The fog that continues to confuse this column refuses to lift and it is best to admit this now.
In 2023 to date, at the time of writing, Tesla is up 74pc, Meta Platforms by 51pc, Bitcoin by 41pc and GameStop 32pc, while on this side of the Atlantic, Asos is up 85pc.
Meme stocks, cryptocurrencies and technology companies are steaming higher and benchmark stock indices are on the march as well. It is all spookily reminiscent of 2021, when it felt like the customers, flush with hot, newly created central bank liquidity, were in charge of the casino, and not the croupiers.
But central banks are busily withdrawing that liquidity in 2023. Interest rates are still rising, quantitative tightening schemes are still running or, in the case of the European Central Bank in March, about to start.
In addition, markets appear to be betting on inflation gradually receding back toward central banks’ 2pc target, interest rates starting to gently fall by year end, and central banks being able to engineer a soft economic landing. Investors wishing to allocate capital on the basis of such a tempting trifecta are welcome to do so.
However, history suggests that central banks only start loosening policy once something is broken – either the economy or the markets or both. Bearing that in mind, it is surely unlikely that the endgame to the biggest monetary and fiscal policy splurge seen for several lifetimes and perhaps the biggest bubble ever across a range of asset classes should be quite so tranquil and cosy.
The current surge in asset prices feels more like a short squeeze than anything else. With the Vix, or fear index, trading below 18 and the CNN Fear and Greed index reaching 80 and the “Extreme Greed” zone (compared with just 38 and the “Fear” zone only a month ago) perhaps some circumspection is required.
As such, investors may be best sitting tight and keeping to their disciplines rather than chasing this rally, nice as it is to see asset prices rising rather than falling after a difficult 2022.
This takes us, in a roundabout way, to AG Barr, the Scottish maker of soft drinks, most notably the famous Irn-Bru, as well as Rubicon, Funkin and recent acquisition Boost.
Here we have a company with a net cash balance sheet and a track record of double-digit profit margins, double-digit returns on capital and healthy cash generation thanks to its well-tended brands, in which AG Barr continues to invest despite near-term margin pressures from inflation.
The purchase of Boost and oat milk maker Moma offer growth potential and could bolster the company’s competitive position, which looks solid and means we do not have to get sucked into the mug’s game of second-guessing what central banks are going to do or what the next inflation or unemployment figures will be.
Better still, trading seems good. Last week’s update revealed 15pc sales growth on a like-for-like basis for the financial year that ended in January and Roger White, the chief executive, suggested earnings would come in slightly higher than expected.
Challenges lie ahead, in the form of ongoing input cost inflation and Scotland’s launch of a deposit return scheme, which will bring more regulation, as well as handling fees and the need to arrange collection of empties and refunds of customers’ 20p deposit. Both could crimp margins and profits growth in the year to January 2024.
Even so, AG Barr still feels a like a stock that ticks all of the boxes in the famous checklist drawn up by Berkshire Hathaway’s chairman Charlie Munger: Do we understand the business? Does the business have a strong competitive position and thus intrinsic value? Does management have integrity? And does the stock come at a fair price?
The fourth and final point is probably the only one open to debate. A forward price-to-earnings ratio of nearly 18 times is admittedly no bargain and we may have erred in overpaying for the stock at the time of our initial analysis.
As a result of that we are sat on a small book loss, partly covered by the 28.5p a share in dividends banked in the past three years or so, but this business looks built for resilience, which is no bad thing given the prevailing macroeconomic uncertainties. The full-year results are due on March 28. Investors should hold on to AG Barr.
Russ Mould is investment director at AJ Bell, the stock broker.
Questor says: Hold
Share price at close: 553p
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