
Rudi's View | 10:00 AM
In this week's Weekly Insights:
-Dicker Data; Megatrends Without Covid-Lockdowns
-Ask FNArena
By Rudi Filapek-Vandyck, Editor
This week marks the end of fiscal 2025 (Monday June 30th) and yet another year of double digit return for the local market (as measured by the ASX200).
Below the surface, another regularly recurring phenomenon has equally come to its end; tax loss selling.
It's a real thing, every year around late-May until the final day of June, but precisely how and where the impact is felt is very much determined by general market trends and conditions.
This year, the strong market performance has very much relied upon large cap Financials, with the banks in pole position, Growth stocks and the Technology sector, with miners (outside of gold), energy companies, staples and healthcare the notable laggards.
Equally important: small cap stocks without positive momentum remain in the unloved basket.
The share market can be as re-assuring and comforting as it can be frustrating when holding small cap laggards that keep on lagging.
Guess which stocks investors have been selling out from to reduce their tax liability? My guess is small cap non-performers have been the number one choice to be tossed overboard this year.
That said, it's not by definition a clear cut proposition as some have also experienced bad news over the period and some share prices have started to recover already towards the end of the month (June).
The FNArena-Vested Equities All-Weather Model Portfolio owns three stocks that might well have been impacted over the weeks past with returns negative against a firm uptrend for the index and the portfolio overall; CSL ((CSL)), Woolworths Group ((WOW)), and Dicker Data ((DDR)).
All three have been held back for different reasons; all three are kept in portfolio ahead of better times to surely follow. The worst performer is Dicker Data. As a smaller cap proposition, this company is most likely the least well-known among investors.
Time for a general review and re-assessment.
Dicker Data; Megatrends Without Covid-Lockdowns
Most investor views and assessments are closely linked to how a share price performs. Dicker Data shares put in a strong performance between 2018 and early 2022, but that uptrend has since deflated.
Trading a little above $8, those shares are back where they were in late 2020, but also -47% below their all-time record high at $15 set in late 2021.
It's a story/share price trajectory not dissimilar from many other small caps on the ASX. Many enjoy a few great years, but it seldom lasts as most find the transition from small cap into mid-cap too challenging; let's not even mention graduating into the large cap section of the market.
So it's fully understandable for investors to exhibit little patience and direct attention to share prices that are enjoying positive momentum. After all, who wants to be holding the next IDP Education ((IEL)) or Nufarm ((NUF))?
Dicker Data shares caught my attention back in 2023. The shares had fallen to a level comparable to where they are trading today, which looked genuinely undercooked as investors focused on economic uncertainty and preferred to jump on the new AI Megatrend.
Adding to the attraction was a relatively high dividend yield (circa 5.7%) which I believed was unlikely to be cut. Up until that point, Dicker Data was still seen as a small cap success story and shareholders had been pampered many times over since its IPO in 2011 at 20c.
Within weeks the decision to add the shares to the All-Weather Portfolio was well-rewarded with the shares rallying to above $12 from circa $8, but the trajectory since has simply pulled the price back to where it was; no doubt enjoying support from that juicy looking yield (and fully franked too).
Similar as with CSL and Woolworths, with the shares essentially not moving since the days of covid lockdowns, it would be easy to conclude this story has run its course. But there is a reason as to why I had included Dicker Data as part of my curated selection of Emerging New Business Models.
I thought there are reasons to believe this company is a higher quality operator in its sector. That thesis will be put to the test from here onwards.
One of the easiest indicators to underpin that higher quality label is the company's profit margin which remains steadfastly above much larger international peers such as Ingram Micro. Dicker Data's official label might be of a specialist IT hardware distributor, in practice its suite of services is a lot broader than that, also because its market focus (through resellers) is on smaller cap enterprises.
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