Buy Hold Sell: 4 outperformers and the ASX's most shorted stock
The last 12 months in markets have sure been wild. On average, the top five gainers across the ASX 200 returned a whopping 371.5%. And no to you cynics out there, that wasn't all driven by Afterpay. The biggest gainer was in fact Pilbara Minerals, an emerging lithium miner up 551.9% since April 2020.
While growth stocks and stay at home plays dominated markets in 2020, Q1 2021 has told a different story as value and cyclicals make their comeback. It has got the Livewire team thinking, have these stocks run too hard?
So, in this episode of Buy Hold Sell, Livewire Market's Ally Selby is joined by two long/short experts - Perpetual's Anthony Aboud and Sage Capital's Sean Fenton – to determine whether it's time to turn short or stay long on these winners. Plus, our fundies weigh in on the ASX's most shorted stock.
Note: You can watch, read or listen to the discussion below. This episode was filmed on 14 March 2021.
Ally Selby: Hello and welcome to Livewire's Buy Hold Sell. I'm Ally Selby, and today we're talking about a handful of stocks that have had nothing short of a tremendous 12 months. I'm joined by Perpetual's Anthony Aboud and Sage Capital's Sean Fenton, to discuss these four ASX outperformers. Plus they'll share their view on the ASX's most shorted stock.
Afterpay (ASX: APT)
First up we have Afterpay and Sean I'll start on you. Its share price has lifted around 330% over the past 12 months. Lucky shareholders. Is it a buy, hold or sell?
Sean Fenton (BUY): It's a tough one. It's gone up a long way, but I'll sit with buy at this stage. It is a global leader in buy now, pay later with a massive pipeline of growth ahead of it. It is very hard to put a valuation on it, but whilst we're seeing that momentum and that land-grab continue we might as well just stick with it.
Ally Selby: They've actually released a digital card themselves recently. It kind of feels like they're on the verge of world domination. Anthony, do you think it's a buy, hold or sell?
Anthony Aboud (SELL): Look, respectfully, I think it's a sell. I'm probably the wrong person to ask since I've got this wrong for a while. My problem is for $35 billion what are you getting? And that's not to mention the risks involved. They're facing regulatory risks, credit cycle risks, and even margin risk with their partners. But you know what? I've been wrong to date. I could be wrong going forward.
Lynas Rare Earths Ltd (ASX: LYC)
Ally Selby: Okay, next up we have Lynas Rare Earths. Its share price has lifted more than 315% over the past year. Is it a buy, hold or sell?
Anthony Aboud (HOLD): Sitting on the fence, I've got a hold on Lynas. The setup for rare earths is just fantastic at the moment. You've got 80% of rare earth materials manufactured in China, and Lynas is the biggest producer outside of that. So strategically it's very important as people move away from China. The demand for resources is going to come from wind turbines and electric vehicles. So the demand sides there, I just think you're paying a lot for it, and the market is extrapolating current prices for a long time. I prefer Iluka Resources (ASX: ILU) in this space because I don't think you're paying much for that rare earths exposure.
Ally Selby: Sean it's a stock that our readers really love. It was among our most tip small caps for 2021. It's done pretty well so far in the first quarter, it lifted 47%. Is it a buy, hold or sell?
Sean Fenton (HOLD): I think it's probably a hold, maybe a sell despite actually owing Lynas for a long time. I do like the rare earths space, particularly as conflict with China plays out and we try to get supply chains away from there. But at the end of the day, rare earths aren't that rare, they're just very expensive to separate. Very polluting too, which is why China dominated so much of that market for a long time. So there's definitely tension in the price there, but it probably won't last forever. It's had a great run so maybe a hold or take some profits.
PointsBet Holdings Ltd (ASX: PBH)
Ally Selby: Next up we have PointsBet, which is the online bookmaker making strides in the US. Over the past 12 months, its share price has lifted more than 288%, which is pretty amazing. Is this a safe or risky bet for investors? Is it a buy, hold or sell?
Sean Fenton (HOLD): Yeah, it's a very tough one. Hold - probably even a sell for me. It does have a great growth pipeline. They're obviously moving to sports betting in the US which is just opening up. There's a massive land grab going on, but I think ultimately what we've seen in wagering is that it can be a very competitive space as well and expensive in terms of advertising to maintain your customers and market shares. So I'm uncertain about the long-term margins there.
Ally Selby: It actually reported a loss of $85.6 million for the first half. Do you think the catalyst for growth here outweighs the risks? Is it a buy, hold or sell?
Anthony Aboud (SELL): I've got it as a sell. I think they've done a good job in Australia. Through the consolidation, they'll probably be the third biggest sports wagering company in Australia. But when you're paying $4.5 billion in market cap, you need the US to go well. My problem is that I think the small guys are going to really struggle against the big players like DraftKings and FanDuel in as far as customer acquisition costs. The customer acquisition costs for PointsBet will be double that of the big guys, and so it's going to be hard for the small guys to compete in my opinion.
Xero (ASX: XRO)
Ally Selby: Right, let's talk Xero, the accounting software provider. Its share price has lifted 77% over the past year. Is it a buy, hold or sell?
Anthony Aboud (HOLD): Great business. This is a Hold for me. It's a great business - it reminds me of Netwealth where the customers all love the product. It's a great business with a great growth profile. Their execution has been very good to date and the management is good. I just can't get the valuation to stack up.
Ally Selby: Sean, do you agree? Is it a buy, hold or sell?
Sean Fenton (HOLD): It's probably a hold, and if it goes up much further, probably approaching a sell. A fantastic growth story; a real success story. Obviously, they provide SME accounting software and exposure to that theme. But they do have competition out there, like the US-based Intuit. Without the ability to actually capture a large market share in the US market then they will struggle with the current valuation.
Webjet (ASX: WEB)
Ally Selby: Next up we have Webjet, which is the ASX's most shorted stock. Is this as a buy, hold or sell?
Sean Fenton (SELL): For me, it's actually a sell. It's actually done really well to bounce back from COVID. You might look at a share price chart and think, "wow, it's still cheap". But they've done at least two - Anthony was telling me maybe even three - equity issues in the last 12 months. Due to that, their market cap is now greater than it was pre-COVID. There's still a lot of challenges out there for Webjet, like the way people travel. It's not necessarily the end of the pain in terms of generating cash flow for the business. For me, the value is not there for a company with so much uncertainty and earnings risk.
Ally Selby: Anthony, there's actually nearly a 16% short position in Webjet. Is it a buy, hold or sell?
Anthony Aboud (HOLD): Yeah. I might stick with a hold here. As I said-
Ally Selby: A lot of fence-sitting going on.
Anthony Aboud: I've had a few sells. I think relative to most of your guests, I've had more sells than most.
The only reason I say hold is that I think it's a dangerous sell. With a big short interest like that, it can be dangerous to be short here. One thing working in their favour is that this is one of the companies people go to for exposure in the reopening trade. But I do agree with Sean. It has a higher enterprise value now than pre-COVID and I'm not 100% sure that the outlook is better.
Ally Selby: Yeah, fair enough. Well, that's all we have time for today. We hope you enjoyed this episode of Buy, Hold, Sell. If you did, why not give it a like. Remember to subscribe to our YouTube channel so you never miss an update.
What company do you think has run too hard?
There's a lot of companies that have outperformed in the last 12 months. So, which do you think has run too hard? Let us know.
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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.