Buy Hold Sell: The Big Aussie Short (transcript)

Buy Hold Sell: The Big Aussie Short (transcript)

Matthew Kidman:  Welcome to Buy Hold Sell, my name’s Matthew Kidman and today we have Ben Rundle from NAOS and Don Williams from Platypus. Everyone in Australia likes to talk about housing and from the share market you can get exposure from a number of ways; more recently the housing market seems to have peaked after a very good run.  So let’s talk about some of the stocks that might be exposed to that. Don let’s start with you, big end of town, one of the biggest lenders in Australia for the housing market Westpac, buy, hold or sell?

Don Williams:  I’d put that on a hold, I mean it’s got a good yield but the earnings growth rate of Westpac and the major banks is pretty anaemic at the moment.

Matthew Kidman:  So Westpac housing market they’re linked but the market’s not really saying that, they’re just saying there’s not much growth like Don’s just summarised buy, hold or sell?

Ben Rundle:  I am probably happy to buy Westpac for the moment like I think it has come back you know a reasonable way they’ve shown they have pricing power they recently raised or they’re the first mover to raise their residential lending rates, so yeah look I think it’s okay value I think it’s probably edging into buy territory.

Matthew Kidman:  Okay Mortgage Insurer Genworth it’s been a disaster since it listed. Westpac pulled out, lost them as a client, seems to be in kind of a slight run off buy hold or sell.

Ben Rundle:  I would say hold for Genworth, I don’t know the stock particularly well but I did see that their gross written premium has been hampered a little bit by the high LVR market coming off a little bit and the banks are supporting that theme of not lending too much the high yield are the space at the moment. So look I don’t know it that well I think it’s probably a hold.

Matthew Kidman:  No growth Don but lot of value there?

Don Williams: For us it’s a no go zone, it really – it doesn’t have any earnings growth and I mean we would argue that it shouldn’t even be listed.

Matthew Kidman:  Okay REA, obviously has had a lot of growth, continues to. Very expensive, buy hold or sell?

Don Williams:  Look if you can look out three years you could probably justify buy, but I think with REA you really have to wait for volatile periods in the market to get it at a decent price.  So if you owned it I guess you’d hang on to it but you know we’re looking for an entry point that’s a bit lower than where it is now.

Matthew Kidman:  REA has been a powerhouse for a number of years now but it’s always been expensive, buy, hold or sell?

Ben Rundle:  Yeah I think it’s a buy, particularly if it sells off on any sort of housing concerns because as houses stay on the market longer REA actually makes more money from the listings, so yeah Don’s right maybe you can get a better entry point but that’s very hard to – scenario to play out with REA so I’m happy to buy it at the moment.

Matthew Kidman:  Okay let’s switch to the US housing market and one big Australian stock that’s over there and does well James Hardie, it’s done well out of its profit result. Buy, hold or sell.

Ben Rundle:  It’s a buy for me I think James Hardie is one of the highest quality stocks on the ASX. I think if you look back to how they performed during the GFC and the housing subprime crisis in the US they went in with a huge amount of capital, they took market share, and they are at a leverage the upswing coming out of it, so I think it’s very well run I think it’s a buy.

Matthew Kidman:  Building materials in the US you’d think would be a hard job Don but they’ve done a terrific job, buy, hold or sell.

Don Williams:  Yeah they have it’s a buy for us, it is one of the highest quality businesses in that sector and I think it’s a buy.

Matthew Kidman:  Okay let’s get back to Australia, Harvey Norman they sell everything you want to put into your house, done very well recently, buy hold or sell?

Don Williams:  Look I’d put it on a buy but on a short term basis you know the fact that 50% of the stock is locked up is a bit of an issue for most investors, we don’t think it’s as good a business as JB Hi-Fi for example but you know in this environment where there’s you know we’re a low growth environment Harvey’s is a decent counter. 

Matthew Kidman:  Yet for an old business that’s been around for a long time it’s getting terrific growth, buy, hold or sell?

Ben Rundle:  Yeah they’ve done a good job it’s buy for me too you’re seeing it come through the earnings in terms of their late cycle housing exposure and yeah I think it’s probably pretty hard to find stocks out there to buy so I think Harvey Norman’s probably one that you want to buy.

Matthew Kidman:  The housing cycle might have peaked in Australia but there’s still some opportunities out there from the equity market.

Disclaimer: The information contained in this presentation is general in nature and should not be relied upon. Before making any investment or planning decisions, you should consult a licensed professional who can advise you weather your decision is appropriate for you. Contributors to this show may have commercial or financial interests in the companies mentioned.