Petri Redelinghuys, founder of Herenya Capital Advisors, provides his analysis of the oil and software industries.
Herenya’s bullish position on Sasol (SOL) and Workday (WDAY) might raise an eyebrow at first glance. After all, oil has dropped, and A.I. is the new darling of the tech sector. Have we lost the plot, or is there more to the story than meets the eye? We’d like to suggest the latter.
Sasol (SOL)
We have historically been quite bullish on the company. That position was rewarded when the conflict in the Middle East broke out, as Sasol’s stock virtually went through the roof. However, our current interest in Sasol is largely due to the global oil market fundamentals, and not so much the company’s performance.
Since the beginning of the war, over a billion barrels of oil have been “lost” due to disruptions in production, as the oil couldn’t be sent anywhere. This prompted a significant draw from the strategic oil reserves all over the world to fill some of the gaps. As such, the total pent-up demand can roughly be calculated to be as high as 1.5 billion barrels of oil, which will have to hit the market at some point.
This would take a significant amount of time, even if the Strait of Hormuz were to open right now, as tankers can take upwards of 3 months to reach their destinations. In summary, the shortage of oil, the market demand, the logistics of oil transportation, the national demand to refill oil reserves, and the unclear end to the conflict lead us to believe that oil will see a significant bounce that could carry Sasol to the R300 range.
Chart showing historic activity of the U.S. strategic reserve. We can see that the current conflict has caused the heaviest draw in a single instance. The reserves have likely fallen below the levels shown in the chart, as the data is more than a month old.
Nasdaq & Workday (WDAY)
Our interest in software stocks comes from the necessity and convenience of their products. Software companies like Workday and Microsoft (MSFT) will more likely integrate A.I. into their services than allow A.I. to replace them. That makes them fundamentally valuable. Meanwhile, A.I. companies are failing to produce the profit expected of a sector as large as they are, which creates uncertainty in the chip manufacturers and the banks that have invested heavily in the creation and expansion of A.I. infrastructure.
It’s with this understanding that we look at Workday and see its human resources and payroll software as a fundamentally valuable and stable stock. And as we’re seeing a consolidation pattern in the Workday charts, we believe the stock is going to see a trend change in the future, which, with the right risk management, could be a great investment opportunity.
By extension, this also creates an opportunity to short Nasdaq. The latest bout of growth in the index is heavily concentrated in a very few massive A.I. and microchip stocks. Thus, any significant rotation into software or other tech sectors would likely come at their cost, which would send the Nasdaq plummeting.
Left: Workday (WDAY), right: Invesco QQQ Trust, Series 1 (QQQ), an ETF tracking the Nasdaq top-100.
Watch the episode here:
The magic happens in our community!
We’re posting on TradingView, we’re posting on our blog… but the real magic happens in our client community where you can get access to our ideas as they develop. So, open your account and join us and start taking advantage of South Africa’s Top Broker for both Active Traders and Traditional Investors.
If you are not trading with us yet, what is stopping you?
*Please note that these trade ideas form part of a larger weekly plan and the value of financial products can increase as well as decrease over time, depending on the value of the underlying securities and market conditions. The risk of loss arising from trading in Contracts for Difference can be substantial. You should carefully consider whether such investments are suitable for you in the light of your circumstances and financial resources.
