1 ANGLO AMERICAN PLATINUM Weighting: 20%
The thinking behind this and other commodity stock picks is that buying an unloved stock makes losing further money less likely as much of the risk is already priced in. Amplats, along with many other miners, has embarked on intense consolidation and restructuring activities in an attempt to cut costs and reduce any (over) supply. When markets truly recover (ie sovereign debt falls, employment stats improve) then watch platinum stocks soar as legitimate growth and demand enter the system.
Amplats’s historical P/E is very high as a result of poor earnings, but it’s forward P/E is a more respectable 37.
2 SASOL Weighting: 20%
Amplats, Lonim and Sasol are all based on my thesis that the reduction of further QE stimulus is inevitable and when the search for yield is replaced by the search for cheap assets, commodity stocks will rally. Even if these stocks remain unattractive for another two years, when the cycle turns, your opportunity cost and more will be rewarded.
Specifically, with regards to Sasol: oil prices will rise. As the human race hurries along to 9bn by 2050 and supply shocks intensify, Sasol will be a direct bene- ficiary. Of course, alternatives will and have emerged such as biotech and fracking. Sasol remains a highly innovative company and will surely be at the forefront of many solutions.
3 DISCOVERY Weighting: 25%
When I think of any insurer, I can’t help but hear the melodious jingle-jangle of cash, cash, cash. Sure, insurers make mistakes in terms of money allocation, but the core business principle is simple – price risk accurately, create a contract, sell fear and bring home the bacon.
No doubt, there is a fair amount of competition in this space, but as long as lapses do not occur too frequently, business remains good. More specifically, I have chosen Discovery given its constant innovation, excellent management and bodacious marketing efforts.
Finally, with Discovery’s 20% acquisition in Ping An Health Insurance (a health insurance company in China), this is certainly a team worth backing.
4 REDEFINE Weighting: 20%
With a more attractive historic P/E than Growthpoint and a better looking forward yield, this property stock is certainly a worthy contender. Given its relative size, property has been severely overlooked by most multi-asset, asset managers and has left many investors dumbfounded. Property stocks have run hard and a healthy rerating would be appreciated. That being said, new banking laws, rising electricity and municipal rates etc… have made direct property investment more complex for individual investors and with shelter/ property ranking second in Maslow’s hierarchy of needs, owning Redefine Property for 10 years should yield excellent returns on investment.
5 NASPERS* Weighting: 15%
Wait for an acceptable (at least 20%) re-rating before buying in. Naspers has extremely strong management who have established a significant amount of value for shareholders. This has been done through their decision to enter pay television; their decision to digitise and the initial investments in Mail.ru and Tencent. The company is set to achieve high growth via its emerging-market assets. It’s the market leader in the countries that it operates in. Warning – Naspers has the highest P/E when compared to the stocks in this set. This could be attributable to a high premium placed on expected returns. Let’s hope this bet works out. *Finweek is a Media24 publication, which is a subsidiary of Naspers.