TOL - 20th Nov, 2023
Buy Hold Sell: 3 stocks on the rise (and 2 beaten-down darlings)
In this episode, Forager's Steve Johnson and Tyndall's Jason Kim analyse five stocks with both positive and negative momentum behind them.
Momentum investors hitch their wagons to companies with good investor sentiment, often impressive earnings, improving prospects - and most importantly, a rising share price.
It's a tried and tested strategy, made famous by American fund manager Richard Driehaus, whose firm, Driehaus Capital Management, reportedly delivered returns of 30% per annum after it was set up in 1982.
Often, companies with positive momentum attract other investors, helping push the share price higher. Take Boss Energy (ASX: BOE), for instance, which has seen its share price soar around 100% this year on positive investor sentiment around uranium.
Negative momentum, however, is a different story. Stocks with poor investor sentiment continue to slide down a slippery slope, often burning investors - like you and I - with it. And while yes, some stocks of this nature will be trading on the cheap for a reason, others could be oversold unfairly to the point they are attractive buys.
So in this episode, Livewire's Ally Selby was joined by Forager Funds Management's Steve Johnson and Tyndall Asset Management's Jason Kim for their analysis of three stocks that have recently rebounded, re-rated or have continued to skyrocket higher.
Plus, they also name two beaten-down darlings that they believe are now big buys.
Note: This episode was filmed on Wednesday 15 November 2023. You can watch the video, listen to the podcast or read an edited transcript below.
Edited Transcript
Ally Selby: Hey, how are you doing, and welcome to Livewire's Buy Hold Sell. I'm Ally Selby, and today we'll be taking a look at three stocks with some serious momentum behind them, as well as two beaten-down darlings that could be buys today. To do that, we're joined by Steve Johnson from Forager Funds Management, as well as Jason Kim from Tyndall Asset Management.
Okay, we're going to start with the stocks with some momentum behind them or that are re-rating as we speak. First up, we have uranium darling Boss Energy. Its share price has soared more than 110% in 2023. God damn, I wish I invested in that stock at the beginning of the year. Steve, I might start with you. Is it a buy, hold, or sell?
Boss Energy (ASX: BOE)
Steve Johnson (SELL): It's a sell for me, Ally. Anyone who's been reading my stuff on Livewire will know that I'm quite bullish about the uranium price itself. We do own a physical uranium trust in our international fund, but I think the assumptions that you need for today's price to work out for Boss Energy are super optimistic. Backsolving, I think you need a $100 a pound uranium price and then you need everything to go right, and that's too much optimism for me.Ally Selby: Okay. The brokers agree with you. Most rate the stock as a sell or a hold. What do you think, Jason? Is it a buy, hold, or sell?
Jason Kim (SELL): It's a sell for us. We like the uranium thematic, but this transition to net zero is going to be very messy, and renewables alone will not get us there. So uranium has a very big role to play, but at these share prices, it's gone way ahead of itself so it's a sell for us.Harvey Norman (ASX: HVN)
Ally Selby: Okay. Next up, we have good old Harvey Norman. Since setting a low in June, its share price has rebounded around 17%, which isn't too bad. Staying with you, Jason. Is it a buy, hold, or sell?
Jason Kim (HOLD): It's a hold. It's a founder-led business. Gerry Harvey and Katie Page are great retailers, but the cycle is going against them. So you're going to see a softening consumer cycle, and we have already, but it will continue. Having said that, they do have reasonable property value and we're getting to that floor price right now, so it's a hold.Ally Selby: Okay. The company just kick-started a buyback program, which is great news for investors despite a disappointing quarterly last month. Steve, over to you. Is it a buy, hold, or sell?
Steve Johnson (SELL): Sell for me too on this one, Ally. I don't want to be too pessimistic and I think people are starting to price in a more pessimistic future for the sector. I think there are some better category killers out there, like JB Hi-Fi (ASX: JBH) and Nick Scali (ASX: NCK). I think they're going to keep taking market share from Harvey Norman over time. So if you're optimistic about this space and you think it's gone too far, I still think it has a way to play out. I think there are better ways of getting involved in that sector than Harvey Norman.Qantas Airways (ASX: QAN)
Ally Selby: Okay. Next up, we have Qantas, which has obviously been making headlines for all the wrong reasons over the last few months. That said, its share price has rebounded around 12% in under a month. Steve, is it a buy, hold, or sell?
Steve Johnson (BUY): I'm just off a very long delayed flight, Ally, so it's probably the wrong day to ask me about Qantas - from Tokyo to Sydney via Melbourne. It's actually a buy for me though, and that's going to be a controversial view. We have recently added this back to our portfolio again. We had sold it at $6.50 or so and above, and have been buying it again around $4.70. It has popped up since then. Price is really, really important for this stock. I do think people are underestimating the quality of its domestic franchise and its frequent flyers business. So I think those two parts of the business can make more than $1 billion per annum pretty consistently and reliably and you're going to get this volatile international business that's going to affect your earnings. But I think you do pretty well from today's price.Ally Selby: Okay. Jason, over to you. Is the flying kangaroo still the spirit of Australia? Is it a buy, hold, or sell?
Jason Kim (SELL): It's a sell for us. While I agree with Steve - they have a great domestic franchise and their frequent flyer business is great, when we look at how it's been operating over the last several years, it appears to us it's been run like a private equity business. They cut costs to the bone, arguably unsustainably so, they haven't reinvested in their business, and with this very significant negative publicity, they're going to have to start reinvesting and they won't be able to optimise for profits like they used to. Now, they did get some tailwinds from getting out of COVID with elevated international airfares, but capacity is coming back on board. So international airfares will get more reasonably priced, more capacity will come on board. It's very financially leveraged, very operationally leveraged, so for us, it's a sell.Ally Selby: Okay. We asked our guests to bring along one beaten-down darling that is now a buy. What have you brought for us?
Iluka Resources (ASX: ILU)
Jason Kim: Iluka Resources. It's currently trading at roughly $7.50. We believe it's worth at least $12. It's fallen a fair way, and that's due to the poor sentiment globally, in particular, with regard to the economy in China. But we believe things are starting to turn around. Its core business is the mineral sands. We believe that bit is worth at least $9, and its emerging rare earths business is worth at least $3. And going back to the move to net zero, the minerals intensity is very, very high and as a result, we do expect its rare earths business to do very well. So we see significant upside at $7.50. It's a buy.Ally Selby: Okay. Over to you, Steve. Your time in the hot seat. What's your beaten-down buy and why?
Tyro Payments (ASX: TYR)
Steve Johnson: Tyro Payments for me, Ally. The share price has been hammered and it's been a really volatile stock. It listed in 2019, had Mike Cannon Brooks involved as a shareholder. He had a very high-profile management team and board there for a while. Westpac wanted to buy it. Potentia wanted to buy it. All of that has gone away. The new management team is nice and conservative and very focused on cutting costs. I think they've got a good business there. It's a competitive space, but they've been able to grow in it for a long time. It's going to generate lots of free cash flow this year and we expect it to grow in the next few years. And the share price is down a long way.
Ally Selby: Okay. Well, I hope you enjoyed that episode of Buy Hold Sell as much as I did. 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 this every single week.
What beaten-down darling are you buying?
Jason named Iluka Resources and Steve selected Tyro Payments as their beaten-down buys. But we would love to know what you are buying, particularly given the market volatility we are seeing today. Let us know in the comments section below.
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Buy Hold Sell is a weekly video series exclusive to Livewire. In each episode two fund managers give their views 'Buy, Hold or Sell' on five ASX listed companies. Not recommendations, please read the disclaimer and seek advice where appropriate.
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Livewire Markets
Buy Hold Sell is a weekly video series exclusive to Livewire. In each episode two fund managers give their views 'Buy, Hold or Sell' on five ASX listed companies. Not recommendations, please read the disclaimer and seek advice where appropriate.
Expertise
Livewire Markets
Buy Hold Sell is a weekly video series exclusive to Livewire. In each episode two fund managers give their views 'Buy, Hold or Sell' on five ASX listed companies. Not recommendations, please read the disclaimer and seek advice where appropriate.
Expertise
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