How Marcus Padley analyses stocks

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PE ratios, return on equity, net debt-to-equity. All these ratios and metrics are popular among investors, many have a favourite. But how much use are they really? Not very, says Marcus Padley from Marcus Today. With Bloomberg, Iress, and even Yahoo Finance offering easy access to these metrics, it's hard to gain an edge.

"People think there's a holy grail of fundamental analysis, there really isn't. Every indicator is now a commodity."

So how does he assess a stock he's interested in? It's all about progression - the change in these numbers over time. Looking at the past, the present, and forecasts of the future, to understand the path the company is on.

In this video, he explains his process in more detail, how technical analysis fits in, and he shares a stock that he thinks is a good bet.

Edited transcript

These days, indicators are slightly overrated. People think there's a holy grail of fundamental analysis, there really isn't. Every indicator is now a commodity. Whether it's a return on equity or the debt level, everybody knows what they are. We produce a stock box with them all on for every stock. For the US stocks as well. Everybody knows what the fundamentals are.

What I think perhaps people should and can do is to look at the progression of a lot of numbers. You look at the progression of return on equity. There's absolutely no good broker getting on the phone and saying, "The PEs this, and the yields that, and the ROEs that." 

You need to look at a progression to get a picture of a company. We look at seven years in total: three, sometimes four years’ worth of forecasts and three years’ worth of history, and you look at the progression.

You can't over emphasise one number. It's a fundamental picture for any company and almost all the numbers feed into that. The other bits, our opinion is very important as well, and we look at broker recommendations and movements in recommendation. It's always interesting when a broker changes their view and everyone's got the same view and we can spot that.

And it's also interesting to spot the upgrade-downgrade cycle companies go into. The banks obviously have been in a huge downgrade cycle, and that bottomed as interest rates started to rise and the pandemic recovery started. There are lots of things to look at; you can't label one in particular. But I think these days with it being a commodity, any investor should be able to very quickly get a feel for almost any company on a fundamental level. It's not rocket science anymore. 

It used to be something you had to read the Intelligent Investor to know how to do. Now everybody's producing it for you. It's a commodity, you should know what the fundamentals look like.

The role of technical analysis

I think everyone should use every tool available. On page two of the Intelligent Investor, there's this paragraph which completely dismisses technical analysis as fallacious. It stuck a wall up between two groups of investors, and you're either one or the other. I think a lot of fundamental investors feel they've got the value high ground. And that the people who are using charts are up in the middle of the night with sunken eyes and McDonald's mayonnaise down the front of their T-shirts. That is superficial stuff. The truth of the matter is that it all helps. 

We use charts very much to determine our sector bets, that is which sectors are changing direction. We're looking for big pivot points, not daily trading pivot points. We're looking for when a sector has had some fundamental change, which creates a technical change, so working together. 

But the charts are the best way to gauge sentiment trend, and you can't just dismiss them and look at fundamentals. You will never make money just out of fundamentals. You'll certainly never time the market or time a stock using fundamentals.

A stock that's a great bet

There are industries that go nuts sometimes. Buy-Now-Pay-Later has been the most obvious over the last couple of years. It's an industry that's replacing credit cards. There's huge business. It's still growing. You look at Zip (ASX:Z1P) and Afterpay’s (ASX:APT) last quarterly sales numbers, and you'll see, they're still explosive. And yet people are saying, "It's enough." And Afterpay is now what, 48% off the top or something? It's going to continue to grow.

But there's another industry that is just happening: it's mature in Australia, but it's exploding in America, and that's online betting.

The US is allowing individual states to determine their own futures on online betting. Around 20 states have decided to adopt online betting, and suddenly we've got Shaquille O’Neal and Mark Wahlberg on our TVs. And there's one company in the middle that is white labelling betting platforms, so you could have the ‘Livewire-Bet366 platform’ if you wanted by going to these people. They will set a platform up for you and you can put your brand on it, and that company is BetMakers (ASX:BET). And they are seemingly about to do a deal with Tabcorp (ASX:TAH) as well.* It doesn't appear on from a fundamentals perspective to make any money at all, but they will, it will come.

*Editor’s note: BetMakers bid for TAH

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