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Moneyweb Trades: Hang on to PSG and Capitec

Capitec will continue to underpin both prices.

Over the past week, the most heavily bought JSE shares by foreigners were Mondi, Hyprop, PSG and Capitec

This suggests that despite strong runs, foreign demand for these counters remains strong. Interestingly other financial services groups like Discovery, Sanlam and Old Mutual were sold off, suggesting foreign appetite for niche financial services players trumps broader insurers. 
 
Recently Moneyweb asked respected industry trader Garth Mckenzie for his views on the market and what shares he was specifically looking at. He made the comment on Twitter, “Weak stocks not for me. You want to pick up strong stocks in this weakness. CPI [Capitec], SHF [Steinhoff] safer”.
 
As previously mentioned on Moneyweb, Capitec is being driven by an expectation that it will move into the JSE Top40 shortly, which will mean it will see further demand from tracker funds and large institutional managers who are only permitted to hold shares in the Top40. This will likely provide an underpin to the price. 
 
If this is the case then Capitec – and by association PSG – will likely continue to track upwards. Capitec trades on a price to earnings multiple of 22 times earnings while PSG trades on a multiple of around 25. PSG may however be afforded a “growth kicker” from its exposure to education group Curro, which may justify the slightly higher rating. 
 
At a time when a lot of other shares are looking expensive, the trend remains your friend and riding out the momentum on PSG and Capitec may prove a safe strategy. 

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