Who knew that in 1982 when Fat Larry’s Band sang “Zoom” that it would become synonymous with the name of the A$57 billion software company that’s enabled the work-from-home era? Despite mass-lockdowns, Zoom and a bunch of other companies are seeing their share prices ‘flyin’ high in a neon sky’ amid the coronavirus economy.
In this global equities special, Nick Griffin of Munro Partners and Charlie Aitken of Aitken Investment Management chat to Matthew Kidman about the prospects for Zoom (NAS:ZM); media streaming app Spotify (NYS:SPOT); e-commerce and cloud titan Amazon (NAS:AMZN) and COVID-19 vaccine frontrunner Johnson & Johnson (NYS:JNJ). They also nominate 2 other high quality, reasonably priced stocks which may see ‘no turnin’ back’ down the track.
Notes: You can access the video, podcast or edited transcript for this Buy Hold Sell episode below. This episode was filmed on 7 April 2020.
Matthew Kidman: Welcome to Buy Hold Sell, brought to you by Livewire Markets. I'm Matthew Kidman, and today I'm joined by Nick Griffin from Munro Partners and Charlie Aitken from Aitken Investment Management. And it's the coronavirus economy. Who would have known in 1982 when Fat Larry sang Zoom that he'd have a $57 million company on his hands? Zoom Video Communications. We're all using it. Nick, buy, hold or sell?
Zoom Video Communications (NAS:ZM)
Nick Griffin (Sell): It's a sell, I'm afraid. It's $57 billion actually, and that's the problem. So we like the product a lot. It's a great user experience, but at $57 billion is a bit too expensive for something that I get with my Microsoft subscription, quite frankly.
Matthew Kidman: Charlie, we can't go without it these days. We're Zooming everywhere. Buy, hold or sell?
Charlie Aitken (Sell): Sell. You can go elsewhere. You can use Microsoft Teams. And I think when you've seen something go from 10 million daily users to 200 million daily users and the stock up 90%, as Nick says, $57 billion, too rich for us.
Matthew Kidman: These days you're not allowed to socialise. Spotify gives you some entertainment, not expensive. Buy, hold or sell, Charlie?
Charlie Aitken (Sell): We're going to sell on Spotify. We don't like the music streaming business. We think that the music labels really control the industry. We think it's just a distribution business and we think that some of the podcast demand will actually be going down in the current environment because people aren't commuting to work.
Matthew Kidman: Nick, I see you as a bit of a muso. You love your music. Spotify, buy, hold or sell?
Nick Griffin (Buy): Yeah, look, we've got it as a buy, I'm afraid. It's $20 billion. It's one of the few players in the music streaming industry. The whole world will go to music streaming. You'll have to wait a long time, but it should work in the long run.
Matthew Kidman: Now, one of your favourites, logistics, internet services, bigger than the river itself. Amazon, buy, hold or sell, Nick?
Nick Griffin (Buy): Oh, it's definitely a buy. Look, it's been our number one position in the fund since day one at Munro. Number one position since 2013. And I honestly think it will still be the number one position five years from now. It just wins in two major areas and I just can't see who's catching them from here.
Matthew Kidman: They almost control the world, Charlie, and even President Donald Trump doesn't like them. Buy, hold or sell Amazon?
Charlie Aitken (Buy): Buy. In our top three. Agree with Nick on all those comments, but also there are many people who've used Amazon for the first time in the last three weeks, and e-commerce is about getting new adapters and new people and new customers. I think that's been a big moment for Amazon. I think the stock's cheap. I think it's a strong buy.
Johnson & Johnson (NYS:JNJ)
Matthew Kidman: Let's go, oh, well, healthcare, consumable goods, Johnson & Johnson. Buy, hold or sell, Charlie?
Charlie Aitken (Hold): Hold I'd put on J&J. 50% of its revenue from pharmaceuticals, 30% from medical devices. That's obviously getting benefited at the moment, but also the overhang of many litigation problems as well. So just a hold for us.
Matthew Kidman: Nick, what do you think? It's had a lot of problems around litigation and whatnot, but it's really in the zone at the moment as we need all their products. Buy, hold or sell?
Nick Griffin (Hold): We're hold as well. It's a bit boring. You can probably find better with individual companies. The last thing I'd just say is, look, medical devices, elective surgery's on hold at the moment. So we've had a few problems with those stocks lately.
Pernod Ricard (ETR:PER)
Matthew Kidman: Okay. Here's your chance, what's one stock that's going to do really, really well in this coronavirus economy? Nick?
Nick Griffin (Buy): Yeah. So one stock that's oversold that we still think we really like and it's at a reasonable valuation will be Pernod Ricard. I personally know that my alcohol consumption has probably ticked up a bit, and I don't think I'm the only one here. And so from that point of view, stocks 25% of its highs, you're paying less than 20 times earnings, you get a 2.5% yield, and spirits consumption structurally grows over time as people get richer and as the emerging markets evolve towards premium spirits. So it's a fairly simple, safe business in this environment and you're getting it at a discount valuation.
Matthew Kidman: Charlie, something you've got that's going to keep us healthy?
Well, I don't know if it's going to keep us healthy, but it's in the right spot at the moment. I still like Alphabet. I think Alphabet looks cheap on a 5% free cashflow yield. Will still be growing revenues at mid-double digits despite that pulling back a bit on the ad spending at the moment. Still the dominant search engine. $132 billion of cash on its balance sheet. Just looks like a business with great optionality to me with the Other Bets business as well. So I think Alphabet looks cheap down here. I think, look, there'll be some slight negative earnings revisions in the current quarters, but I think you're buying a tremendous business that's dominating its field.
Matthew Kidman: The coronavirus economy. It's infectious, but there's some stocks out there that are totally immune.
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Well, it wouldn't take a genius to figure out that these stocks have a pipeline of upside... this is just the low-hanging fruit. What about looking for tomorrow's growth stocks..?
When a company becomes a verb, buy buy buy. Unless it is valued at $57 biggg ones