Stock Watch

BUSINESS DAY TV  |  Podcast , ±24 min episodes every 2 days  | 
You've seen the business news, got the gist of the bourses and heard what the country's top CEOs have to say. It's now time for some in-depth markets analysis.

This half hour show was the first of its kind in the business TV market in South Africa – every night our anchors are joined by two markets experts who tell you what shares to be buying, holding or selling.

A Tiso Blackstar Group Production.

Keywords: money, opportunity, business plan, business ideas, business news, income, financial news

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Stock Watch - Stock Picks — Equiniti and Uber

Drikus Combrink from Capicraft chose Equiniti group as his stock pick of the day and Bright Khumalo from Vestact chose Uber Technologies INC

Combrink said: "Equinity London has about a billion pound market cap and is also cheap with an eleven price to earnings ratio - forward. They have 80% of the market and its still growing"

Khumalo said: "I'm hedging myself from the amount of Uber​s I take everyday. Their food delivery business is fantastic and could be profitable very soon as
compared to the rides."

Stock Watch - Stock Pick — Mediclinic and Woolworths

Gerbrand Smit from NeFG Fund Management chose Mediclinic as his stock pick of the day and Chantal Marx from FNB Wealth & Investments chose Woolworths

Smit said:"I'm going with Mediclinic, they were at R220 a share but had some perfect storms with regulations issues in the Middle-East and Switzerland. They are also having some difficulty locally in the SA market. If you look at the latest set of numbers that they said they are going to deliver and you look at normalisation of those earnings you are sitting close to an 11 PE (Price Earnings) multiple at R61 a share where it is now, so to buy a quality hospital group, who's margins were under pressure - and you can actually expand it over time, I think just makes sense"

Marx said:"David Jones was a massive disappointment for them and they got it really wrong in ladies fashion in South Africa. They seem to have, anecdotally gotten the ladies fashion story right, their stores look a bit busier, their trading densities have improved and they are looking to recover off a low base in Australia. They are making fast work of paying down their debt and the stock trades at an extremely low multiple relative to its history."

Stock Watch - Exxaro and cash

Deryck Janse van Rensburg from Anchor Securities chose Exxaro Resources Ltd as his stock pick of the day and Paul Chakaduka from chose cash

Janse van Rensburg said: “I've been keeping an eye on it and we saw last week that there was a transaction where they offloaded some of their Tronox shares. It was about half of their value and that was done at a very favorable price. They announced it to the market and said that they are going to use the cash for cash obligations inside the business and the potential of distributions to shareholders. This is an extremely high dividend payer and if you just look at it from a fundamental perspective it's one of the cheaper resource stocks out there. I certainly think that if you hold it looking 12 months out you are certainly going to be rewarded with very strong cash flows in the form of dividends. We are in the eye of a storm of a bit with the trade war between China and the US so Exxaro can be a little bit more pertinent on your timing, maybe it comes down into the 140s or below 150 but certainly below 150 it is starting to scream significant fundamental values. Take a bit of a patient buy/hold and as it starts to dip to the levels that we're seeing at the moment just build your position and be patient."

Chakaduka said: “With the trade wars and domestic elections you are going to get opportunities much lower down I'll be really interested to see how a Cyril Ramaphosa maneuvers this phase in his political career and I think there could be opportunities which all of us will be happy to to pick up in the next couple of weeks.”

Stock Watch - Stock Picks - Discovery and Caterpillar

Jonathan Fisher from PSG Wealth Sandton chose Discovery as his stock pick of the day and Drikus Combrink from Capicraft chose Caterpillar Inc

Fisher said: "Discovery is trading at 1.39 times embedded value which is a lot higher than its peers. The reason is that historically they have grown at a much faster rate than the peers and their profitability of new businesses gathered and grown has been very good. They have come off over the past couple of months and that was after their last set of numbers were released end of Feb 2019. We think in 2 to 3 years time, at these levels there will be value forthcoming.

Combrink said: "Caterpillar is sitting at 11 PE (price earnings ratio) which for a company that has cyclical end markets and the earnings base is really high at the moment. 2018 earnings came in fairly high. The company is quite diversified and what you have seen in the last ten years is that the end markets aren't completely synchronised and not all of them are in a down swing at the same time and despite them being in a cyclical market they are the leaders in their field with a tremendous competitive advantage, according to Morning Star's research it would need about $20 billion in investment just to replicate what they already have, that is an enormous other mote in addition to the brand name they already have.

Stock Watch - Stock Picks - Microsoft and Laboratory Corp Amer Holdings

Nesan Nair from Sasfin Securities chose Microsoft as his stock pick of the day and Ricus Reeders from PSG Wealth Sandton chose Laboratory Corp Amer Holdings.

Nair said: “I'm going on Microsoft, their results came out a few weeks ago and I think that we are seeing the very early stages of people migrating and starting to trust this cloud platform. Microsoft has positioned itself extremely well to be able to benefit from this. Initially they've had quite a few quarters now with very good results coming out of cloud but you get the sense that they really entrench themselves in this now this is going to be a big growth area for them.”

Reeders said: "Laboratory corporation which is basically the set of laboratories that analyze medical results. They've come in to pressure, the whole sectors has come under pressure as a result of the Medicare Act that's been put in place in America, but this is probably the biggest one playing in that space. They've got a very strong balance sheet and very good cash flow. And in an American market that's I think is pretty heated at the moment - that's the kind of defensive company that I want to be in right now.”

Stock Watch - Stock Picks - Fortress RIET B and Metair Ltd

Nick Crail from Ashburton Investments chose Fortress RIET as his stock pick of the day and Mark du Toit from Courtney Capital Private Wealth chose Metair Ltd.

Crail said: " I would definitely be making a stop pick in the SA type of
environment. The stock I'm picking is Fortress B so the Fortress income fund is your higher risk option and there are two classes of shares there the B is the share that does really well when things are going swimmingly and gets absolutely pummeled when things are going badly, ultimately if one is positive on a turn around in SA Inc I think ultimately this is attractive prices to be getting into a stock like this. I do think earnings are going to disappoint for some time but really it comes down into that confidence of a turn around and as the turn around comes
through I think you'll see this rerate."

du Toit said: "I'm gonna pick Metair, a small industrial stock, they've been doing some interesting things they've also started now with a small investment in the lithium-ion business and looking at maybe going into electric vehicles or similar. Their share price came under a lot of pressure when they tried to buy a similar sized business to them in Europe and the market said no that's just way too big an acquisition for you to do and I think it scared market quite quite badly and there were some shareholders that jumped ship but since all of that has been taken off the table completely Value Capital Partners have taken a 10% steak last year so they have a much stronger shareholder base and their earnings recently we were pretty good."

Stock Watch - Stock Picks - KAP Industrial Holdings and cash

Nick Kunze from Sanlam Private Wealth chose KAP Industrial Holdings as his stock pick of the day and Joseph Busha from JM Busha Investments chose cash.

Kunze said: "Kap Industrial is very much a SA Inc play, we like the fact that that Steinhoff is no longer involved with a twenty six percent holding and they don't even have a representation in the board anymore.

The stock is trading at low blows in the teen PEs and if we managed to get through the elections quite smoothly I think this is one of the ones that will pick up"

Busha said: "Cash is king at the moment, the rand has been quite volatile and is now trading at around R14,50 to the dollar. So there's too much volatility and uncertainty in terms of SA. We hope Eskom has sorted out the electricity, we also hope that the oil price will stabilise between 65 and 70 so that there is no upward pressure. Given the volatility and the fact that the JSE has done about it 10%-11% year to date (just in the first four months) I think it is better to just hold onto your cash."

Stock Watch - Stock Picks - JP Morgan Chase & Mediclinic

Deryck Janse van Rensburg from Anchor Securities chose JP Morgan Chase & Co as his stock pick of the day and Gerbrand Smit from NeFG Fund Management chose Mediclinic.

Janse van Rensburg said: “I'm going abroad and choosing JP Morgan. Obviously we are on the back of some results and earnings season overseas and I think that the whole

banking sector overseas is actually reported stellar results and very strong results. On the back of good macroeconomic conditions and where the US market and economy is at the moment, I still think there's some room for growth. Yes the market is a little bit lofty in the short term since December lows. I would probably adopt in a sort of investment tactic to buy on weakness. I think the price to book ratio if you just look at the median on there to sitting at the moment at about 1.8 and that could expand to put towards about 2.3. I still think there is an upside on it - a patient investor should be well rewarded.”

Smit said: "I'm going for something that's been out of flavor for some time now and that is Mediclinic. About two years back everybody wanted to own the asset at around R220 a share, nothing could go wrong, they did a few purchases offshore in the Middle-East. Lots of things then went wrong in the Middle-East, regulatory issues where they had to do co-payments etc. Then, the regulatory issues in Switzerland so everything that probably could have gone wrong has gone wrong with Mediclinic in the earnings over the last two years. Everybody was running away from the share. It's now at around R64 a share"

Stock Watch - Stock Picks - SA Inc and Tech Stocks

Wayne McCurrie from FNB Wealth & Investments says to buy into SA Inc Companies, a bank or a retailer as his stock pick of the day and David Shapiro from Sasfin Securities chose to stick to Tech Stocks

McCurrie said: “I'm going to go with SA Inc. buy a bank, buy a retailer. Things can't get much worse so they will probably get a little bit better. Who knows what the election brings.. hopefully it's good news, but the fundamental rationale behind this - shares are cheap."

Shapiro said: "I'm still buying tech, waiting for the results to come out of Facebook on Wednesday evening and Microsoft on Thursday. That will reaffirm my faith and belief in them."

Stock Watch - Stock Picks - Jetblue Airways and CMH

Jean Pierre Verster from Fairtree Capital chose Jetblue Airways Corporation as his stock pick of the day and Drikus Combrink from Capicraft chose Combined Motor Holdings Ltd.

Verster said: "I'm choosing a global company as per usual, and Jetblue Airways is roughly the sixth largest US airline. It's a low cost airline and they recently announced that they are going to start flying to London. This will allow a lot more passengers to buy Jetblue tickets because of the new London route. They also have ver​y modern fleets with a few new Airbus A321neos, and this strategic choice that they made worked out quite well in relation to companies that chose the Boeing 737max. Also if you look at their margins it's lower than their competitors which means that there is an opportunity to get to the same type of efficiencies and increase those margins. They came out with their results in the last few days and their share price actually rose today notwithstanding a higher oil price which we would normally associate with lower share price for an airline because of the cost of oil."

Combrink said: "I choose Combined Motor Holdings a retailer that sell cars and I think they are well positioned with the locations that the operate in. I think the management team have done great allocations of capital, and overall they have done great in the recessionary environment. They've continued to manage costs in this environment knowing that we are in a difficulty environment. They've paid down a lot of debt and it's sitting at a 7 price earnings ratio. I think CMH is actually much shrewder operator and then their peers out there"

Stock Watch - Stock Picks - Glencore and Ethos Gold Corp

Greg Katzenellenbogen from Sanlam Private Wealth chose Glencore PLC as his stock pick of the day and Graeme Körner from Körner Perspective chose Ethos Gold Corp

Katzenellenbogen said: "I'm going again for Glencore, they are in the resources and I do believe that from a supply/demand point of view that copper will be under pressure. The copper price is moving quite nicely and I think Glencore is the best place to take advantage of a strong rising copper. I believe at these levels there is still some significant upside to the stock.

Körner said: "I'm going for Ethos once again, they came out with results to December a little while ago, steadily deploying the capital and is now up to around 80% deployed and committed. The portfolio is building nicely with a couple of portfolio assets not doing well but on balance far more are doing well. They are very seasoned and you are buying a very well diversified private equity book at a 30% discount NAV (Net Asset Value) and there is still cash sitting in there. What I also like is a few days ago we started seeing some of the Directors buying quite aggressively as well, I get the feeling that the shareholder base is stabilised and I think there is a window of opportunity to pick some up before it resets"

Stock Watch - Stock Picks - Super Group and Vukile Property Fund

Ashraf Mohamed from Arqaam Capital chose Super Group Ltd as his stock pick of the day and Mark du Toit from Courtney Capital Private Wealth chose Vukile Property Fund

Mohamed said: "My stock pick is Super Group, we have discussed the South African economy, we know how weak it is, we know how vehicle sales have been under pressure. However, I think we are coming to the bottom of that cycle in South Africa. The Australian business will remain under pressure on the motor vehicle sales side, on the logistics side there has been some margined compression but things are starting to pick up especially in Africa. We have seen a recession, although they have not admitted to it in Germany and we have also seen the German economy get some forward momentum. So, with that I think that the European logistics, African logistics and motor vehicles in SA will benefit and give it double digits earnings growth for the next twelve months."

du Toit said: "Sticking with the theme of quality stocks at the right price we like Vukile, we think their management team is particularly strong. We know Laurence Rapp and he is one of the smart, reliable and honest people and they have done a very good job at building up a very nice property portfolio. Roughly 50% in South Africa and 50% offshore - mainly in Spain. Spain is growing 3% GDP growth and 1% inflation so you have a tailwind there. Vukile is also trading at 8.5% dividend yield so at this price with this nice dividend yield, it's quite the stock to have"

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