supply, leaving the west looking for alternatives. Also, there is a bill going through the system in the US to ban imports of Russian uranium (and by extension Kazakhstan as they are basically controlled by the Russians). Fuel buyers have to enter the market in this limited supply environment and therefore the market will have to adjust the price upwards. The price of Uranium has risen quite a bit already, but the Uranium miners, explorers and producers are still languishing. Perhaps an opportunity? I hold Geiger Counter (LON:GCL) and Sprott Uranium Miners UCITS ETF Acc (LON:URNP)
Thank you once again for your musings, Edmund. Although I don't usually look too closely at "macro" , I always find your take on things very interesting.