By MoneyMorning.com.au
Just in case you missed it: surf-wear company Billabong International (ASX:BBG) has been pantsed this week.
Chalk it up to a sales slowdown, the company says. Apparently sales for the first half of the financial year are down 26%.
But Billabong isn’t the only retailer in trouble.
Greg Canavan, editor of Sound Money. Sound Investments wrote recently…
‘As you are no doubt aware, credit growth in Australia is weak and with household debt to GDP at 113 per cent (at the end of 2010 and according to the Bank for International Settlements, amongst the highest in the world) it’s unlikely to take off anytime soon.
‘The larger and more mature companies in Australia rely on ‘organic’ growth. Unless they are winning market share from their competitors (not a standard occurrence in the cosy Australian market) these larger companies rely on credit expansion to grow revenue and earnings.
‘Smaller companies with new business models don’t rely so heavily on credit growth to expand their businesses. They rely on good ideas. So expect to hear more about smaller, innovative businesses in the future.’
So Greg believes the future looks bright for smaller, innovative companies. Ones that may prove themselves real value stocks. Why is this important?
Turning to the charts, the ASX Small Ordinaries Index (which is basically the ASX 300 with the top 100 stocks taken out) is at an important crossroads. It looks like it could either reverse and head back up from this point, or break through this support level to new lows.
On top of that, the ASX Consumer Discretionary Index is at its second-lowest point since November 2008 – April 2009. And a lot of those types of stocks look cheap. But of course, before you can know whether they’re good value you have to work out a few things…
Like, can they go cheaper?
And is there a good reason why they’re cheap?
What do you think? Surely there’ll be some value amongst the carnage.
Aaron Tyrrell
Editor, Money Morning
P.S. Greg Canavan is the foremost authority for retail investors on value investing in Australia. He’s the former head of Australasian Research for a major asset-management group and a regular guest on CNBC, Sky Business’s ‘The Perrett Report’ and Lateline Business. Greg shares his insight, ideas and investment recommendations with readers of his Sound Money. Sound Investments newsletter… to find out more information on Greg’s letter, go here.
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For editorial enquiries and feedback, email moneymorning@moneymorning.com.au