TOL - 2nd Jun, 2023
Buy Hold Sell: 5 boring stocks trading at beautiful prices
In this episode, PM Capital's Paul Moore and Antipodes' Jacob Mitchel scour the globe for some of the world's most reliable stocks.
There's this idea in dating that you shouldn't pursue beautiful people. Why? Well, thanks to their good looks, they haven't had to struggle their entire lives to be as outgoing, funny, and desirable as us mere mortals. And so, they will likely lack a certain je ne sais quoi...
While I am not sure the proposition is entirely true, there is something about being both boring and beautiful - particularly when it comes to investing.
Oftentimes, we are distracted by the next sparkly new trend, losing the patience and discipline needed to stick to our strategies and generate long-term returns.
When it comes down to it, investing isn't meant to be thrilling. It's not meant to get your heart racing. The likelihood of getting rich quick is zero to none. In fact, investing in "boring" stocks over the long term is how Buffett's Berkshire Hathaway became the US$702.6 billion giant it is today.
So in this episode, Livewire's Ally Selby was joined by PM Capital's Paul Moore and Antipodes' Jacob Mitchell for their analysis of three "boring but beautifully priced stocks."
And just because I know you love a stock pick, they also name a boring stock they believe can withstand the cycle and come out stronger on the other side too.
Note: This episode was filmed on Wednesday, May 31 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 are searching the globe for stocks that can withstand the cycle and come out stronger on the other side. These stocks might be boring, but sometimes boring is beautiful. At least that's what my boyfriend tells me. So today we're joined by PM Capital's Paul Moore and Antipodes' Jacob Mitchell.
Thank you so much for joining me today, gents. Paul, I might start with you. Where are we in the cycle?
Paul Moore: You can use academic textbooks, but to be honest, I'd throw them out the window. Everything's been shortened these days and so some parts of the market are way ahead, some of them are behind. But basically, I think we're in an environment that is stuck in the middle in terms of the market oscillating around. You've got higher interest rates, you've got concerns about the economy, and you've got reasonable valuations, but some are cheap, and some are expensive.
I just think we're in a 10-year cycle where it's going to be hard to make money from passive-type investing. You're going to have to really pick your spots and make sure you're concentrated where you genuinely believe you're going to get a risk-reward proposition that is acceptable to you. Whatever your risk-reward characteristics are.
Ally Selby: Over to you, Jacob. Where do you think we are in the cycle?
Jacob Mitchell: Definitely late in the cycle. I mean, you can't put as much tightening into the system as we've seen without eventually breaking something, which is starting to happen. So definitely late in the cycle, but within the context of maybe having shifted fundamentally to a different regime where we actually are going to have cycles.
We had 10 years of not much other than QE and a fairly average outcome. And I think now just a lot more fiscal activism and central banks are actually amplifying that rather than acting in a countercyclical manner. I think we're going back to an environment of relatively large cycles and fairly frequent ones. And I think we're just coming to the end of the COVID boom.
Barrick Gold Corporation (TSE: ABX)
Ally Selby: Okay, let's get into the stocks now. First up, we have gold and copper miner, Barrick Gold Corporation. It has a market cap of more than $40 billion Canadian dollars. Jacob, we're going to start with you. Is it a buy, hold or sell?
Jacob Mitchell (HOLD): I think it's a constructive hold. The gold price is arguably undervalued relative to the environment where you have a lot of central banks monetizing government debt and we think that's attractive for gold as an alternative currency. And then the company is doing a better job in terms of capital management and it's cheap. If you think about how gold stocks are priced, they're very cheap relative to their production.
Ally Selby: Its share price is down around 12% over the past year. Over to you Paul. Is it a buy, hold or sell?
Paul Moore (SELL): Today, it's a sell. I'd rather buy copper stocks. Today gold valuation's a bit ahead of itself, whereas the copper stocks have come back with the copper price. But medium to longer term, I want to own gold for inflationary reasons. What we're looking to do is have two or three copper-gold stocks in our portfolio, remembering that gold stocks produce copper and copper stocks produce gold.
Shell (LON: SHEL)
Ally Selby: Next up today, we have Shell, it's an oil and gas giant. Paul, is it a buy, hold or sell?
Paul Moore (HOLD): Definite hold. It's done well short term, but on very conservative oil and gas prices, it's still on probably a 10 PE at most. And it's paying importantly 100% of its free cash flow out in dividends and buybacks, paying down debt. So we want to own it longer term, so definite hold.
Ally Selby: It has been volatile in its commodities... Crude futures are down 37% over the past year. Natural gas is down 73%. Jacob, is it a buy, hold or sell?
Jacob Mitchell (HOLD): Hold again. I think the structural story is a good one. The energy stocks have generally under-investment, they have for some time. And also in the case of Shell and a stock we own TotalEnergies (EPA: TTE), you're getting a free option on natural gas and that's important. And we think that in Europe you had a, fortunately, very warm winter. So natural gas prices have collapsed, but I think you can see tightness coming back into that market and it gives you some protection from a real shortage, once again, given we've taken a lot of the Russian supply effectively off the market.
Alphabet (NASDAQ: GOOGL)
Ally Selby: Okay, next up today we have Alphabet. It's definitely a stock that's become quite crowded this year. Over to you, Jacob. Is it a buy, hold or sell?
Jacob Mitchell (SELL): I think it's a sell. I think Alphabet is approaching that growth trap description. Its business had a great mousetrap, hard to replicate, but it's also very mature now. And you can see threats coming on the horizon, with AI and those sorts of searches, ChatGPT is already running at about 9% of all internet searches. We think ultimately it's taking away eyeballs from what you would do using Google search.
Ally Selby: Even though Google has Bard now?
Jacob Mitchell: Well, Bard isn't monetized, so until they work out a way that they can throw in four or five ads into the Bard result, then the jury's out. So we would say the margin of error is starting to expand and it's also digital advertising, which is very economically sensitive. We think expectations are too high and we think there are better uses for our capital.
Ally Selby: Okay, it's done really well since the beginning of the year. Its share price is up 40%. Paul, over to you. Is it a buy, hold or sell?
Paul Moore (HOLD): So it was a great buy six to nine months ago, but I still think it's a hold. It has matured, but it's a monopoly and I think they hang around longer than people think. And if you remember the old classified businesses, how long they hung around and the multiples they sold on. And relative to the other top 10 growth stocks, it's actually quite reasonable. So I think a few others will be sold before they sell Alphabet. So for me, a definite hold.
Ally Selby: Okay, we asked our guests to bring along one boring but beautiful stock for us today. Paul, what have you brought for us?
Bank of America (NYSE: BAC)
Paul Moore (BUY): Bank of America. Now, it's probably not boring right at the moment because there are a few little banking issues going on, but I think they're short-term in nature and ultimately it's a pretty simple business. It's a deposit franchise, it lends money, and it's a pretty dull and boring business with a very low valuation. And that's the beauty of it when you're selling at eight to 10 times earnings. Once we get through these disruptions, people focus on the dividends and buybacks, and so we think it's very boring but interesting.
Ally Selby: Okay, over to you Jacob. What stock do you think can withstand the cycle and come out stronger on the other side? Something that's boring but trading at a beautiful price?
Sanofi (EPA: SAN)
Jacob Mitchell (BUY): I don't think you can get more boring than pharmaceuticals. Sanofi is a French pharmaceutical company. Importantly, it doesn't have much exposure to drug price risk - it's not selling pharmaceuticals into the US at inflated prices. It also has a really interesting, let's call it, consumer health business. So drugs that go off patent, so no patent risk. That business should trade on quite a high multiple, it's like a consumer staple business. And then finally it has the vaccines business, so it's three interesting businesses on a PE of 12 times. Very little economic sensitivity and I think that fits the bill if you want a boring but beautiful valuation.
Ally Selby: Okay, well I hope you enjoyed the 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 every single week.
What boring but beautiful stock are you loving?
In times like these, it's important to have a few reliable stocks in your portfolio that can withstand the cycle and come out stronger on the other side. So tell us in the comments section below - what boring but beautifully priced stock are you backing?
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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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