ASX Shares Up, Interest Rates Slashed -- and a Few More Tricks to This "One-Trick Pony"
SYDNEY -- The S&P/ASX 200 (INDEX: ^AXJO) and the All Ordinaries (INDEX: ^AORD) continued on their merry way Tuesday, gaining 0.75% and 0.68%, respectively, after the Reserve Bank of Australia slashed the case rate by 50 basis points.
The RBA finally admitted it has been calling the Aussie economy wrong the past few months.
Today's 50-basis-point slashing of the cash rate to 3.75% confirms what many, including us here at The Motley Fool, already knew...
The Australian economy is flatlining.
You only have to open your eyes
From an investing perspective, you only needed to witness the recent profit warnings from JB Hi-Fi (ASX: JBH.AX), Seven West Media (ASX: SWM.AX) and Bradken.
From a common-sense perspective, you only had to see the empty shops, falling (and still unaffordable) house prices, high levels of consumer indebtedness, sharply slowing credit growth, the continued disappearance of manufacturing jobs, the stubbornly high Aussie dollar, and sharply increased savings rates.
And that's not to mention the "politics factor," where one party is intent on trashing itself, while the other is intent on trashing everything that dares to get in the way of its path to government.
You get the point.
Embattled mortgage holders are finally set for some relief, although the big four banks are unlikely to pass on the full interest-rate cut.
What's bad for some...
The ASX initially jumped sharply higher. April's outperformance might be set to continue.
Who ever said a flatlining economy was bad for shares?
Up 36% in just seven months
Telstra shares rang up yet another gain, up $0.04 to $3.58.
Will it last? Certainly dividend yields on ASX 200 shares look very attractive in comparison to a cash rate of just 3.75%. Aforementioned Telstra still yields 7.8%, and its dividends are fully franked.
Longtime Motley Fool readers might recall, in August last year, investment analyst Dean Morel calling Telstra his "number one ASX 20 pick for the long term as it provides excellent cash returns, limited downside and reasonable upside potential."
It's turning out to be yet another great call by Dean.
Telstra's August 5 dividend-adjusted share price is $2.64. Investors who took Dean's advice and bought the out-of-favor telecom would now be sitting on a 36% return in just seven months, not including franking benefits.
It's an outstanding return for any investment, but even better when you consider the size of the company.
One good trick
We've sometimes been labelled a one-trick pony when it comes to our stock-picking -- that trick being Maverick Drilling & Exploration (ASX: MAD.AX).
In 2012 alone, Maverick shares are up a casual 559%.
As far as tricks go, even if we say so ourselves, you have to admit it's a pretty good trick.
As an aside, we've just emailed a 2,500 word interview with Maverick executive directors Brad Simmons and Don Henrich to our Motley Fool Share Advisor subscribers. In the piece, titled "Turning Dirt Into Dollars," Brad and Don go into great detail about the Maverick of today and the Maverick of the future. Needless to say, they are excited about what lies ahead.
Not losing any sleep over this loser
Apart from Maverick, we do have other tricks like Telstra and a couple of others mentioned below.
Of course, we don't get every call right. Specialty Fashion Group has not turned out too well to date. Time will only tell if we were early into Specialty or wrong.
Last September, Dean even bought some shares in Speciality himself, paying $0.60. Today the shares trade around $0.45, the same price they were in September last year.
I suspect Dean isn't losing any sleep over his investment in Specialty Fashion.
In a September article titled "3 growing ASX companies at value prices," Dean said, "Sound portfolio management and position sizing ensures that even if Specialty went bankrupt -- which is unlikely -- it would have a very small impact on my overall performance."
As for the other two "growing ASX companies" mentioned in that same September article, they are up 30% and 57%.
Seems there might be more than one trick to this pony.
With interest rates on term deposits set to fall fast, investors might turn to the share market to generate much-needed income.
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Bruce Jackson is The Motley Fool Australia's General Manager. Bruce has an interest in Maverick Drilling and Telstra. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request , while it's still available. This article contains general investment advice only (under AFSL 400691).
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