Yahoo Finance Finding good companies is like finding an affordable home — look at ones going under the radar
Life can get pretty chaotic sometimes, as my recent homebuying experience brought home to roost after I lost out on several homes I bid on.
One might think this wouldn’t happen given the rapid and large rate hikes last year. But because so few people want to sell their homes, the available supply of single-family homes is at multi-year lows here in Calgary and things don’t look to be improving. New listings are down 40.5 per cent so far this year, and are down 48.6 per cent from last year.
Pair this with a record amount of immigration and interprovincial migration, as well as the pent-up demand from those who sat on the sidelines because of worries about more rate hikes, and you have a situation where well-priced homes are selling in a day or two at or above list.
The equity market is no different, since the consensus view is that we’re going back to the pre-rate-hike environment because banks in the United States and Europe are breaking under the stress of higher rates.
As a result, the demand for long-duration tech stocks came soaring back in March, so much so that the majority of last year’s equal-weight S&P 500 outperformance versus the market-cap weighted S&P was wiped out during the month, bringing it back to April 2022 levels.
Meanwhile, the S&P 500 tech sector’s forward P/E ratio has climbed by 30 per cent since October to 24x, from 18x, putting it at pre-2022-meltdown levels. We’re at the point now that just two stocks, Microsoft Corp. and Apple Inc., make up 13 per cent of the S&P 500, which hasn’t happened since AT&T Inc. and IBM Corp. did so back in 1978, according to recent Goldman Sachs Group Inc. research.
Now, since I needed to find a home because I sold mine, I began looking for ones that were not getting the attention I thought they deserved rather than trying to aggressively compete for ones that everyone else immediately wanted.
There was some risk to this strategy, but I was able to uncover a few excellent properties after doing some proper due diligence, but I had to act quickly because the tight market meant these, too, would eventually get attention.
Energy investors selling
The same can be said for investing in equities. One can try to chase the market-dominating favourites such as large-cap tech or start looking for undiscovered value in sectors such as energy, where investors have been selling along with oil speculators, who have sent their net non-commercial position to the lowest level since such data became available in 2011.
This is all happening despite steady growth in demand for oil while supply weakens, setting up what we think is a similar scenario to my recent Calgary homebuying experience.
We have low global inventories, a Strategic Petroleum Reserve that the Joe Biden administration has drained to 1985 levels and refuses to refill, and U.S. shale producers focused on dividends, buybacks and debt reduction instead of growing output due to volatile pricing and a lack of capital.
Global producers such as the Organization for the Petroleum Exporting Countries (OPEC) also have little spare capacity left after meeting the surging demand from economies reopening following the COVID-19 shutdowns.
Meanwhile, Goldman is expecting rapid growth in oil demand from countries not in the Organisation for Economic Co-Operation and Development (OECD) bloc to sharply outweigh the moderate decline in OECD oil demand this year. On top of this, four million barrels per day of new global refining capacity is set to come online in 2023/2024, the single largest two-year addition in more than 45 years, according to Royal Bank of Canada research.
There are options out there for investors who look beyond the noise
Investors need to centre themselves as interest rates stay sticky
I am not saying investors should avoid owning expensive big tech or the heavily concentrated S&P 500, but if you’re looking for a new home for a portion of your portfolio, perhaps it’s time to look at areas that are being overlooked before the competing offers come flooding in.
Martin Pelletier, CFA, is a senior portfolio manager at Wellington-Altus Private Counsel Inc, operating as TriVest Wealth Counsel, a private client and institutional investment firm specializing in discretionary risk-managed portfolios, investment audit/oversight and advanced tax, estate and wealth planning.
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