We seem to be a lone minority here at Capitalist Exploits when it comes to (stubborn) bullishness on energy. Here’s Barron’s:
Energy stocks are out of favor. Fund managers had less exposure to energy stocks heading into 2024 than at any time since December 2020, according to the latest Bank of America Global Fund Managers Survey. With energy prices slipping, investors went from 4% more exposure to energy stocks than their benchmarks in November to 11% less exposure in December—the largest month-to-month decline since January 2016. They had 23% more exposure to tech than their benchmarks.
So if not energy, where are all the pointy shoes placing their bets? Into the Magnificent 7, of course.
These 7 tech darlings are now worth more than the market capitalization of all the stocks in the UK, China, France, and Japan combined.
Staying with the Magnificent 7 theme, here’s another head scratcher for you (h/t @TaviCosta):
In other words, you can buy Microsoft or you can buy every energy company in the S&P and still have $1.5 trillion left to spare (ought to pay for a nice dinner or two).
Not only does this highlight how out of favor energy stocks are, but also how priced for perfection Microsoft (along with the rest of the Magnificent 7) are.
In his most recent article, our buddy Kuppy draws parallels with the last innings of the dot-com bubble:
Do you remember the first quarter of 2000?? Tech screamed. Everyone chased. Sure, there was a bubble in speculative internet stocks. We all remember Pets.Com. What’s less remembered is the mad rush into mega-cap tech names. Plain vanilla funds had spent years ignoring these names as they were overvalued. Eventually, they had no choice but to pay crazy multiples for the big liquid names that dominated the indexes. The underperformance led to redemptions; it became existential to trail the indexes. They had to close their eyes and buy overpriced tech. Cisco, Nortel, Microsoft, Sun Microsystems, AOL, JDS Uniphase, Yahoo, etc. These stocks went up every day, relentlessly. Everything else got sold to fund it. Even the greats of our industry, guys like Druck, got sucked in. He simply couldn’t stand to underperform. That pressure is powerful, and it makes guys do stupid things.
I feel like we’re reliving the first quarter of 2000, but in the narrow world of the MAG7. On one side, capital keeps flowing into a handful of names. On the other side, there is a relentless undertow in everything else—as it’s sold to fund more NVIDIA. I look at my book and feel my names under pressure, names that I think are going to report amazing year-end quarters. These names shouldn’t be getting sold, but they are—guys need to fund more MAG7.
But hey, it makes perfect sense, right?
THE ECHOES OF DOT-COM
Staying with the echoes of the dot-com mania for another moment…
We came across this account from none other than Stan Druckenmiller (h/t @GregCrennan):
I literally sold the top range in the 1999 tech bubble but it went up another 30% while I was in cash and was tired of seeing stocks up, so I couldn’t take it anymore and got back in, little did I know I bought the top and lost $3 billion that year.
Decades ago, John Maynard Keynes famously observed that markets can stay irrational for longer than you can stay solvent.
And today — with everyone piling into the Magnificent 7 — his words feel dangerously relevant once again.
ALL THINGS TRANSITORY…
Feels like a lifetime ago, when — back in February 2020 — we started warning that lockdowns will bring about inflation and shortages. Fast forward to today, and this pesky stuff is now part of our daily lives. We recently set up a dedicated inflation channel in our Insider private forum, where members can share their own experiences with all things “transitory”.
To understand inflation (and the potential investment opportunities it brings), look no further than where the propaganda is being targeted. Because the inevitable shortages that result from this globalist agenda simply mean that prices go higher.
Case in point:
Now, take a look at live cattle prices ever since the insanity ramped up in 2020.
CHEAP, CHEAPER, HONG KONG
Circling back to what’s cheap vs. what’s expensive, one of the markets we discussed in the most recent issue of the Insider Newsletter is Hong Kong.
As MarketWatch observes:
With one going up and the other down, Nvidia is now worth as much as the entire Chinese stock market, represented by the H shares of the Hong Kong stock market.
Now, most investors won’t touch Hong Kong stocks with a barge pole. But the fact is, the average stock on the Hong Kong stock exchange is now trading near the lows of the GFC — with a P/E of about 7x.
If you filter down to small cap stocks, it gets even more depressing (or shall we say exciting?).
Hong Kong small caps are now where they were at the end of the dot-com bear market of 2000 to 2003 and sitting on a P/E of 5x.
If — like us — you’re a value investor at heart, you’ll be spoiled for choice in Hong Kong stocks. You’ll have no problem finding stocks with dividend yields over 10% and P/Es of 10x or less. Not to mention that many of these stocks have half their market cap accounted for by cash and little or even no debt.
Is it stubbornness… or perseverance?
Have a good weekend everyone!