Stock picks from top SA market watchers and money managers

Where they would invest R5m for the next three to eight years …
Three of the five experts picked Disney. Image: Gabby Jones/Bloomberg

In this, the second part of a two-part feature, Moneyweb shares strategies and stock picks from five well-known market commentators and investment professionals.

The question was simply where they would invest R5 million today. Two possible time horizons were offered: a three-year view (to 2025) and an eight-year one (to 2030). The final proviso in this hypothetical situation is that the amount could be invested in (listed) shares or exchange-traded funds (ETFs), funds, or other asset classes. We also asked that the investment professionals be somewhat specific, rather than thematic in their approach.

The first part of this feature saw two fund managers explore why they made the decisions they did, given current market conditions.

Peter Armitage – founder and CEO, Anchor Capital

I have centred on the long term – in other words, the three- to eight-year angle on this. If this is genuinely a long-term view you want to be focused on three things: a company or sector that has strong underlying secular growth, a company whose economic drivers are not South African (given the low projected economic growth) and companies that have excellent asset allocators and management who can create value on a sustained basis.

Based on the above we would invest in the following, which have a nice mix of stability and optionality:

Afrimat: Management has delivered superbly, and they have an exciting pipeline of new commodity projects which we would back them to deliver on. The drivers will be a mix of global commodity prices and management execution. The company is coming off a fairly small base and if they get things right there is plenty of share price upside on a longer-term view.

Bidcorp: Bidcorp has a high-return business model and is a truly global business, with only around 15% coming from SA. The management has shown a sustained ability to invest cleverly in new areas at high returns. As life returns to normal, there is strong potential for Bidcorp to deliver strong returns.

Naspers: Chinese tech shares now offer a very compelling risk/reward equation after being hammered in 2021. The underlying growth dynamics remain very strong and Tencent is a compelling play on where tech is heading – and plays into the metaverse theme without the risks in smaller tech companies. Tencent also has an interesting portfolio of global tech companies.

JD.com: The regulations in China played into JD.com’s hands as the third biggest e-commerce player. We believe the company can sustain 20%+ compound turnover growth for the next few years and also increase margins. There is hence tremendous optionality after the hammering the share price took in recent months.

The Walt Disney Company: One of the world’s best brands is now trading at a compelling valuation and we expect them to grow global online video subscribers by 200 million over the next few years. This is a secular growth story which we would want to include in a portfolio.

Many of the readers of this article will be Disney+ subscribers in coming years.

Curro: On the local front, we like Curro on a three-year view. This is a strong secular trend which we believe will underpin strong turnover growth. Management has scored some own goals in recent years, but within three years we believe they will be generating the margins we believe should be achieved in this business.

Anthony Clark, SmallTalkDaily

For context, bear in mind that R5 million equals approximately $324 000 or £236 000 or €284 000 …

My answer is the same for either three or eight years.

Given the long-term weakness of the rand, indifferent government economic policy and the impact of the state on our assets (higher taxes, once-off taxes and so on), I would allocate 80% of the R5 million to offshore assets using my annual allowance to invest directly into a basket of well-known long-term equity related funds as well as ETFs listed on the JSE (for example Sygnia’s Itrix Eurostoxx 50, S&P 500 and FTSE 100).

Of the R4 million I’d put R1 million into US equities, R1 million into the UK, R1 million into European stocks and R1 million into Asia.

If I was buying some direct equity, I’d go with a long-term view on Apple, Alphabet, LVMH, and take a bet on Alibaba recovering given the Chinese clampdown.

As an investment professional of some 30-plus years, I’d also do some SA domestic stock selection with the remaining R1 million in equal parts as a growth scenario (being aware of the localised risks) into a basket of quality mid-caps as this is my area of (‘so-called’) expertise.

Mid-caps

  • Afrimat
  • Kaap Agri
  • Invicta
  • Renergen
  • Sabcap
  • Sygnia

Small-caps

  • Argent Industrial
  • CMH

Simon Brown – founder of JustOneLap and host of MoneywebNOW

In the medium term (three years), I am very cautious on the US tech giants. They’ve had a great run and earnings have grown markedly, but as we move past the pandemic earnings growth will moderate – and valuations are very high.

My three preferred sectors would be:

  • Resources
  • Chinese tech stocks, and
  • Local banks/Reits (real estate investment trusts).

This is on a three-year view, with the R5 million split equally.

Commodities will be driven by a number of factors: the move to green energy, the lack of capex spending over the last decade, and chip shortages finally resolving, which will see vehicle production – and hence platinum group metal (PGM) demand – return to normal. My preferred choices here are PGMs and copper, meaning Sibanye-Stillwater (which I hold) and Anglo American.

Chinese tech has been beaten down, with Tencent, for example, almost 50% off its highs from February last year. Both Tencent (or the local Naspers/Prosus proxies) and Alibaba are well positioned, cheap and are learning to live with the recent restrictions from the Chinese government. My sense is that while China may have more crackdowns coming, it will be in other sectors, not tech. This still poses risks to the tech stocks as they own so many other businesses.

I think a crackdown on healthcare is coming and Tencent, for example, has interests in that space, but these are small compared to its main operations and holdings.

Locally I am bullish, especially if the China tech story plays out as per above. Banks still offer some value (preferred here is the Satrix FINI ETF) and I also like property. The property index peaked in late 2017 with most Reits having too much debt, too many assets of modest quality and trading well above net asset value (NAV). The pandemic has set that right as they reduce debt and sell non-core assets, leaving them better positioned and they trade at a discount to NAV. The office sector will still find it hard and retail is likely still oversupplied in major centres but valuations, niche and logistics are attractive. You get Reit exposure in Satrix FINI or one of the local Reit ETFs.

Bright Khumalo – analyst and portfolio manager, Vestact

I would stick to the same offshore big blue-chip quality companies we’re invested in. The reason behind this is that most of us are South African and we’re already overleveraged towards SA Inc. Our pensions, houses, business/jobs/income are all in rands and the idea is to diversify out of the rand a little by getting offshore exposure.

We like the US because it has companies that generate their income worldwide, and ideas are much easier to test and scale when you have a wide population as they do. We also like that the spirit of capitalism lives on in the US; for example, it is not seen as criminal to actually create something that solves a real problem in society and become wealthy in the process.

Below is a diversified portfolio for the long-term:

Technology: Apple, Alphabet, Amazon, Meta Platforms (Facebook), Microsoft, PayPal and Visa, including high octane growth companies changing the world like Airbnb, Nvidia, Netflix and Tesla (betting on simplification, connectivity, commerce, productivity, leisure, and entertainment).

Healthcare: Amgen, Invisalign, Illumina and Stryker (betting on vanity and living longer).

Fitness/consumer retail: Disney, Nike and Starbucks (betting on nutrition, health and wellness).

David Shapiro – chief global equity strategist, Sasfin Securities

2022 will be a year of normalisation. Not that we’ll go back to living the way we did before the pandemic, but rather a year in which governments and central banks begin withdrawing the emergency relief extended during 2019 and 2020 (programmes that were absolutely necessary at the time).

So expect liquidity to be removed and interest rates to rise, but not at a pace that will derail the economic recovery that governments and the central banks worked so hard to protect. It’s actually something to be celebrated and not feared.

One thing we forget is that the 2019-2020 crisis was a health crisis and not a financial crisis. Although there were winners and losers in this awful time, on balance businesses and individuals will come out of the crisis is reasonably good shape.

In 2022 the global economy will continue to expand and corporate earnings will continue to grow, albeit not at the same pace as 2021. In 2021 the equity market lagged the growth in earnings and in 2022 we can expect this derating to resume. That doesn’t mean share prices will not go up. They will but will lag the increase in earnings. Again, something to cheer not fear.

As global economies open up and learn to live with Covid (it’s going to linger for years) those companies that were overlooked in lockdown will make a comeback at the relative expense of those businesses that prospered (yes, tech). But it will be a once-off adjustment, after which the growth businesses will recapture their leadership, probably only in the second half of 2022, and maintain their appeal.

I am theme-driven, but I like picking out the dominant businesses that will benefit from these trends.

I’m not going to go into too much detail, but these are the businesses that I would choose over the next five to 10 years – I usually like 20 stocks, but here’s a list of 24:

Big tech (alive and well; still dominant and investing heavily in R&D): Alphabet, Amazon, Apple, Meta, Microsoft

The enablers – AI, big data, cyber, cloud, virtual/augmented reality: ASML, Nvidia

The cloud (shift away from on-premise processing): Adobe, Salesforce

Automation (restructuring the factory floor): Honeywell

Digitainment: Disney

Digital payments (the war on cash): Adyen, Visa

Climate change: NextEra Energy

Autotech: Ferrari, GM, Global X Lithium and Battery ETF

Healthcare – drugs and devices: Vanguard Healthcare ETF

Trusted brands: Home Depot, L’Oréal, Nestlé

Luxury (let them eat cake!): LVMH, Hermès, Estée Lauder.

Listen to Simon Brown’s interview with Gary Booysen from Rand Swiss in this MoneywebNOW podcast (or read the transcript here):

COMMENTS   1

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There is an 80% chance that the relevant index will outperform these stock picks. Its happened for decades. Most active managers underperformed massively in 2021. I agree to some extent in theme based investing, but for that just get the relevant ETF – don’t try to pick the winners from the losers. Good chance you will get it wrong.

End of comments.

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