5. BHP BILLITON I am going to choose from the mediumand large-cap universe – I don’t really research the small-cap universe. I’m not out to “win” the competition. I would be satisfied if my selection does deliver a total return of inflation plus 4% to 5% and most importantly does not turn out to be a disaster over the next 10 years! That is probably the best outcome that any portfolio manager can hope for.
1 SASOL P/E: 9 Dividend yield: 4.5%
The main reasons for choosing Sasol are: The absolute (and relative) valuation. The relative is very low in comparison to its history. So the market is discounting very bad news. The dividend yield is of particular interest. The yield is well above the market. Now Sasol has cut its dividend before so it may happen again, but the dividend growth will probably average ±10% over the next 10 years (over the past 25 years it was about 15%).
Gas reserves in North America. These assets have caused some concern to shareholders, given the recent write-down. I take a different view. I really think that the available supply of natural gas in North America (and elsewhere) will transform the world energy environment over the next decade. Companies like Sasol , which have an advantage, will materially benefit. While gas will also depress the oil price, which is negative for Sasol, the gas benefit should outweigh this.
2 BIDVEST P/E: 16 Dividend yield: 2.5%
You feel more comfortable recommending Bidvest as it hits a record high! While the glory days for the share price were in the Nineties, Bidvest is a real blue chip that you are buying at a reasonable price. Yes there are many blue-chip shares, they are all at 30 P/E ratios while Bidvest is at a 16 P/E. There is some key person risk, but Bidvest is bigger than one person.
3 RICHEMONT P/E: 19 Dividend yield: 0.9%
You have to have some exposure to emerging markets in a 10-year portfolio. They are truly the only economic grouping that has the ability to sustain growth over a decade. The consumers do not really have debt and as living standards improve, they will take on debt. Currently very similar to developed market consumers in the Fifties. Richemont is really well exposed to this market and is at a fair P/E. I think that this is a more reasonable exposure than Naspers.
4 VODACOM P/E: 16 Dividend yield: 6.8%
This is probably the best share on the market for sustainability of the dividend yield. While ex growth, the market is very stable and probably has been subject to all the competition that it is likely to face. Plenty of new technology will enter the communications market over the next decade, which will be in the consumer electronics/ software applications space. The providers of the backbone will probably not be superseded by technology. They will apply the new technology. With the growth of everything we do electronically virtually guaranteed, the main providers should be safe from extinction!
5 BHP BILLITON P/E: 13 Dividend yield: 3.5%
The emerging markets story again. BHP will be a major beneficiary of emergingmarket growth. It has a very diversified portfolio and consequently lower risk. The valuation is reasonable, given that earnings are probably approaching a trough level. So the biggest theme in the selection is China and other emerging markets.