GVI Investor Video Market Update – March 8, 2023

Hi, Manward family... and GVI Investor subscribers in particular. Well, as you can imagine, as a hedge fund manager, I get to see a lot of data... and a lot of interesting data.

And the whole point of these eye-catching market insights is that I get to share with you some of the most important thing that crosses my desk.

So let's start off with that. And I'm going to share the most important stuff and explain it to you, so it should be both educational and informative, and hopefully lucrative as well.

As you all know, I'm Alpesh Patel.

Let's start off with market valuations. Now, as you can see, and you can see the U.S. at the top, right, the reason that this really caught my eye is it really shows how neutral the market is at the moment between bear and bull. It is basically valued at its 10-year average.

So there's a case to be made for the bulls because it can be a lot higher and a case to be made for the bears because it can be a lot lower.

Whereas you can see in the case of the U.K. market, it is significantly below its three-year average, and has been making all-time highs as a result. So the U.S. is rightly neutral, you could make a case either way.

You don't have to try and gamble and guess which way. We just want to pick the stocks which are clearly, clearly undervalued, high growth and good dividend yield stocks, as opposed to try and make a gamble on the market as a whole.

Where might those be? Well, again, I don't like looking at individual sectors, but if you were to take a helicopter view for the moment, the reason this data caught my eye is you can see some of the sectors which have been driving the markets, consumer discretionary in particular, they've got a high valuation and they've also got high forecasted growth.

Now, ideally you want a low valuation and high forecasted growth, and that can be a difficult balance. Again, that's why we like looking at stocks bottom up. But I do like the consumer discretionary despite overall it being overvalued because there are some undervalued picks there and the forecasted growth is strong.

I also like some of the telecom players in tech and they'll come up in the stock picks that I produce.

What I tend not to like is low forecasted growth, even if it's relatively undervalued. Although, as I say, probably most important is valuation rather than forecasted growth. But listen, it's a lot easier when you're looking at stocks rather than trying to guess the right stocks by looking at just a helicopter view as that. But nevertheless, I thought it was important.

So how are we doing so far this year? Well, after having a really good January, we gave a lot of it up last month in February, particularly in the case of the Dow and then the S&P, but the Nasdaq and a reflection of the kinds of companies in the Nasdaq has held up very well.

So have the broader market Russell, which includes a lot of the smaller caps as well.

What about the various sectors? Now, this is just more out of interest on this. And again, you can see how consumer discretion really was the fastest horse from the start out of the stables, as it were, and still holding on to all of that as well. Like I said, this is more out of interest to see where things are. And you can also see from this that some of last year's great performers, some of last year's great performers have been a bit lagging this year because I suspect people have taken some money out of those and have started instead putting it into, as I say, consumer discretionary, for instance, instead.

Anyway, I thought this was interesting and just how big the gaps are between the various sectors as well. And that should reflect on the individual stocks we do pick.

You're probably not going to get too many utility stocks from me, and you probably will get more of the consumer discretionary, not because they're doing so well, but it's just going to reflect into the individual stocks themselves, how well those sectors tend to be doing.

In terms of the world and where do we sit on all of that, again, I thought it was interesting that, and it's pretty unusual in my experience, that the U.S. isn't leading the world, and it may well catch up and I think it will. And you can see the German market and the Chinese... Sorry, the German and the Nasdaq Composite are not doing too bad at all.

But when I say U.S., I meant of course the Dow Jones Industrial and of course the S&P, relatively flat, whereas I really expected them to have come off a bit stronger this year. Anyway, it's also interesting this because as you can see, most of the important markets around the world are up. They're up. And that, again, reflects upon broader optimism generally. So a case for the bulls, as it were.

This headline caught my eye and the reason it caught my eye is not because, I mean, anybody could have written this, Bloomberg could have written it, CNN could have written it, the point of it is we're going to keep a close eye on what's coming out of AI. I really am excited about, and I really think it is a big deal.

By the way, I gave a whole TEDx talk on investing, and some of the know-how that I apply in investing, which I discuss with you guys specifically in how we deploy that, of course, in these newsletters.

This from Julius Bär, the Swiss wealth management company, also caught my eye because I thought it really explains well where the world is, and I couldn't disagree with it either. You can see the U.S. is pretty much bottoming out now, and that is what could be a good reflection of where the stock market is. And so as the potential growth rate starts rising, the market itself should start rising as well.

And you've seen in the previous slide how India, which had a great year last year, has negative so far this year. And I think that's a reflection of the fact that, well, it's just probably getting into a bit of that tightening of the economy. So I think in the US we're well-placed actually.

I gave a video recording to The Financial Times as a prelude for a talk I'm giving there in, I think it's in June, yeah, June. And I was looking through some data and this came across my desk as well, and I liked this, I thought this was very helpful in terms of just overall numbers of where we are when it comes to real estate and the four types of buyers you have; first-time buyers, home movers, mortgaged buy-to-let and cash buyers.

And you can see with all of them, this year it doesn't look fantastic, but by 2025, we're still going to be below pre-pandemic levels, but improving for all of them. And you may well see a few more picks of mine which happen to benefit from the resumption to normality in real estate.

They're going to be undervalued companies with good growth rates because it's a bottom-up approach, but I thought it's good to see that data supporting the picks of course, and data not just for the stocks themselves, but broader macroeconomic data as well.

This is a chart of debt to GDP, U.S. debt to GDP, debt to gross domestic product. We are now in America at the levels we were at the end of World War II. And you might say, "Well, actually, that's the case, but America's not done too badly since World War II." And there is an argument to be made based on this that may be the government wants to look at inflating away the massive amounts of debt. Because if you increase nominal prices, then you can pay back the debt more easily, you're basically printing more money, as it were. But anyway, if you let inflation rip.

So there might be a reason to say the Fed itself will not increase interest rates too much, or will actually just freeze them and say, "Look, it'll help growth, might boost inflation, which will help just pay government debt in any event," because as people are paid perhaps more salaries, that means there's more they're paying in tax, just in nominal terms.

And that means that tax can then be used to pay down debt, again, in nominal terms, as opposed to real terms. And there's a case for it because the government's done that before. In fact, most Western economies have been doing that for decades.

Just to put into numbers, this is from Bloomberg, February is the month for the S&P, and I don't think it disappointed, it was a pretty bad month after a good June, sorry, after a good January, where am I with my months? So I thought it was good to just show that.

And again, go back into the S&P. Where are we? Where's the problem? Well, you can see the resistance in red and you can see in green the support, and it's just fighting that, it's making a decision.

If you ask me which way it's going to go, I'd probably say down before it goes up. I don't think those supports and resistances, either of them, will hold. It'll just make its own way now and I think it'll grow down over the next couple of weeks before it goes up. That's my view, and it's what I'm hearing from my colleagues in finance and the industry as well.

Let's just have a look at some of the portfolio and where we are on it.

So we've had, well, something of a gain on APA, not as much as I would've expected on this one. But when I look through the news just to see what's holding it back, there wasn't anything particularly negative.

So I just wanted to give you that update that as a company which is in oil and gas, which has been getting headwinds because people think everything's priced into the share price 'cause all these companies had such a good 2022, there isn't anything negative which is holding back, but I was expecting it to do better and we're still holding onto it, of course, within that portfolio.

Pinduoduo, which is Chinese, of course, benefits and continues to benefit from the Chinese opening of the market. And I'm continuing to be pleased with it. And when I look at the holding, I'm pleased with it and continue to be so.

Genuine Parts, again, doing well. And this is part of that consumer discretionary story I was telling you about which is why I wanted to raise it to your attention. It really is part of that story that, well, wait a minute, if there's all this recession talk and so on, why would a company which is in consumer discretionary do well at all? Well, the reason is because the market looks beyond that. And so I'm joining the dots for you in terms of future prospects and the individual micro aspect of the company.

ArcBest, it's done rather well for us, of course. And again, it was just to say to you, unless you're particularly risk averse, we're still holding onto this. And some of the banks have belatedly copied our views and raised their targets. Again, nothing particularly negative. There's been a stock buyback, which is good for the stock price.

Dover Energy, of course, been there for a while in our portfolio and must be coming up in a few months to its 12 months. And similarly, again, energy stock, is it too much of last year's company or machinery is the industry sector? And is it time to look at and move beyond? Well, we're going to still stick to our rules with this one, which is to hold for 12 months unless it's dropped according to the trailing stop loss.

Perion Networks, again, a good return on this one and its earnings were good, revenues were strong. And again, just want to give you a reassurance that we see no problems with it at all.

These were the ones that I really wanted to because I think we've had a lot of people who saying, "Oh, some good profits, what should we do?" Yeah, markets are falling. Of course, if you're risk averse, at any point, you're free to exit. But for everyone else, it really is a case of, "Well, actually now stick to the rule and see what happens on that."

So thank you very much. I hope you enjoyed the market reports and insights, and hope they were educational as well as well, well, hopefully a little bit entertaining as well.

Thank you all very much.