Buy Hold Sell: 3 Christmas specials and 2 for a turnaround
It's beginning to look a lot like Christmas. Fairy lights are out in force, sky-high pine trees adorn every office, and Australians are out painting the town a festive shade of red.
And while we have suffered through a touch of volatility over the past few weeks (thanks to a new COVID-variant), December, as it has in previous years, has started out with a bang.
The S&P/ASX 200 has lifted nearly 2% over the past week. But there are still some stocks that could rally further as we head into the New Year and beyond. These include Tyro Payments and Harvey Norman, both of which could benefit from the annual Christmas rush, as well as Qantas Airways - whose planes are already taking off (both domestically and internationally) while its share price stalls.
In this Christmas special, Livewire's James Marlay is joined by Tribeca's Jun Bei Liu and Market Matters' James Gerrish for their thoughts on these three beaten-down stocks. Plus, they also name two stocks that are ready for a turnaround in 2022.
Note: This episode of Buy Hold Sell was shot on Tuesday 7th December 2021. You can watch, listen or read to an edited transcript below.
James Marlay: Hello and welcome to Buy Hold Sell, brought to you by Livewire Markets. My name is James Marley, and I'm joined by James Gerrish from Market Matters and Jun Bei Liu from Tribeca. Now it's the end of the year and markets are getting the wobbles. We've had a bit of news around a new type of COVID variant. Tech stocks are getting the wobbles. So we thought we might have a look at a few stocks that are doing it tough and see if we can find a few diamonds in the rough.
Jun Bei, I'm going to start with you. Tyro had a shocking start to the year. Good middle. And then it's been sold off again since the AGM update. Is it a buy, hold or sell?
Tyro Payments (ASX: TYR)
Jun Bei Liu (HOLD): Tyro is a hold for me at the moment. They have had a really tough update. It's partly because they didn't communicate properly in terms of the contract they have with the large bank Bendigo, in terms of margins and misunderstanding and all of that. Another reason for underperforming is that all the non-profitable techs have been sold off. So it's just a market going through a different phase at the moment. It's a hold because the earnings are still doing pretty well. It's recovering from the pandemic lockdown and it's expected to grow significantly. So I think it's a hold.
James Marlay: Okay, James. Tyro, it has been a tough year. Buy, hold or sell?
James Gerrish (BUY): It's a buy for me. I'd go one better than Jun Bei. I think what they saw a couple of months ago around the margin issues and the fact that the market believed they were very unlikely to meet their full-year guidance - I think that'll prove to be transient. So the total transaction value is still considerably increasing very strongly. So for me, if you look out 12 months, it's a buy.
Qantas Airways (ASX: QAN)
James Marlay: Okay. Qantas. I'm hoping to go surfing in the Maldives next year. Buy, hold or sell?
James Gerrish (BUY): It's a buy for me, James. I think it's one of those businesses that has made good use of the pandemic, and I don't say that lightly. Obviously, management has taken a challenging period, worked with it and right-sized the business for the future. They've done a whole bunch of things around their cost base. The domestic market has become a lot more rational. So for me, it's a buy.
James Marlay: Okay. Jun Bei, on Qantas, do you buy, hold or sell?
Jun Bei Liu (BUY): It's definitely a buy. The share price has come off as the new variant sends a bit of fear around. My view is that this company's going to make most of its high-margin money around Australia, rather than in international travel, and that's well on track. And then the queues and the waiting list in one year's time — the holiday travel is enormous. So this company is well leveraged to it. And as James said, they have right-sized their cost base. And in the next 12 to 18 months, once we've returned to normal and more borders open, it's going to deliver significant returns to shareholders. So it's definitely a buy.
Harvey Norman (ASX: HVN)
James Marlay: Okay, great. Now 2020 was the year of the retailer. 2021 has been a bit tougher for Harvey Norman. Buy, hold or sell?
Jun Bei Liu (HOLD): It's a hold. I'm sorry, I've got two holds today. The tough condition is that one, we had the lockdown, which affected the first quarter this year. And as that reopens, things will look a bit better. However, there are a lot of supply chain issues at the moment. You can't get product and hence you can't sell properly. And at the same time, the retailers were a big beneficiary of the lockdowns. People were home and bought things online. So for Harvey Norman, I think it's in that neutral territory. It's still a great business. And I think it's well on track to deliver more capital returns post the first-half results. So it's in neutral territory.
James Marlay: Okay. Gerry Harvey — a hard one to keep down. Can we keep the share price down much longer? Buy, hold or sell?
James Gerrish (BUY): It's a buy for me, James. The big tailwind for the retail sector, and I think Harvey Norman will be a beneficiary of it, is high household savings rates. There is $300 billion in household savings accounts since the pandemic. That's 14% of GDP. That's a wall of money. Harvey Norman is trading at about 11 times, about 30% cheaper than JB Hi-Fi. So I think that discount is not warranted. It's a buy.
Stocks to add to your Christmas stocking
James Marlay: Okay. We've asked you to bring along something with quality, but a depressed share price. Is there something that we can put in the Christmas stocking? Something that's going to do well for us next year? What have you got?
James' pick: AGL Energy (ASX: AGL)
James Gerrish: I missed the component about quality, but I've certainly got one that's been depressed over the last 12 months. It's AGL Energy. It's down 53%. I think it's the fourth worst-performing stock on the ASX 200 this year. A large portion of that drop is correct, but it now becomes an asset at play. So it is trading at around $5.50 a share. It's cheaper than its retail business. So that for me is a buy, and will do better in '22 than it did in '21.
James Marlay: Okay. AGL for James. Jun Bei. Have you got something that's been on the floor, been carted out, this year?
Jun Bei's pick: A2 Milk Company (ASX: A2M)
Jun Bei Liu: Absolutely. A2 Milk is our name. I know it's a tough name and it has certainly polarised the market.
James Marlay: I think it's competing with AGL for one of the worst five performing stocks of the year.
Jun Bei Liu: You can't go wrong with infant formula. A2 is a name we liked many years ago. It's got a great brand and it has established distribution channels into Asia. And it's got a business in the US and Australia market. It's got a good market position. Now, during the pandemic, they've been hurt by pantry stocking. The mothers in China, when the pandemic first hit, bought all the inventory possible. And now, it's taking 12 to 18 months to really clear those inventories. And they're putting pressure on price and volume. But the good thing is that the company doesn't have any debt. It's sitting with close to $600 million of cash.
It's still got a great brand and we're seeing green shoots in some of its distribution channels. Things are looking better and we just had a couple of those online events, like Singles Day, and the data from those are looking pretty positive. Pricing is up and volumes are good. Green shoots are looking promising and it's clearly much cheaper than what it was. And the share price is still pretty much at an all-time low. My view is that it's going to really recover in the next 12 months.
James Marlay: Well, James and Jun Bei have found two stocks from the dog's list that they're hoping are going to be darlings in 2022. I hope you enjoyed that show of Buy Hold Sell. If you did, hit the subscribe button on YouTube because we've got heaps of cracking content coming to you over the Christmas and New Year period.
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Buy Hold Sell is a weekly video series exclusive to Livewire. In each episode two fund managers give their views 'Buy, Hold or Sell' on five ASX listed companies. Not recommendations, please read the disclaimer and seek advice where appropriate.