‘When the narrative changes, it changes quick’: 5 stocks on Henry Jennings’ radar

After more than 30 years in markets, Henry Jennings has seen enough crashes, bubbles, and booms to know the biggest risks rarely look that obvious beforehand.

And right now, it isn’t any single threat keeping the Marcus Today portfolio manager cautious. It is the combination of rising bond yields, stubborn inflation, higher oil prices, enormous government debt and increasingly aggressive spending on artificial intelligence.

Yet markets, particularly in the US, have largely taken it in their stride. Jennings thinks that complacency could prove dangerous.

That said, he isn’t hiding under the bed either. Jennings sees the potential for sentiment to turn extraordinarily quickly, particularly if geopolitical tensions ease and oil prices retreat. Closer to home, he is still finding opportunities among beaten-up stocks, including Judo Capital and Ramelius Resources.

Here, Jennings reveals what worries him most about markets, the stocks he has been buying, the 200% winner he just sold, and the ASX names he simply cannot bring himself to own.

The boiling frog market

Sometimes getting away from markets is the best way to see them clearly.

Jennings had just returned from a month overseas when we spoke, and said stepping away from the daily noise had given him a different perspective on the risks accumulating across global markets.

“When you look at what's happening at the moment in terms of the oil price, bond yields, debt issuance, not only by governments around the world but also by AI companies, there are certainly some pretty worrying signs,” he said.

The US market has held up relatively well, but Jennings’ concern is that investors have gradually become accustomed to each new risk.

“It’s a bit like the boiling frog syndrome. When you're looking at it every day, it doesn't really strike you as that big a deal because we get immune to it,” he said.

“Bond yields ticking up, oil price ticking up. But it is a big deal.”

The cumulative impact matters most.

“You keep piling issues on top of each other like Jenga. Eventually, if you pull one out, it’s going to cause problems. The tower could topple.”

Yet corporate earnings have remained resilient. That could be the crucial variable.

“The market has got pretty complacent about this because of the boiling frog and because earnings have held up so well,” Jennings said.

“But if earnings crack, then we could be in for a period of pain.”

Complacency is the real risk

Ask Jennings what worries him after four decades in markets and his answer is simple: complacency.

He points to the VIX sitting around 16 at the time of our conversation despite war, elevated interest rates, rising debt and other risks hanging over markets.

“The VIX is not a great measurement, but what it does tell you is that hedging and buying insurance is cheap,” he said.

“We insure our houses, we insure our life, our contents, travel and health. But insurance in the market is relatively cheap, and yet there aren't enough people looking at insurance.”

Jennings believes an entire generation of investors has been conditioned to buy every dip, with relatively few having experienced a prolonged market collapse.

He began his career before the 1987 crash and remembers similar complacency developing beforehand.

“Money was easy, big debts, big takeovers, new floats, massive floats,” he said. “In hindsight, there were lots of signs and things were getting out of control.”

His recent travels through Italy offered an appropriate metaphor.

“Having just been in the shadow of Vesuvius and Mount Etna, these things are steaming away and you look at them and go, ‘Yeah, nothing can go wrong.’ But one day the thing is going to blow the top off and you go, ‘That was bloody obvious in hindsight.’”

The risk of being too bearish

That caution is reflected in Jennings’ willingness to hold cash.

“Cash looks very good at the moment with the yields that are on offer around the world,” he said.

But caution cuts both ways. Jennings believes one of the biggest risks for bearish investors is that the geopolitical narrative changes suddenly, oil falls and markets rip higher.

“If you were a scriptwriter”, he said, an agreement that reduced geopolitical tensions and sent oil back towards US$75-$80 a barrel could dramatically change sentiment.

That would matter for an Australian market where banks have struggled for momentum and resources have faced pressure from a stronger US dollar and higher interest rates.

“That could reverse quite quickly,” Jennings said. “The risk is that the narrative swings very quickly, that pendulum swings very quickly and we get a FOMO rally like you have not seen for some time.”

What Jennings is owning

Among Jennings’ longest-held positions is Neuren Pharmaceuticals (ASX: NEU), which he bought at around $13 more than two years ago.

“It’s been all over the place, $8, $9, $26. It’s been a crazy ride,” he said. “But it’s certainly one of the longest-held stocks and we’ve done very well out of it over the years.”

Jennings said the position was up around 55%.

Another standout has been 4DMedical (ASX: 4DX), which Jennings said was picked at below 40 cents and subsequently became a ten-bagger.

More recently, his purchases have been deliberately conservative. His latest buy was Judo Capital (ASX: JDO), which Jennings picked up around $1 after its result sent the shares sharply lower.

“It just got a little bit too cheap,” he said. “I don't think the result was as bad as some were going for.”

Jennings believes the shares could recover towards $1.25-$1.30 with some help from the broader environment.

He has also recently bought gold producer Ramelius Resources (ASX: RMS).

The 200% winner he just sold

Jennings recently took profits in electrical infrastructure specialist SKS Technologies (ASX: SKS).

He first encountered the company at a Melbourne microcap conference and was impressed by its management team and move into data centre fit-outs.

“That one's up 200% since we bought it,” Jennings said.

After previously trimming the position around $8.40, he returned from holidays to find the shares trading around $10.40 and decided to sell.

“If you sell them at $8.40 and come back and they're $10.40, you've probably got to take the money and run.”

Jennings is also becoming more cautious about the data centre thematic, pointing to growing resistance to new projects.

Still, he hasn’t permanently turned bearish on SKS.

“Good results and good management. And I will revisit it,” he said. “It’s not to say that I hate it and will never buy it again, but it just seemed it had run a little bit too hard.”

The stock he just can't own

Every investor has companies they struggle to understand. For Jennings, one is NEXTDC (ASX: NXT).

“I still struggle with NEXTDC,” he said.

“I know that obviously there's a theme there, but they just continue to tap shareholders on the shoulder for money, money after money after money. And I don't get it.”

But perhaps the more important lesson from Jennings’ four decades in markets is that he still makes mistakes.

His enduring weakness, he admits, is falling in love with companies and holding losing positions for too long.

“I fall in love with stocks and I'm very, very bad at cutting stocks,” he said.

“I fall in love with a story and hold them for way, way too long, and I pay the price.”

It is a fitting warning for a market surrounded by compelling stories, from AI and data centres to technology and the promise of extraordinary growth.

Some will undoubtedly deliver. But Jennings knows better than most how quickly a compelling narrative can change.

“When the narrative changes, it changes quick.”