Buy Hold Sell: 2 Hall of Fame investors analyse each other's best ideas

Ally Selby: Hey, how are you doing? And welcome to Livewire's Buy Hold Sell. I'm Ally Selby, and today we're putting two Hall of Fame investors to the test. They'll be analysing each other's highest conviction stock picks. And to do that, we're joined by Airlie's Matt Williams and Ellerston's Chris Kourtis. 

Okay, first up today we have one of Matt's top picks, it's Ampol. Matt, why are you backing that stock?

Ampol (ASX: ALD)

Matt Williams (BUY): I like Ampol because it clips the ticket from sourcing petrol, all the way through to selling it at the bowser. It's starting a quick-service restaurant strategy. It's got all the best sites on the Eastern Seaboard, the management hasn't put a foot wrong in terms of capital allocation, and they've done some great special dividends over the last few years. So, the stock's been under pressure, because of the refining margin, which is outside of its control, so it's a good buy.

Ally Selby: Chris, the latest result was a little bit mixed. The interim dividend disappointed, but most brokers rate the stock a buy. Do you agree? Is it a buy, hold, or sell?

Chris Kourtis (BUY): At $30, it's probably a buy. I'm not there yet. I'm going to wait for the next quarterly. I'm just a little bit concerned about the next result. Again, it may disappoint on refining margins, and they have been at a cyclical low globally. They're down to about US$7.50 a barrel. Crack spreads* have been under pressure, so I personally will wait for the next result, but it's definitely a buy.

Ally Selby: Okay, next up today we have Insignia Financial. It's one of Chris' top picks. It's the old IOOF. Management has been buying shares recently. Why are you buying as well?

Chris Kourtis (BUY): We've been there for probably a year. I'm maxed out. It's my biggest overweight in the portfolio, huge cost-out story coming, with a billion-dollar cost base. This is not BHP. If the new CEO can't cut a couple of hundred million out of the cost base over the next 18 months, I'll be very surprised. They've targeted $65 million net for this year, so there's a cost story coming. I think there's a recovery in earnings. And at the end of the day, MLC is an excellent brand and it's got a compelling valuation at 7.7 times P/E. It should easily do its $400 million EBITDA this year, which is consensus. I think at the minimum, the stock's up 50% from here.

Ally Selby: Okay, that said, there has been quite a lot of drama following this stock. It has faced class actions, compliance issues, and APRA sanctions in the last few years. Matt, do you think that's all over now? Is it a buy, hold, or sell?

Matt Williams (HOLD): I think it's a hold. I get where Chris is coming from. However, those legacy issues that you mentioned, like still dealing with the Royal Commission fallout, the integration of all the acquisitions it's done - the fact that they paused the dividend I think tells you something about the balance sheet, and what they think of that. So, the only good thing going for it is the single-digit PE valuation, but otherwise, for me, it's a hold.

Seven Group Holdings (ASX: SVW)

Ally Selby: Okay, next up today we have another of Matt's highest conviction picks, it's Seven Group. It has businesses across industrial services, energy, and media. Matt, why are you feeling bullish on Seven?

Matt Williams (BUY): You picked it. It's exposed to all the major aspects of the Australian economy: mining, infrastructure, and building. It's got the Boral improvement profits coming through. I think Ryan Stokes has proven himself to be an excellent CEO. So, I think we're now interested in what they do next as they've put the Boral acquisition to bed. I think it's a really great long-term story.

Ally Selby: Okay, it's already had a stellar run in the past year. It's up 47%. Chris, do you think that can continue? Is it a buy, hold, or sell?

Chris Kourtis (HOLD): The stock's actually doubled over the last 12 to 18 months. It's gone from $20 to $43 or wherever it is today. I think there's always acquisition risk with Seven Group, so I think it's a hold. I just want to see what they do after integrating Boral, and what's next. We don't own it, but I think it's a hold.

Fortescue (ASX: FMG)

Ally Selby: Okay, we've got another one of your top picks now, it's Fortescue. It's obviously had a really awesome week and a bit with the China announcement. Why are you backing that stock?

Chris Kourtis (BUY): Calendar year to date, it's down, let's call it 30%. BHP and Rio would be down probably between 8-10%, so it's fared a lot worse. A lot of the reasons for that are explainable. They went down this hydrogen green strategy, which they're now pausing. I look at the valuation, it's on 10 times PE. The dividend yield is going to be lower than what it was last year, probably around 6% versus 10% last year. But then I look at market forecasts, and everyone's plugging in $90/tonne iron ore, and the current spot's about $112. So, I think the stock is come upgrade, because the analysts are factoring in too low an iron ore price for the next six to nine months, and it's been incredibly resilient. We've had high cost capacity come out of the equation in the iron ore market, demand has been resilient, and the China stimulus can't hurt Fortescue.

Ally Selby: Okay. Do you agree, Matt? Have the tides turned for Fortescue?

Matt Williams (SELL): I'm going to say sell. It's had a great bounce off the bottom. It's nothing too much against Fortescue, except again, the capital allocation policies. I think there's somewhat of a mercurial view around what happens from here. But you've got plenty of other options in BHP and Rio who can, at the same kind of valuations, do the same job for you.

ResMed (ASX: RMD)

Ally Selby: Okay, your last pick today is ResMed. It has obviously had a fantastic few months, its share price has lifted 60% since hitting a low in October '23. Why do you think that can continue?

Matt Williams (BUY): It's still priced at a market multiple really, and the last profit result up 17% was just fantastic, despite all the GLP-1 noise. They had their investor day a little while ago and it was one of the more bullish investor days I've ever seen. And if even half of that comes to pass, the stock is well-placed to continue its double-digit profit growth that it's had for the last 25 years.

Ally Selby: Okay. Over to you, Chris. I know you have a very different view on ResMed. Is it a buy, hold, or sell?

Chris Kourtis (HOLD): For the record, I was the only one peddling ResMed at the Hearts & Minds Sohn Conference this time last year when it was on its bottom at $21 and it's up 60% for the record since then. So, it's been a great call if I say so myself, but I think at the moment, it's a great company, and management has never put a foot wrong. Its balance sheet is in order. It's not really a dividend payer, with a 1% dividend yield. It's had a phenomenal run. I think it just treks sideways for the next six months as people rotate out of defensives into a bit of beta in the portfolio and rotate back into resources. But on 25 times, it's not expensive, but I think the fact that it's gone from $21 to $35, or wherever it is today, I think it's happened. But you know me, I'm a contrarian. I was buying it when it was down and out in Beverly Hills when the GLP-1 scare was at a crescendo.

Ally Selby: So, is that a sell?

Chris Kourtis: Look, great company, great management, executing brilliantly. It's a hold at best, but I'm out for the record. I'm out.

Ramsay Health Care (ASX: RHC)

Ally Selby: Okay. Last stock today we have your final high conviction stock pick. It's another stock that has been heavily beaten up. It's down 20% year-to-date. It's Ramsay Health Care. What's got you excited about a turnaround opportunity in Ramsay?

Chris Kourtis (BUY): They're not out of the woods yet, but they're heading in the right direction. So, they've divested their Asian business, Sime Darby. They got $930 million for that business, higher than what the market was valuing it at. It's helped them retire some debt, but the balance sheet is still highly geared. There's $4.3 billion of net debt, excluding some of the lease liabilities on the balance sheet. And therein lies the problem with higher interest costs, which the market's been worried about. But I think they're heading in the right direction. COVID's done and dusted. People are returning to hospitals and I think they're getting their act together. So, the stock has been de-rated. Everyone loved it at $60, $70, $80. You can't give it away in the low-$40s. Well, that's when I'm typically getting involved, and I think it's a classic company in transition, it's a classic turnaround story, and I think the prospects are good. They're the market leader. You cannot build a new hospital just down the road here in Barangaroo next week. Good luck with the permitting. It's a 10-year process.

Ally Selby: Okay, last one for you today, Matt. Is it a turnaround story or a falling knife?

Matt Williams (SELL): This is a sell. When he talks about the balance sheet himself, I think that's an issue. The market is structurally challenged. Their offshore operations are problematic, the balance sheet leaves no optionality, and it's not super cheap either, so sell.

Ally Selby: Okay. Well, that's all we have time for today. That was a whole lot of fun. I hope you really enjoyed it. If you're not a subscriber already, remember to subscribe to our YouTube and podcast channels. We're adding so much great content like this every single week.