Buy Hold Sell: 7 stocks trading at 52-week lows

In this episode, Martin Currie’s Reece Birtles and SG Hiscock's Hamish Tadgell analyse stocks trading near or at 52-week lows.
Buy Hold Sell

Livewire Markets

We all love a bargain. That's why Black Friday, Cyber Monday and Boxing Day sales take the world by storm, or why we justify buying two items for the price of one at the grocery store when we weren't planning on purchasing that item in the first place. 

Searching for stocks near or at 52-week lows is similarly a bargain hunter's paradise. 

These stocks usually have negative momentum, which means they have more sellers than buyers and investor sentiment is typically poor. And while some stocks may be cheap for good reason – just like that heavily discounted two-for-one item at the grocery store – others may be undervalued and oversold.

So in this episode of Buy Hold Sell, Martin Currie’s Reece Birtles and SG Hiscock's Hamish Tadgell joined Livewire's Chris Conway to analyse three stocks that are hitting or at all-time lows.

Plus, they also analyse four stocks from the heavily sold-off REIT and infrastructure sectors. 

Happy bargain hunting, my friends. 

Note: This episode was filmed on Wednesday 1 November 2023. You can watch the video, listen to the podcast or read an edited transcript.

Edited Transcript

Chris Conway: Hello, and welcome to Buy Hold Sell, brought to you by Livewire Markets. My name is Chris Conway and today we're taking a look at stocks trading near 52-week lows. Are there bargains to be had, or should investors steer clear? Joining the conversation, are Hamish Tadgell from SG Hiscock and Reece Birtles from Martin Currie. Let's dive right in.

Orora (ASX: ORA)

First up, we're taking a look at packaging company Orora. Hamish, I'll come to you first. Is it a buy, hold, or sell?

Hamish Tadgell (HOLD): We've got a hold on this. We like Orora. It's a very defensive business. Its Australian and US businesses have actually been performing very well over the last 12-24 months, particularly the can business in Australia, which is benefiting from craft and some of the innovation there. The Saverglass acquisition, though, was a big deal. And it's an expansion into a new market in premium glass in France and in Europe primarily, and in premium spirits. And we don't see a lot of synergies, there are very little synergies in this deal.

The other thing is they paid a fairly full price. And I guess we've got some reservations about the French market, just from the perspective that we have invested there through businesses like Ramsay (RHC) and so forth, which is a different industry, but just the nature of those markets, particularly around labour and labour laws concern us a little bit. So at the moment, we really think that they've bought, I guess, an option to grow, but we just need to get a little bit more confidence around the execution in that before we would be a buy.

Chris Conway: Reece, it's down around 7% year-to-date, but it's trading at levels not seen since February 2021. For you, is it a buy, hold, or sell?

Reece Birtles (BUY): For us, this is a buy. For one of the first times for us. We like their strong business in Australia, and the US business has been doing a lot better in terms of their margin improvement program with new management - it's in an SAP system - than we expected. And post those August results, the stock was actually up 7-8% because that margin's really been doing better than expected. But since that time, the stock's now trading at a 25% lower price, and it's all down to that Saverglass acquisition. So really, the company hasn't got the benefit of good execution on their existing business.

And then with Saverglass, we do see it as a business with growth options, because it is very well-invested in terms of their plants and they have the opportunity to take on new customers to build out, to use all the capacity that's been installed. And because they're in that upper end of the market, the cost of their product is quite low compared to the overall product that's being sold. So they're not quite as under the same pricing pressure as other areas. So we're buying that for the first time, really.

Bapcor (ASX: BAP)

Chris Conway: Next up we're talking Bapcor. The provider of automotive parts and accessories. Reece, I'll stay with you. Buy, hold, or sell?

Reece Birtles (SELL): This one's a sell for us. It is been an M&A roll-up over many years and had a very good growth track record, but it now has a new management team, and their focus is away from M&A and it's all about efficiency. So it's had a PE rating that really goes with that growth story, but it's stalled. Earnings have been falling and going sideways, and they've got this focus on efficiency with just so many individual items that they have to hit, so many people responsible for it, so many things they're tracking. We just think it's almost a laughable program to deliver cost savings, and the brokers and consensus have added that to earnings going forward, and we don't think it'll be achieved. And then, just in their recent AGM update, the reality's striking. They're losing market share and they're suffering cost pressures. So for us, it's a sell.

Chris Conway: Hamish, this one's taken a pretty big hit this year. It's down 17%, but then again, a lot of retail has. For you, is it a buy, hold, or sell?

Hamish Tadgell (HOLD): I think it's a hold for us. The company has had a significant de-rate post the AGM, as Reece mentioned, and the stock is down 20%. We think it's trading at a much more realistic valuation. It is a defensive business, providing auto parts. 70% of the business is auto parts to mechanics and the like. So the risk is that you might see a little bit of thrifting, I guess, as consumer belts tighten. But at the end of the day, you've got to get your car repaired at some point, so it's more a deferral rather than lost sales necessarily. There has been a fair bit of management change, and I think that's one of the big questions around the stock at the moment in terms of some of the initiatives and the change of management.

And the other thing I'd just highlight is the cost pressures and some of the questions around the pricing power that they actually have. They've had a very good history of being able to pass price on, but in an environment where maybe the consumer is getting a little bit tougher, where their ability to be able to pass price increases on at the same rate as they have historically may be constrained, particularly in an environment where a lot of that is going to be driven by the Australian dollar. They import a fair bit of the manufacturing parts from overseas. So I think there are some reservations about the earnings, but the valuation looks fair where the stock is today.

Lendlease Group (ASX: LLC)

Chris Conway: The last stock that we'll analyse is Lendlease Group. The global property and infrastructure group. It has not been without its challenges. Hamish, I'll stay with you. Buy, hold or sell?

Hamish Tadgell (HOLD): I think it's pretty fair to say that this has been a graveyard for investors over the last decade or so, and we're probably a hold at this point. The question in our mind is more whether it's a sell rather than a buy just at the moment. I think that there's been a lot of focus, or a lot of change again in this business. It has a new management team that's come in under Tony Lombardo, really trying to simplify the business, sell some of the non-core assets, get out of construction, and focus much more on development and investment. But the problem at the moment is that the cycle is moving against them, and I think there are continuing earnings headwinds that the business is going to face. So I just don't see a catalyst for a re-rating at the moment. And I think, as part of the restructuring, earnings and returns targets have been reset, and to this point, the company has struggled to even hit those refreshed earnings targets. So I think there's still a bit of water to go under the bridge here.

Chris Conway: Reece, down 22% year-to-date. Is it looking attractive at all? Is it a buy, hold, or sell for you?

Reece Birtles (SELL): We think it's still a sell. It's really about the capital cycle. So, in development, there's the cost to build, the returns you get on the cost to build, and then your cost to capital. And over recent years, inflation has been rising significantly. So projects that they might have committed to on a capital basis, construction costs are rising still for them. At the same time, they locked in the prices in many cases in terms of the yield that they would earn on that project, and so that yield now looks quite low compared to their cost of capital as interest rates keep rising. So we think they're destroying capital as they still focus on trying to deliver a growing pipeline at a time when you should probably be thinking more about bunkering down. So I think that's the problem. The valuation's fallen a long way, but they're still destroying capital.

Chris Conway: For something a little different, we're now going to take a look at market segments. Each of the gents has bought along a stock within that segment. First up, we're talking infrastructure. We're going to stay with Reece. I think you've got Atlas Arteria for us. Is it a buy, hold, or sell?

Atlas Arteria (ASX: ALX)

Reece Birtles (BUY): Atlas is a buy for us. In the last 12 months, it has suffered from that rising rate environment with bonds as well as the bid from IFM not coming along, and they did an acquisition with an equity raise. So it's been quite a tough period of time for them in the last 12 months. But today, it's got a 7% dividend yield and it has very strong inflation protection in their business, both in their French and in their Chicago toll roads, with strong CPI-plus type increases in tolls. So a 7% yield plus that inflation growth is very strong for a defensive asset, especially now as we're getting to bond yields potentially getting to a level that could stop going up. Those sorts of real assets are likely to do better than they've been doing in recent times.

Chris Conway: Hamish, you've taken a look at Transurban, another toll road operator. For you, buy, hold, or sell?

Transurban (ASX: TCL)

Hamish Tadgell (BUY): For many of the reasons that Reece has already expressed, we like Transurban. Again, it's been a stock that's been impacted by rising bonds and long duration. It's trading on about a 5.5% yield, but it's also got, we think, some good growth optionality within the network, particularly in Brisbane and Sydney still in terms of lane extensions and the like. So we continue to see the business growing quite strongly, that mid-to-high single-digit growth over a long period of time. As Reece said, we're of the view that bond yields have risen a lot, and we really focus on real yields. So, real yields are over 2% at the moment, nominal yields are probably just below 5%, and so that's implying about 2.7% inflation. And we think that, as you look out over the medium to longer term, that's a reasonable assumption. The other thing about Transurban is it is able to capture that inflation through the toll increases, which are built in, and so it's giving you that insulation or inflation hedge.

Chris Conway: The gents have also run the ruler over the REIT space. That has been badly beaten up, as everyone knows. Hamish, I'll stay with you. Vicinity Centres is the one that you want to have a look at. Is it a buy, hold, or sell for you?

Vicinity Centres (ASX: VCX)

Hamish Tadgell (BUY): It's a buy for us. We like the retail space, probably over office and industrial at this point. We recognise that financial conditions are tight and the consumer's going to be probably doing a bit tougher, but if you look at retail assets over the longer term, they've really traded more around, particularly premium assets like Vicinity, have really traded more around population growth and barriers to entry into the market. And Vicinity has some very, very high-quality assets. It owns 50% of Chadstone but has a number of other high-quality assets in the portfolio. It's trading at a 25% discount to NAV, which we think is attractive. And I think that if you look at cap rates for the portfolio, it's building in a fair bit at the moment. And it's also offering you around about a 7% yield, so we think it's attractive.

Chris Conway: Reece, Dexus is the REIT that you've taken a look at. Buy, hold, or sell?

Dexus (ASX: DXS)

Reece Birtles (SELL): Dexus is a sell. It's obviously come back a long way, but bond yields have gone up a lot. And yes, the cap rate on Dexus is now over 7%. So notionally it starts to look a bit more attractive at that sort of level, but it's an office property owner. There are too many office buildings in the world. Large corporations are still cutting back their space. They just don't find they need as much as they did before. And you saw that with vacancy rates rising in Dexus by 1.5% in the last half. But just like Lendlease, the big problem is that the companies are not focused on going, "We might have an undervalued asset." They're still investing to protect their reputation in growth. And so they're going ahead with new buildings in both Sydney and Brisbane on 5% development yields, whereas their cap rate is already 7% and their cost of debt is near that 7% level. So again, they're destroying capital rather than focusing on creating value for shareholders. 

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