Buy Hold Sell: 5 crackers for Christmas and beyond

We don't mean to sound ungrateful, but the Livewire team has been gifted many a terrible present for Christmas in previous years. 

Take this anonymous writer, for instance, whose grandmother blessed her with a bag of makeup testers she had been given for free when buying makeup herself (used, I might add). Another colleague was given a "hideous" frog jug by his best friend (he doesn't like frogs, or jugs, for that matter. They are no longer friends). 

The responses from the team were hilarious - and probably a good guide on what NOT to get your loved ones, so I have listed them below:

• A 2L bottle of Diet Fanta (from a step-grandmother... Who always gave my cousin and I identical gifts, so we were always in a race to see who could uncover our crappy present first).
• I had an uncle gift me cigarettes... I was 13.
• Thongs that were five sizes too big - my dad stole them. A pack of three loofas - insinuating that I smell. And a magic slushie cup - the magic was it didn't work. All from my sister, all on the same Christmas.
  
• An orange Stackhat. Thanks, Mum and Dad, but it wasn't cool, so I didn't wear it.
• A goat, for charity... I was nine (it broke my heart).
• An insulated lunch box from "Santa".
• One year, my aunt gave me a bag for Christmas. Inside it, was a card from someone else, addressed to her, hoping that she loved the bag... Re-gifting at its finest. 

All of this is to say that what they should have gotten us instead, was some shares in some of the market's up-and-coming stocks. 

Take Kelsian (ASX: KLS), for example, which has seen its share price rise 20% since the beginning of the year. Or uranium darling Nexgen Energy (ASX: NXG), which has soared more than 50%. Even building materials company CSR (ASX: CSR) has had a cracking year, with its share price lifting 27%.  

After all, at the end of the day, nothing spreads joy quite like a few winning stocks.  

So in this episode, Livewire's Ally Selby was joined by IML's Simon Conn and Firetrail's Eleanor Swanson for their analysis of these three Christmas crackers. 

Plus, they also each name one stock investors could add to their loved ones' Christmas stockings and hold throughout the year ahead. 

Note: This episode was filmed on Wednesday 29 November 2023. You can watch the video, listen to the podcast or read an edited transcript below. 

Edited Transcript 

Ally Selby: Hello, and welcome to Livewire's Buy Hold Sell. I'm Ally Selby, and today we're taking a look at five stocks investors can add to their Christmas stockings and hold throughout 2024. To do that, we're joined by Eleanor Swanson from Firetrail and Simon Conn from IML.

First up today, we have Kelsian Group, which used to be SeaLink Travel. It operates ferry and bus services throughout Australia at Singapore and the UK. Eleanor, I might start on you. Is it a buy, hold, or sell?

Kelsian Group (ASX: KLS)

Eleanor Swanson (BUY): We think Kelsian is a buy, and I'll give you three reasons why. The first is that Kelsian operates in a structural growth industry, which is public transport. I'm sure you have a lot of people come on the show and talk about decarbonisation, electric vehicles, lithium miners. But actually, the best and most effective way to reduce carbon emissions is by catching the bus. If you hop on the bus instead of driving your car, you're reducing your carbon emissions by 90%. And as a result, governments are investing in public transport infrastructure, and Kelsian's set to benefit from that.

The other reason is that Kelsian is defensive - 90% of its revenue is contracted. A lot of that is government-backed revenue, and in addition, it's got CPI escalators. So you can sleep easy at night knowing that Kelsian's earnings…you do have really good visibility there. The final one is that the valuation is compelling. It's trading at about 15.5 times earnings. We see over the next three years a 14% EPS CAGR. We actually think the business can beat those market earnings. There are no contract wins factored in, and Kelsian's got a very good track record of winning contracts. So there's earnings upside, valuation support, we think it's a clear buy.

Ally Selby: Over to you, Simon. Its share price has lifted around 28% over the past year. Can it do it again over the next? Is it a buy, hold, or sell?

Simon Conn (BUY): Well, certainly it was a great buy at $5.50, but at $6.50, I think it's still a buy. It's a solid business. As Eleanor said, it's a really good management team. We'd already liked the no fair box risk and the inflation index protection in their public transport business in Australia. And as Eleanor said, there's a real trend to electrification. And I think they've demonstrated the ability to bring state governments and councils along on that journey, so a real key PIP.

And then they're all aboard acquisition in the US, which is the recent addition to the portfolio. The recent update is that's performing well, not as contracted as in Australia, but they've got really strong operators in each of the regions they operate. They own the depots, which puts them in a really big position to continue to win more work with large tech companies or in the LNG sector, which is growing strongly. So strong management team, balance sheet is reasonable, and that inflation protection in Australia is a real key part of it as more of these tenders come up for renewal or new areas are put up for tender.

Ally Selby: We're keeping with the decarbonization theme with this next stock, it's NexGen Energy. It boasts what could become one of the world's largest and cheapest uranium mines. Simon, staying with you. Is it a buy, hold, or sell?

NexGen Energy (ASX: NXG)

Simon Conn (BUY): It's had a good run, so it's probably a buy/hold, to be honest. But it's a tier one asset, it's an amazing deposit, and I think if you want to own mining stocks, you need to own the best quality ones. So it's a hard rock and a simple mining process, so it's not in-situ leaching, which a lot of Australian operators are. Obviously it's not in production yet, which is a fair way away. So that's always the risky bit. But I think this is an asset ultimately that'll be owned by one of the tier one majors. It's in a tier one jurisdiction in Canada as well. We recently got some more approvals. We like it as a play on the uranium thematic, which it's had a good run and that sector has had pullbacks, so I'd be cautious a bit at the moment. But it is a really good quality asset base.

Ally Selby: As Simon mentioned there, it's had a really good run over the past 12 months. Its share price is up 56%. I wish I invested in that stock a year ago. Eleanor, over to you. Is it a buy, hold, or sell?

Eleanor Swanson (BUY): We still think NextGen is a buy. And the reason for that is we're very positive on the uranium price, even though it's had a fantastic run over the last 12 months. And the reason we're still positive is, if you look at the supply/demand outlook for uranium, on the demand side you've got this global recognition from countries that they're going to start needing to invest in nuclear reactors if they're really going to progress towards that net-zero target. In addition, if we think about the geopolitical risks in the world at the moment, from an energy security standpoint, nuclear is really fantastic. It's got great ability to be transported as well as stored. So if you want to shore up your energy security as a nation, it makes sense to go nuclear. So the demand backdrop's strong. On the supply side, there's actually very limited excess inventory. So, as a result, we think the uranium price can grind higher.

And then, as Simon mentioned, NextGen, it's a super high-quality asset, with a 40-year mine life. The mine is situated in Saskatchewan, Canada, which is actually a very mining-friendly jurisdiction. So we think it's a fantastic way to play the uranium thematic through NextGen.

Ally Selby: Last up today, we have building products producer, CSR. Eleanor, last one for you. Is it a buy, hold, or sell?

CSR Limited (ASX: CSR)

Eleanor Swanson (BUY): I'm feeling very positive, clearly, because it's another buy for us. So CSR, 80% of its earnings are in the building product segment. Think of things like fibre cement or plasterboard. And what we're seeing in terms of the market concerns around CSR is just where we are in terms of the housing cycle. And if we look at the backlog in terms of detached housing, there are still about 100,000 homes that need to be built. And what that means is, moving into next year, you've still got quite strong visibility on earnings.

In addition, the industry structure in building products has improved. And as a result, we're seeing a lot of the players in that industry put through double-digit price rises. The demand backdrop's still pretty good, so we're seeing customers accepting those price rises. And as a result, we're expecting CSR's EBIT margins to remain higher for longer. So we think there's earnings upside there. We really like it. It's a buy.

Ally Selby: Its share price has risen around 19% over the past year. Simon, over to you. Is it a buy, hold, or sell?

Simon Conn (SELL): For us, it's a sell. We're very cautious on the cyclicals and we think with inflation, despite today's print, there's pressure on the interest rates to go up. Housing stats have turned down, and so I think they're down 10%. They are leveraged to detached housing more than the apartment market. So we just think it looks pretty expensive up here, and margins are elevated, so we're quite cautious on CSR.

Ally Selby: We asked our guests to bring along one stock that they can buy and hold in their Santa stockings throughout 2024. Simon, what have you brought for us today?

Australian Clinical Labs (ASX: ACL)

Simon Conn: Ally, we really like Australian Clinical Labs. It's a really strong business. There are only really three national pathology operators, Sonic, Healius, and ACL now. And we think pathology is a really attractive industry. Certainly, if you look at the share price performance over the long term, it's a very recurring business, that generates good cash, and the ability to grow through bolt-on acquisitions is clear. Sonic's been a great performer over many years. We think ACL has some really good management, they've got some really good IT systems, which was demonstrated through COVID. When volumes grew, they were able to generate good cash. And as those COVID volumes came off, they were able to get their costs out of the business quite quickly, compared to some of the other operators in the industry - particularly Healius.

So, we think it's really well-positioned now as we get more business-as-usual, people are starting to slowly return to normal habits. It's taking a little bit longer, to be honest, than we would have thought, but as GP attendance is normalised now, we're seeing pathology volumes return to that mid-single-digit growth. The balance sheet's very strong, with only $40 million of net debt. We think that positions them well for either bolt-on acquisitions or if the ACCC approves of the merger with Healius. At some stage, maybe those two get together, which could be a good outcome. But if not, they could be a target themselves or they can just proceed with continual bolt-on acquisitions to add to their growth. It's 13 times, the yield is 5.5%, it looks very cheap, and we think it's really well-positioned for the next 12 months.

Ally Selby: Okay. Over to you, Eleanor. What stock would you buy and hold throughout next year?

Nufarm (ASX: NUF)

Eleanor Swanson: We think Nufarm looks really interesting heading into calendar '24. There are two things going on with that business. First, you've got the crop protection business, which is a cyclical business. The volumes in that business are very much linked to seasonal production globally. And what we're seeing there is inventory has built over the last 12 months. That's starting to unwind, margins have been pretty compressed. However, Nufarm has managed to take share, and we believe that the current $4.60 share price is a fair reflection of the valuation of the crop protection business.

What's not being factored into Nufarm's share price is Nuseed. So, Nufarm has put out some pretty ambitious targets in terms of the Nuseed's business. They're hoping to generate $500-$600 million of revenue in FY26. We saw at their FY23 result, really good signs that they are tracking towards those targets. They've actually put out firm guidance specifically for one product, which is the Omega-3 canola product in FY24 to generate $60 million of revenue. And they're expecting that to double into FY25. So we believe there's significant upside in Nufarm if it can start to demonstrate to the market that they can execute on the growth plans for Nuseed.

Ally Selby: Well, I hope you enjoyed that Christmas special 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.