One way to beat the crowd is by betting against it. It's a strategy known as contrarian investing and it involves buying stocks out of favour with the broader market, with a view that they will produce outsized gains in the event of a successful turnaround (think Tesla recently).
But cheap shares are often cheap for a reason - businesses that have seen their share prices tumble are usually in trouble, and just because something has gone down doesn't mean it won't go down further.
In this episode, Ben Clark of TMS Capital and Matt Haupt from Wilson Asset Management sift through 5 ASX-listed contrarian candidates and opine on whether they're poised for a stunning turnaround or are classic value traps.
Notes: You can access the video, podcast or edited transcript for this Buy Hold Sell episode below. This episode was filmed on 26 February 2020.
Vishal Teckchandani: Welcome to Buy, Hold, Sell, brought to you by Livewire Markets. My name is Vishal Teckchandani. If you like movies with a bad ending, then this episode is for you. We're going to talk about three beaten-down stocks and two you might want to axe from your portfolio. Joining me on the panel is Matt Haupt from Wilson Asset Management and Ben Clark from TMS Capital. Ben, let's start with you. Altium, the first-ever miss since it was inducted into the Wax Group. Buy, hold, sell.
Ben Clark (Buy): Yeah, I'm a buy on Altium. I think they actually came in at the lower end of their four-year guidance, and that was despite a small corona issue and an issue in the Octopart business. This is going to bounce around with sentiment towards the markets, but I think the company continues to execute towards its 2025 plan. If you take a longterm view, I think this is a good entry point again.
Vishal Teckchandani: Matt, do you share Ben's optimism here?
Mattew Haupt (Sell): No, I want to go with a sell. I think the flag risks around guidance, which is very much a red flag for us. That gives them their out for next downgrade, so for us, there's another downgrade coming and it's a sale at the moment.
WiseTech Global (ASX:WTC)
Vishal Teckchandani: Okay. Matt, speaking of red flags, we're going to move on to WiseTech Global. Short attacks, missing guidance, seems to have the whole marks of a horror movie. Buy, hold, sell.
Mattew Haupt (Hold): Well, this is tough one. I'm going to go with hold. I would normally say sell on this one, but I think a lot of the hard work has been done now by the share price. For us, we're not going to own it, but I think it's a hold if you had it in your portfolio at the moment.
Vishal Teckchandani: Ben, how do you feel about WiseTech?
Ben Clark (Buy): Yeah, I'll be a buy on this one as well, although I think this one is potentially at risk of a second downgrade because they have sort of put a fairly definitive date when they want to see coronavirus and China get back on its feet and things moving again. But again, I think if you're taking a long-term view, they've built an incredible platform that global logistics companies are now very reliant on. We see volumes and activity returning to normal levels in time, and with that, I think will come a recovering WiseTech share price.
Medibank Private (ASX:MPL)
Vishal Teckchandani: Okay. If there's one thing that scares Australians, it's premium increases on private health insurance. Medibank Private. Buy, hold, sell.
Ben Clark (Hold): I'll be a hold on this one, because it has come off pretty significantly. And Craig Drummond is doing a very good job in a very difficult environment, but I think that's the point. The environment's difficult, and I can't see what's going to be the change unless we get some radical federal government new policy, which we just aren't seeing anywhere anyway. I'm a hold. I think it's largely in the price, but where's the growth going to come from?
Mattew Haupt (Sell): I wouldn't own it, but I think it's a buy at $2.50, it's trading at around $2.80 now. I think if you had in your portfolio, I'd be a sell, but I'd be looking to buy it if it got down, because the company is sound. It's in a good, sound area. But again, there are too many headwinds at the moment; premiums, administration. It's too tough in that space. You've seen both Medibank and NIB downgrades. For us, too tough.
Vishal Teckchandani: Speaking of too tough, what is one stock that is too tough to own in a portfolio that you don't want to have? Matt, what's one stock to avoid?
Mattew Haupt (Sell): I'm going with Boral. I think Boral, the quality of their results has been extremely poor over the last few years. And even recently with the fraud in the window business, and the CEO is changing, the balance sheet is stretched. They want to do an acquisition. For me, they come downgrade and come raise, which I think is the worst combination.
Platinum Asset Management (ASX:PTM)
Vishal Teckchandani: Ben, what's your scary stock to avoid?
Ben Clark: Mine is Platinum Asset Management, which had $1.3 billion in net outflows in the last half. And although the performance for the investors will hopefully turn around at some stage, it's going to take quite some time for them to start printing good performance numbers. The performance fees aren't going to come through for a period of time. And I also think there's a lot more competition in the international space for DIY investors in Australia, backed by some really quite aggressive sales teams. Platinum had this space to themselves. Magellan Financial Group (ASX:MFG) has taken them on, but I think there's a lot more coming through, so I see a pretty tough outlet for Platinum.
Vishal Teckchandani: Well, this episode did turn out to be like a pretty bad horror movie, but hey, at least you know what to axe out from your portfolio.
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