Global stock markets delivered strong performances in 2024, fuelled by a resilient American economy and investor optimism about global rate cuts, although the RBA has held steady at 4.35% due to persistent inflation. The ASX 200 rose +9.5% year-to-date as of December 17, 2024, setting record highs earlier in the year but facing slight pullbacks recently. Sector performance varied widely, with financials and tech leading gains, while materials and energy struggled. Market sentiment was buoyed by solid earnings, robust dividends, and optimism about a potential RBA pivot as early as February, although structural challenges persist across key sectors.

Looking ahead to 2025, the RBA’s decisions, alongside geopolitical tensions and global commodity trends, will remain key. Opportunities in sectors like tech, gold mining, and copper are balanced against risks in energy and materials, with expectations of stronger government support for economic growth.

In any case, we made efforts to improve the composition of the portfolio by trimming exposures in some sectors.

In 2024, we published 15 sell or sell-half recommendations (some of which were long-term holdings), with 7 seeing decent to impressive gains and the remainder registering losses in various degrees. Any returns noted below include dividends. Our calls by stock are provided below in chronological order:

Beston Global Food

First on the list is Beston Global which was added to the portfolio back in 2022 largely on its turnaround potential. We noted then that there were strong operational improvements in the cheese, whey powder and lactoferrin offerings while there was notable global growth in dairy and nutraceuticals.

Throughout its tenure in the portfolio, performance was lacking. This was largely due to structural challenges in the dairy sector where the company faced difficulties stemming from uncompetitive Australian farmgate milk prices, global milk oversupply, and mounting inventory levels, which have made it hard to achieve decent margins. As a result, the company had to raise debt levels to maintain operations and eventually we found that long-term risks outweigh rewards and opted to cut our losses with an -87.9% dip in value.

Spark New Zealand

Spark New Zealand was a long-term exposure in the portfolio having been added back in 2014 following its successful transformation (rebranding from Telecom NZ, growth in digital services et al) and improving fundamentals.

This year, we first issued a sell half recommendation to take some profits off the table and to mitigate risks given the market and economic conditions at the time, while awaiting improvements on the fundamentals. We locked in a 148.1% profit (including dividends) with a 9.9% CAGR return.

But, later in the year, with continued economic pressures, management lowered FY25 earnings, capex, and dividend guidance. Concerns over limited growth opportunities, reliance on external funding for capital projects, and a cautious financial outlook have weighed heavily on the stock. We opted to fully exit in light of better opportunities elsewhere. That said, overall returns on Spark amounted to a 96.2% direct bump and a 6.8% CAGR for its entire tenure.

Air New Zealand

Next up was an exposure initially selected in anticipation of a post-COVID surge. In late 2020, the announcement of a highly effective vaccine from Pfizer and BioNTech has sparked optimism across markets, significantly boosting airline stocks like Air New Zealand. The airline was expected to benefit from domestic recovery and potential trans-Tasman travel resumption.

However, the airline faced a challenging recovery despite improving passenger numbers and capacity growth following the reopening of New Zealand’s borders. Operationally, the airline has managed to ramp up capacity across international and short-haul routes but has struggled to translate this into better revenue metrics. We, therefore, opted to exit at a loss of 58.6%.

The Reject Shop

The Reject Shop was first added to the portfolio back in 2020 on the then-potential of its turnaround under new leadership of Andre Reich. His appointment led to the implantation of a three-pronged approach to improve operations and focus on high-demand product as well as expand store footprint.

Despite the solid start, the company continued to face significant challenges despite a slight improvement in sales. While the new merchandise strategy has resonated with customers and driven topline growth, profitability has sharply deteriorated due to rising costs and margin pressures. Leadership instability (CEO Andre Reich ultimately left) compounded the challenges and we called it quits leaving a -44.7% loss.

DroneShield

Next, we’ve covered DroneShield numerous times as a traffic light and only added it in the Fat Prophets portfolio early this year as the war in Ukraine saw massive usage of drones on the battlefield. We also saw a number of contract wins from key military spenders like the US and NATO.

Shortly thereafter, DroneShield skyrocketed as attention on counter-drone technology became mainstream given the surplus of war footage across social media showing drones in heavy use, not to mention media coverage. We saw the opportunity to take profits and locked in a pleasing 143% gain in about 3 months of coverage. Looking forward to the long-term, we continue to view the company favourably, especially towards the long term especially given the fundamental changes in the battlefield (i.e. drones are here to stay).

TPG Telecom

TPG Telecom has been a mainstay in the Fat Prophets portfolio having been covered since 2006, initially as SP Telemedia. As quick recap, SP Telemedia merged with Total Peripherals Group back in 2008 to form TPG. In any case, SP Telemedia was a compelling telecom exposure given the potential to leverage on the then- expansion in IP networks and room for profit growth.

However, over the years, TPG Telecom has struggled to deliver meaningful returns, weighed down by a combination of underwhelming financial results amid operational hurdles which, consequently, led to persistent technical weakness in its share price. The partnership with Optus to extend network coverage is a step in the right direction, but the financial commitments and competitive challenges make it a tough proposition. Ultimately, we opted to make an exit from the group this year.

Nine Entertainment

Nine Entertainment first started its life in the portfolio as Fairfax Media where it was added on the merits of it being undervalued as the market was sceptical on the company’s print media assets despite the substantial growth potential of its digital arm. Then, in 2018, Fairfax merged with Nine to combine their assets and brands across television, radio, print, digital, and real estate.

This year, after failing to recover lost ground in 2021, the straw that broke the camel’s back is the termination of the deal with Meta (read: Facebook). Aside from the immediate loss in revenue, the secular change in the advertising market (Social Media and Search Engines like Facebook and Google are disrupting the market) have affected our confidence in the long-term potential of Nine and we opted to make a full exit.

HUB24

HUB24 was added to the Fat Prophets portfolio back in 2013 on the back of the renewed focus towards its investment platform business and exiting from the stockbroking industry. That also aligned well with the broader industry trends towards the investment platforms and secular shift in wealth management towards independents.

While we remain optimistic with the company over the long term, this year with the strong runup in the share price, we opted to take some profits off the table pocketing a solid return. Members holding the investment since initial coverage would be pleased to now the CAGR is a market-beating 39.5% per annum.

Northern Star

Another long-term exposure, Northern Star, started out in the portfolio as Saracen Minerals. We initiated coverage of the company given its transition from an explorer to a gold producer with the Carosue Dam starting its production. The exposure also aligned well with the bullish strong gold prices (i.e. higher operating margins).

That said, and in more recent times, under its current incarnation as Northern Star we opted to take some profits off the top as gold prices have enjoyed a streak of record highs in 2024, on top of a solid run in operations.

Arcadium Lithium

Next, another mining stock that has had prior incarnations in the Fat Prophets portfolio is Arcadium Lithium. It started out as Orocobre which was released simultaneously with the special report on Lithium (exclusive for our Members). For context, the bullish run on lithium was a direct result of rollout of electric vehicles (among other sources of demand for batteries).

Orocobre eventually turned to Allkem after its merger with Galaxy Resources and, in this year merged with Livent to form its current incarnation as Arcadium Lithium – one of the largest in the space globally. Despite a brutal 2023 for lithium, the long-term case for the mineral is still intact and this has resulted in Rio Tinto eyeing up the company as a possible M&A target. With the shares posting a recovery, we opted to take advantage of the liquidity with a Sell Half recommendation.

Nufarm

Nufarm was a returnee to the portfolio which was reintroduced in 2015 with the company then-making substantial transformation efforts to reduce costs, manage debt and streamline operations for growth.

However, its tenure in the portfolio was lacklustre with the company ultimately failing to live up to the expectations as macro and environmental headwinds buffeted its performance. Heeding Warren Buffet’s wisdom that “when management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact”, we concluded it was better to move on and issued a Sell recommendation.

Incitec Pivot

Incitec Pivot was another long-term exposure having been part of the Fat Prophets portfolio since 2009 where we saw an opportunity with the share price at a cyclical low due to weak fertiliser demand. Long-term growth potential driven by global agricultural needs and diversified earnings made the investment case even more compelling.

Over the longer term, the company did face persistent headwinds with the fertiliser business remaining a liability (impairments, restructuring costs and weak fertiliser performance) and the ambiguity of its divestment (not to mention failed past efforts) casted doubt on execution. We believe there are better investment opportunities elsewhere and issued a Sell recommendation.

Australian Agricultural Company

Another agriculture-related business, the Australian Agricultural Company was another portfolio mainstay having had its tenure start in 2015 on the back of (i) growing demand for beef in Asia and (ii) vertically integrating operations making earnings more stable.

However, over the years, earnings have proven to be far less stable and worse yet is the fact that its premium offerings, like Wagyu beef for instance, have been vulnerable to the inflationary pressures where consumers have been trading down to cheaper options. There are other concerns as well, not to mention beef oversupply, shifting consumer preferences, rising costs, and geopolitical uncertainties. We opted to limit risks and issued a sell report.

Orora

Orora was also another long-term added to the Fat Prophets portfolio way back in 2014 given its appeal as a leading player in the packaging industry with solid earnings growth. At the time of writing, the company was also anticipated to see growth upwards of 20% per year and set to compound with its strategy of acquiring smaller players.

Over the years, Orora performed well through strategic M&A activity and maintained stable earnings through its market leadership position. However, the company now faces significant headwinds including disruptions from the G3 furnace rebuild and soft European demand. While the sale of its North American OPS business commanded a premium, it dampens our forward earnings expectations. Given more compelling opportunities elsewhere, we issued a sell recommendation, capturing a 209% return, equivalent to 10.9% annually during its time in the portfolio.

Qantas

Finally, we turn to Qantas, which is another long-term exposure in the portfolio and was also added back in 2014 on the back of its turnaround efforts. The airline did implement cost-cutting measures, hedging strategies, and operational restructuring which were all intended to address challenges like high fuel costs, competition, and weak margins.

Over the years, Qantas had its share of turbulence (especially COVID-19), but has pulled through and proven to be value creating. With the share price being highly elevated, we recommended members to take some profits to pocket the solid gains year-to-date. For longer term investors, Qantas has provided a market-beating 22.4% annualised return.