Stocks in the ASX100 are well covered by analysts, and pricing inefficiencies are far harder to come by as a result. Picking through this index on the hunt for compelling value stock ideas for you, we screened for companies with either a particularly low price-earnings ratio, or an unusually high gross yield.
We then put our short-list to the test with our panelists for this week’s Buy Hold Sell. Tune in as Ben Clark from TMS Capital hosts Vince Pezzullo from Perpetual and Adam Alexander from Evans & Partners to ask which names measure up and which should be left in the bargain bin. We also asked each of our guests to name a stock that they believe offers compelling value today.
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Ben Clark: Welcome to Buy, Hold, Sell. I'm Ben Clark, and joining me today we've got Vince Pezzullo from Perpetual, and Adam Alexander from Evans and Partners. We're going to be looking at some stocks that look potentially compelling value in the ASX200, very tough area of the market out there of course, but we're not going to be talking about enterprise value to revenue metrics, which seems to be a tool increasingly used.
We'll start with Alumina, Vince, you could've bought this one cheaper 20 years ago. Surely it's cheap now. Buy, hold, or sell?
Vince Pezzullo: Hold here. Div's probably okay. Aluminium market's probably in balance, but there is still risks that the base metal prices haven't started moving. That's always a tell-tale sign for us.
Ben Clark: Okay. Adam, this has been a terrible stock to own long term, but a great trading stock. Is it a buy at the moment?
Adam Alexander: We think it is a buy. I think it is at the bottom end of its trading range. The alumina price has come back. We think the aluminium market looks okay longer term. 8% yield, we would buy it.
Ben Clark: Okay. And Nine Entertainment. A lot of corporate activity. We're being told it's a digital company, but looks cheap. Buy, hold or sell?
Adam Alexander: We are a buy. I think the merger creates a national platform of print and TV. Those businesses will never shoot the lights out, but there does look to be some value in the online businesses. So Domain and Stan there. And we think that yield is sustainable.
Ben Clark: Okay. Vince, do you think this is making the transition to digital well? Buy, hold or sell?
Vince Pezzullo: Sell. The digital business they brought in is actually quite cyclical. It's a housing-exposed stock. But they are doing the right things, but for us a bit lower is probably at our preferred entry point.
Ben Clark: Okay. And then Platinum. Now, you could have bought this one ... This one is actually trading below where it floated at 12 years ago. Is it a buy or hold, sell? You know the funds management business well.
Vince Pezzullo: Yeah, hold. We quite like the way that they're actually quite contrarian investors. So at some point, it's probably the right place to be, but not right now.
Ben Clark: Okay. Adam, $24 billion in FUM when they floated. I'm sorry, 22. It's up to 24 now, despite what the MSCI has done it hasn't been a great performance. Buy, hold or sell?
Adam Alexander: I agree with Vince here. It's a hold. Contrarian investments probably hurt them a little bit, causing some fund outflow. And so at the moment, probably, we'll sit on the sidelines there.
Ben Clark: Okay. Now, I've asked you both to bring along the stock that you like value-wise. Start with you Adam, what do you reckon?
Adam Alexander: I'm going to go with Oil Search. I think it's got some really great assets in LNG. So the PNG LNG, and some really good upside optionality in the Alaskan oil assets. Trading at the low end of its range at the moment. We like the oil market longer term. It's been a bit of under-investment in conventional oil. U.S. shale is getting more expensive to get out of the ground, and just with the CEO transitioning out of Oil Search, there may be some corporate appeal around it. So, at these levels, we think it's a great value.
Ben Clark: Okay. Vince, another one other than Oil Search. Good value at the moment.
Vince Pezzullo: For us it's Graincorp. There's a bit of, again, corporate activity going on. It's breaking the business up in two pieces. We like the new Graincorp. Ever since they put the derivative instrument in, it's taken out the bottom end of the volatility in earnings. So we get $750 to $800 million for that business. And the malt business being global, independent ... The largest global independent malt producer, you know, selling to crafts beer and the liquor market, and it's a full service offering that's pretty unique globally. We think that's worth north of $1.5 billion. So, we quite like Graincorp.
Ben Clark: Okay. Well the price is what you pay, and value is what you get.
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