Warren Buffett is known as the world’s greatest investor but would he find much value on the Australian share market at the moment?
And would he be brave enough to plough in during the dual citizen – minority government crisis stirred up by the High Court ruling?
We will never know for sure because the Oracle of Omaha is famously secretive about his investment plans, only revealing stock purchases when he is forced into it by regulation but often ploughing in during moments of crisis.
He also has a strong focus on the US market, although he has been known to pursue the odd offshore opportunity.
Does Buffett invest for value, growth or the best of both?
The answer also depends on how you classify Warren Buffet, with many calling him a great deep value investor but I disagree, with many of Buffett’s best purchases really falling into the growth at reasonable price (GARP) strategy popularised by Peter Lynch.
Buffett himself agrees that “growth and value are joined at the hip’’ and his long record of success in many bull, bear and sideways markets seems to bear out the idea that the experienced investor keeps a very close eye on growth as well as value when he buys – and sells – shares.
Aussie growth stocks getting too expensive?
The Australian investing conundrum was highlighted this week by a report from UBS warning that our local growth stocks have been pushed too high in the current Australian share market rally.
The UBS analysis showed that Australian shares with high price-to-earnings multiples have returned 11 per cent this year including dividends and buybacks, excluding mining and energy stocks.
Companies with lower multiples returned 7 per cent even though they showed better profit growth.
Value cheaper than growth at the moment
UBS said that meant that investors should exercise caution over some of the better performed growth stocks such as Treasury Wine Estates, bionic ear company Cochlear and big international blood products and vaccines group CSL.
Sydney UBS strategist David Cassidy said in a note to clients that they should exercise some caution about companies that had been strongly re-rated upwards, saying: “These stocks are once again trading on very high absolute multiples and very high relative multiples versus their own history.”
In other words, while they might be the sort of growth stocks Warren Buffet really likes, he might not be prepared to buy them at current valuations.
One stock Cassidy said investors should be looking at despite a significant rerating is Qantas, which he said is still trading on a fairly modest multiple of ten times and has prospects for earnings growth, potentially building on a 92 per cent advance this year.
Small caps continue to shine
As usual there has been a lot of activity in the small cap space.
Poseidon Nickel (ASX: POS)
Coming back into focus this week was Poseidon Nickel, as investors continue to check out resources stocks for pockets of value.
Poseidon is a multi-strand play with significant nickel resources of its own and two large multi-mineral treatment plants that are ramping up the ability to toll treat production from other mines.
Poseidon believes the electric car revolution will drive demand for nickel to improve battery fire resistance and stability, potentially leading to nickel “doing a cobalt” and enjoying a sudden price surge.
Empire Resources (ASX: ERL)
Highly active gold producer Empire Resources has begun analysing six diamond drill cores from its Penny’s Find open pit gold mine which could firm up the chances of the mine developing an underground stage.
While assays from the core are not yet in, earlier grade control drilling showed that gold grades were improving at depth, backing Empire’s geological model.
Logging and further analysis of the diamond core from Penny’s Find, 50 km northeast of Kalgoorlie in Western Australia, will all feed into a feasibility study for the underground operation and help with mine design.
Lake Resources (ASX: LKE)
Lithium explorer Lake Resources has taken another step towards unlocking value at its Kachi lithium brine project in Catamarca after a successful community meeting set the scene for drilling to commence.
With strong community support and positive surface sampling, a diamond drill rig has now been obtained and a 1000 metre initial drill sampling program is being planned, pending final approval.
Creso Pharma (ASX: CPH)
“Pot stocks’’ continue to generate plenty of news with Creso Pharma on track to finish its Canadian medical cannabis growing facility by mid- 2018, when new legislation will allow edible cannabis products to be sold there.
The new facility is expected to produce up to 4,000kg of cannabis annually and will also allow Creso to expand its research and development.
Creso has an option to expand the facility to ten times its initial size, potentially producing up to 40,000 kg of cannabis a year in the future.
Once Creso’s medical cannabis cultivation licence is granted, it will be one of the few companies in the world to cultivate, extract and manufacture its therapeutic cannabis products for animals and humans in Canada.
Cann Group (ASX: CAN)
Meanwhile, local medicinal cannabis developer Cann Group has been approved to expand capacity at its two Victorian facilities.
Australia’s Office of Drug Control has approved Cann’s request to vary its existing medicinal cannabis and cannabis research licences to use the expanded capacity at its Southern Victoria facility and to increase its cultivation, production and research at its new Northern facility.
Cann gained several required permits for its Southern facility in the first five months of 2017 and immediately started expansion works at the operation to increase cultivation, processing, drying and storage capacity.
Cann was the first company to gain a medicinal cannabis research licence in Australia, securing it in February 2017 and acquiring the country’s first medical cannabis cultivation licence a month later in March.
Cre8tek (ASX: CR8)
Technology companies might be under-represented in Australia but Cre8tek has been kicking some goals with its Flamingo virtual assistant going live with AMP.
The virtual assistant allows prospective AMP customers in the US and Australia to interact with the platform and lift AMP’s online sales.
Created by Cre8tek’s 100%-owned subsidiary Flamingo AI, the cognitive virtual assistant platform allows for the online sale of complex financial products.
AMP recently went through a soft launch with the virtual assistant and has now entered the “go live” phase, with current implementation “progressing well”.
Other Flamingo customers include National Australia Bank, Nationwide Insurance, Prime Financial, Quay Credit Union and the NY Daily Gazette.
The virtual assistant works by combining chat, smart workflow, machine learning, natural language processing and automation to guide prospective customers through online purchases – simplifying the purchase of financial products.
Politics will certainly play a part in the week ahead for the Australian share market as the minority Government situation sorts itself out and Deputy Prime Minister Barnaby Joyce prepares to fight for his seat again.
Other than the political fallout, there are some statistical releases worth looking out for including new home sales, retail sales, building approvals, home prices and car sales.
Overseas the Federal Reserve is meeting and there is a host of figures on consumer confidence, manufacturing and home prices.