Buy Hold Sell: 2 high-conviction fundies analyse each other's top picks

Ally Selby: Hey, how are you doing? And welcome to Livewire's Buy Hold Sell. I'm Ally Selby, and today we've tasked two high-conviction fund managers with a little bit of a challenge. They'll have to analyse each other's highest conviction stock ideas. And to do that, we're joined by Alan Pullen from Magellan and Alex Pollak from Loftus Peak. Alex Pollak (BUY): Because nobody else out there in television production land can produce $18 billion worth of content annually, profitably. Everybody else is just limping around the edges with no competitive advantage, no sustainable business, no balance sheet. Netflix stands alone in its ability to do this. It's very difficult not to have it as a high-conviction buy.

Ally Selby: It's been a volatile ride for Netflix over the last 12 months. Its share price is up 46%, though. Alan, do you agree with Alex? Is it a buy, hold, or sell?

Alan Pullen (BUY): Yeah, I've got to agree with Alex on this one. It is a unique asset, a very high-quality company, one of the very few profitable streaming companies globally with amazing growth potential, both from monetization of advertising and from increasing subscribers over time. So, a very unique asset and a very high-quality company.

Ally Selby: Okay. Next up today we have Meta Platforms, which is one of Alan's high-conviction stock picks. Why are you backing Meta?

Alan Pullen (BUY): Well, Meta, as you know, owns Facebook and Instagram, and it's an amazing company in that it continues to deliver really strong revenue growth through advertising. So it's both getting more engagement from people, and that's not just in emerging markets where they're still growing engagement, but even in developed markets through things like Reels. And with that engagement, they can serve more ads to people. 

Those ads are becoming more effective as they use AI, where they're a very big and early investor, to actually increase the effectiveness of those ads for advertisers. And the more return on investment the advertisers get, the more they're willing to pay for those ads.

Ally Selby: It's already had an exceptional past 12 months. Its share price is up 58%. Over to you, Alex. Do you agree with Alan? Is it a buy, hold, or sell?

Alex Pollak (BUY): It's a buy, and it's a buy for all the reasons that Alan said. They're probably the best exponent of how to use AI to make their business go faster. Using AI means that they generate more inventory. It means they generate more opportunities for advertisers to be part of the feed. It means they know probabilistically who their audience is. It just works on a number of different levels. It's very hard to stay away from.

Amazon (NASDAQ: AMZN)

Ally Selby: Okay. Next up we have Amazon, which is one of your high-conviction buys. Its share price is up 45% over the last 12 months. Why do you think it can continue higher from here?

Alex Pollak (BUY): Amazon had a bit of a glitch this time last year because people were worried about the retail business. They got a little bit ahead of themselves. They've sorted all that out. They've restructured the company so that they've right-sized it. And you've got two things working well. You've got retail now working really well, and you've got a re-acceleration of the Cloud business. That will be also AI-enabled as well. So it's working on all fronts.

Ally Selby: Okay. Over to you, Alan. Is Amazon a buy, hold, or sell?

Alan Pullen (BUY): I agree with this one. It's a buy. It's another remarkable company. The profitability in their retail line has improved remarkably, and it's going to continue to improve as they do more advertising, as Prime Video is now coming on and doing advertising as well. And of course, the AWS business is just a behemoth underpinned by the move to the Cloud. So it's a buy.

SAP SE (NYSE: SAP)

Ally Selby: Okay. Last up today we have the last of Alan's high-conviction stock picks. It's SAP, which is a German enterprise software company. Alan, why are you buying that stock?

Alan Pullen (BUY): SAP is the world's leading enterprise resource planning company, and the software is a little bit different to a lot of other software. It's so deeply embedded within businesses, and that means it's a very sticky, very high-moat business. Now, we've seen a lot of other software go to the Cloud, and that's been positive for those companies, like Adobe. But because of the stickiness of SAP and how mission-critical it is, it's actually only at the beginning of that transition into the Cloud today, with a product called S/4HANA Cloud. That's starting to grow really strongly, and we can see growth in that company for the rest of this decade at a very high level as they undertake this transition to the cloud with this very sticky, safe software business. So a lot of visibility into mid-teens-type earnings growth, a very high-quality company, and a reasonable valuation. It's a buy.

Ally Selby: It's already performed really well. Its share price is up around 41% over the past 12 months. Alex, do you agree with Alan? Is it a buy, hold, or sell?

Alex Pollak (SELL): It is a quality company, but it doesn't make the cut for us on the basis of valuation. It doesn't make the DCF. We can't make it work for that reason. We do like a number of things that they're doing, but it's just one that continually fails. It's got a little bit of the European disease - that is, it can tend towards low growth and disappointment in growth. We don't own it, so I guess that makes it a sell.

Ally Selby: Okay. We asked our guests to bring along a high-conviction sell today, a stock they're completely steering clear of. Alex, what are you absolutely avoiding right now?

Alex Pollak (SELL): Yes, that's Tesla. We liked Tesla early on for a long time when the gross margin was up around the 20-25% mark. But if you look at what Tesla has been doing over the last 10 years and the forward projections for what Tesla is doing, you will see a collapse in operating margins consistent with competition. Everyone is bringing out electric vehicles, hybrid cars, etc. Tesla doesn't have a sustainable edge in this. And so, it's not a company we want to be anywhere near, frankly.

Ally Selby: Okay. Over to you, Alan. What's your high-conviction sell today, and why?

Alan Pullen (SELL): I'm going to put a sell on Nvidia. It's obviously been an amazing performer and it's a fantastic company. It's executed amazingly on the AI tailwind that's been behind it for the last couple of years. But this is a very cyclical industry, and the structural growth that was driving the share price has given way to a lot of speculative elements. 

A lot of people are now buying the stock just because it's gone up, and that's pushed the valuation up too high. While it's executed amazingly well, earnings have gone from about US$5 billion to a US$70 billion-type level expected this year. Remarkable, absolutely remarkable, and yet it still trades on more than 40 times forward earnings.

Ally Selby: Well, there were a few spicy sells in there to finish off the episode. I really enjoyed that, and I hope you did too. If you did, why not give it a like? Remember to subscribe to our YouTube channel, we're adding so much great content just like that every single week.