Time to be wise
Picking stocks at a time when the average market multiple is in its upper teens is a bit like being offered either a firing squad or lethal injection as a preferred means of execution – the end result is the same. Now isn’t the time to get too clever with your investments. The JSE recorded solid gains in 2010, largely as a result of foreign capital flows, and as valuations became increasingly difficult to fathom, local fund managers waited on the sidelines. This year will bring its share of shocks and resultant buying opportunities, but in order to make sensible 12-month picks with a defined start and cut off date, ultra conservatism is required.
The 2010 Whitfield portfolio returned 27,6%. But before you praise genius stock-picking abilities, there was low single-digit growth in three-quarter of the stocks, with a dignity rescue courtesy of Famous Brands (+92,62%), which served up a winning recipe. It’s perpetually expensive but the time has come to take profits, as the business needs to consolidate and management’s attention is going to be focused on its new South African pub concept and the expansion in Britain of Debonairs and Steers.
Chris Seabrooke’s listed investment play Sabvest (+7,24%) is best suited for its primary purpose, which is the preservation and long-term growth of family wealth. Standard Bank (4,09%) is out to pasture for the time being: the market needs proper guidance on a turnaround process and future leadership strategies. As for Liberty International (6,48%), it was more of a hedge against the currency than the fundamentals of Britain’s property market. As it turns out, the currency hypothesis couldn’t have been more wrong.
So for 2011...
NEDBANK is for sale and – despite being shunned by HSBC – will be sold at a premium to its ruling share price. It’s a deal that could happen mid-year. Standard Chartered is interested. However, as Africa moves up the global agenda, other players may be paying closer attention.
ANGLO AMERICAN is currently the cheapest diversified resources play on the JSE. CEO Cynthia Carroll has been shown to be a smart operator and has taken decisive action to cut costs and realign its portfolio. Where BHP Billiton has striven for expansionary deals and is yet to succeed, Anglo has been conservative and has realigned its global asset base with a strong China focus.
TIGER BRANDS. Somehow SA isn’t yet feeling northern hemisphere food inflation, which will stretch its margins during this year. The business is also increasingly being geared towards African expansion and recent acquisitions will broaden its distribution platform. It has a lazy balance sheet and will either buy back shares or do more deals. It’s now the cheapest entry into the food products sector.
ADCOCK INGRAM. Two serious knocks in less than a week would put off a lesser man (maybe a more sensible one). It announced the loss of R200m in sales due to its withdrawal from the market of three branded painkillers containing FDAbanned Dextropropoxyphene, and later revealed it had won just 4% of Government’s ARV tender, as opposed to the 25% it was anticipating. Bad luck or bad management? The year will tell.
RAUBEX. While the construction sector looks dismal – with very little hope of meaningful domestic recovery in the first half of 2010 – there’s hope for road builders and Raubex is focused on that sector.