CSL, Afterpay, Macquarie Group, BHP Billiton and Fortescue Metals Group ranked as top 5 among Livewire readers’ most tipped big-caps for 2020. If you missed it, this list singled out the big-caps that received the lion’s share of the 7,000 tips from our annual reader survey. The stakes, like some of their valuations, are mighty high.

We invited Matt Williams from Airlie Funds Management and Jun Bei Liu of Tribeca Investment Partners to discuss whether the punters are right to stick with these big-caps, or if it’s time to cash in some chips.

Notes: You can access the video, podcast or edited transcript for this Buy Hold Sell episode below. This episode was filmed on 29 January 2020.



Transcript

Vishal Teckchandani: Welcome to Buy, Hold, Sell brought to you by Livewire Markets. My name is Vishal Teckchandani and today we're going to talk about the five most tipped big-cap stocks among Livewire readers. Our audience has big hopes for these stocks, but do our experts reckon they'll fall short this year? 

Joining me on the panel is Matt Williams from Airlie Funds Management and Jun Bei Liu from Tribeca Investment Partners. 

  1.  CSL (ASX:CSL)

Vishal Teckchandani: Jun Bei, let's start with you. CSL, the perennial superstar of the Aussie share market. Buy, hold, sell?

Jun Bei Liu (Hold): It's a hold for me. The company, like you said, is a perennial surpriser on the upside and the company's done very well; there are significant tailwinds in the industry dynamic. We do expect it will deliver pretty good results even though the share price has run very hard. So on that basis I'll probably put it on a hold, but it's very hard to see how that slow down in terms of growth and double-digit growth compared to what other companies offer, which makes it quite a standout.

Vishal Teckchandani: Okay Matt, it's certainly got the blood pumping; past $300 what do you reckon? Buy, hold, sell?

Matt Williams (Hold): It can only be a hold. It's always looked expensive and it's still always done well. But at the moment it's particularly expensive I think. All the good news, as Jun Bei talked about, it's out there, people know that. But it does seem to have a long runway and hence the hold. I think the position in the market, the weakness of the competitors, the strength in the demand for their product. I think it's going to go for a while longer. And so hence the hold.

2. Afterpay (ASX:APT)

Vishal Teckchandani: Okay. Staying with you. Next stock, Afterpay, the buy now, pay later sector leader. Buy, hold, sell?

Matt Williams (Sell): It's a great concept. I wish I'd thought of it, but it's a sell. It's priced for perfection. Tthe forecasts are for $500 million in EBIT in three or four years time. I don't think that's going to happen. There's plenty of competition. There's five or six even listed competitors here in Australia. The big guy, Klarna, is on its way as well. And that also assumes that the 4% take rate that they take from the merchants doesn't move. If that 4% becomes less, and a lot less, then that's really problematic. So priced for perfection to sell.

Vishal Teckchandani: Okay. Jun Bei. In the case of investors is it sell now, buy later?

Jun Bei Liu (Buy): It's buy now and buy later. Look, I like Afterpay. It's done incredibly well in the last 12 months and over multiple years. Yes, there's a lot more competition domestically. But we have seen again and again that market leaders in those online or disruptive spaces generally dominate those markets because they deliver the value proposition for its customers - in this case retailers.

And they're very much linked to the online spend. So we all have seen how strong Black Friday, and Cyber Monday were. And increasingly, they're becoming such a critical component of the sales period. And Afterpay's well linked to that sort of space. So we expect them to deliver good results. And guess what? They've gone to the U.S. market and the initial take over the last 12 to 18 months has been incredible, far exceeding what anyone expected and they are in the UK market as well. The initial indication has been very strong. So to me, it's a buy.

3. Macquarie Group (ASX:MQG)

Vishal Teckchandani: Okay. Next on the list is Macquarie Group. Buy, hold, sell?

Jun Bei Liu (Hold): Look, I think Macquarie is probably a hold for me at this point. I understand current market conditions have been very strong. We've seen the offshore investment banks all deliver pretty strong results, beating expectations in the last few weeks. And in its upcoming update, we do expect them to reiterate the guidance. There is some expectation of them upgrading it. I don't think it's likely because they're cycling some pretty strong commodity returns from last year. So to me, it's a hold at this point.

Vishal Teckchandani: Okay. Matt, can the millionaires' factory keep on giving?

Matt Williams (Hold): I think it can, but it's still a hold for me. I think it's hard to forecast what the profits are. You really rely on Macquarie. They're in a lot of things, but the jewel in the crown is Macquarie Asset Management. And look, if you wanted to put that on a Magellan (ASX:MFG) multiple, because it is a great fund management business, one of the best and it dominates in that space, that infrastructure space. Put it on a Magellan multiple and you could make a case actually that it is a buy. So it's a strong hold for me.

4. BHP Billiton (ASX:BHP)

Vishal Teckchandani: Okay. Number four on the list, BHP, the world's largest diversified miner. Are you backing the big Australian?

Matt Williams (Buy): I am. It's a buy I guess, but who knows what the iron ore price can do. I've been around a long time and no one that I know has ever been able to predict the direction of the iron ore price successfully for any period of time. But at the moment they're looking very strong. Strong balance sheet, we're going to get some great dividends. They've got a nice bit of diversification within the business. It all looks pretty good. So as long as that iron ore price goes stronger for longer then BHP will do well.

Vishal Teckchandani: Okay. Matt makes a pretty strong case. What do you reckon, Jun Bei?

Jun Bei Liu (Buy): I think BHP is a buy for me. I think overlay that with macro fundamentals, BHP and Fortescue are very much about commodity prices and BHP is well-diversified but still quite a big earnings, big price driver is determined by how well China is going for example. And we're reasonably bullish in terms of economic fundamentals for China and the U.S. and just given the ceasing of trade conflicts and the few other things in China which have stimulated the economy enormously. We expect that to see pickup in demand. Now this virus, Coronavirus, is putting a bit of pressure. Of course we have to see how that might work out. But right now we do think the fundamentals are very strong for the miners.

5. Fortescue Metals Group (ASX:FMG)

Vishal Teckchandani: Okay, last on the list, Fortescue. Buy, hold, sell?

Jun Bei Liu (Buy): It's a buy for me. But look, it's again based on how that Coronavirus might eventuate out of China and how they might deal with it, and the follow on impact. But right now we do see upside to a lot of commodity prices simply because China has stimulated significantly. We are expecting to see pickup in fiscal stimulus, in infrastructure spending, so that will translate into demand. And Fortescue is very much linked to that.

Vishal Teckchandani: And Matt, what do you reckon?

Matt Williams (Hold): It's a hold for me. I think to have both BHP and Fortescue as buys would be a bit too much for me, be too much iron ore exposure. But again, it'll be a beneficiary if the iron ore price stays high. And as we know, it's the high cost, the most leveraged to the iron ore price. So if things go worse, then Fortescue will go worse than BHP. So for that reason, it's just a hold.

Vishal Teckchandani: Okay. Livewire readers may have big hopes for some of these big caps, but our experts reckon that for some of them, the big returns have already been made.

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James Marlay

Great job Vishal, great initiative to make the show available as a podcast too. Look forward to many more great episodes in 2020.

michael magill

I am enjoying this content. Keep up the good work.

David Smith

I cannot believe that Afterpay is a buy, it is the visa/amex model will higher fees. Competition will eventually take away the high fees or the ASIC

Alex Cowie

"Buy now and buy later" ... I enjoyed that Jun Bei. Also loving the bullishness on the big miners!

Parth Desai

Hi James, what is the link to the podcast? is it part of the Rules of Investing?

Parth Desai

Found it thanks

James Marlay

Hi Parth, no the podcast is seperate to The Rules of Investing. We had a number if readers request that we make Buy Hold Sell available as a podcast - which we have now done. We're trying to make as much of our content available in multiple formats to suit the preferences of our readers. If you'd rather listen to Buy Hold Sell you can subscribe to the show on Apple iTunes via this link: https://podcasts.apple.com/au/podcast/buy-hold-sell-by-li...

Vishal Teckchandani

James: Thanks so much, couldn't have done it without your help! Michael: Glad you're enjoying it and we appreciate the feedback. David: That certainly is a risk! I like that Matt and Jun Bei have different opinions though - it's good to have two different perspectives so that investors can make an informed decision.

Jordan

Great episode - again, and welcome to the LW team Vishal. And of course Jun Bei is right about AfterPay. 😎

Adrian Cachia

Well done Vishal and great to have the option to watch, read or listen to these... Interesting to see the hype building about Klarna... after their 1st day in Australia their shopping app was #2 in the App Store!

Simon James

Klarna couldn't beat Afterpay enough to stop it being added to the JD Sports UK app and as the sole and first bnpl provider to Marks & Spencer - Europe is their home territory and they are still losing share. Klarna wouldn't have had to sell part of itself to H&M and CBA at only $5.5b valuation on 85m customers if they were actually succeeding. Read customer reviews for both products. Lastly, how many stores surcharge credit card fees? Basically nobody. RBA is a massive red herring. Do your own research and don't rely on my opinion.

Ashok

Excellent content, kudos to the team, watching afterpay from the ipo & can't believe it's meteoric rise in such a short span!!

Kevin O'Donoghue

Thank you so much for the transcript, video presentations do not suit the hearing impaired unless they are captioned

SR V

Loving these longer formats. I hope this continues to be the norm for B/H/S. I wouldn't even mind them extending out to the 15-20 mark!

Michael Whelan

Just like some people have a wallet full of credit cards, many now have a phone-full of BNPL providers. We'll see how this plays out, but few sympathies for the consumer.