Buy Hold Sell: 5 most-tipped large caps
CSL, Fortescue, Afterpay, Woodside and Macquarie. If you missed it, these stocks topped your list of most-tipped large caps for 2021. But - and let's not beat about the bush here - they haven't exactly got off to a flier.
These stock picks have big shoes to fill, with your selections over the past two years returning more than 50%. So for the first BHS episode of the year, we've brought in the experts to get a sense of whether your 2021 picks can close the gap and give their predecessors a run for their money.
Watch until the end of the video, to see Livewire's Bella Kidman, Jun Bei Liu from Tribeca Investment Partners, and James Gerrish from Market Matters introduce our newest segment, Questions Without Notice, where our fundies' knowledge is truly put to the test.
(Mini-spoiler: Only one of your picks received a resounding "buy" from our fundies, while two others were dubbed "sells" ... yikes.)
Notes: You can access the video, podcast or edited transcript for this Buy Hold Sell episode below. This episode was filmed on 27 January 2021.
Bella Kidman: Welcome to Buy Hold Sell brought to you by Livewire Markets. My name is Bella Kidman and welcome to the first episode of 2021. Today is the Readers' Pick Special. That's right, we're going to be discussing the most tipped big caps for 2021. And to help me discuss that, I'm joined by James Gerrish from Market Matters and Jun Bei Liu from Tribeca.
Bella Kidman: James, I'll start with you. Afterpay, it seems like every Australian has owned it or is looking to own it. What about you? Buy, hold or sell?
James Gerrish (Hold): Yeah, I've got to hold. I'm nowhere on this stock. It's one of those stocks that I've completely underestimated. I've missed the huge growth potential that it has had. I've probably backed the wrong horse in terms of Zip. I think that's a more value orientated way of playing it. But I've got a hold on it. I think it's a phenomenal success story now - fair play to it. But I can't speak with a huge amount of credential on that stock seeing as I haven't held it and don't own it now.
Bella Kidman: Jun Bei, Afterpay is up over 4000% since 2017, but is this a case of buy now, pain later?
Jun Bei Liu (Buy): I wouldn't say pain later because it's been one of my core holdings for a very long time. But Afterpay certainly is a winner. It's demonstrated its ability to replicate its business model across different markets and continuously expanding its addressable market. For me, it's a buy, it sits in my portfolio. But look, investors can be a little bit tactical about what's happening in terms of profit-taking and like. But my view is that take a 12-month view, this stock will be a whole lot higher because it is still expanding, doing very well in the US. All those stimulus checks that Biden's going to give out, you think they're not going to spend on the e-commerce? Yes, they will. And Afterpay will be a beneficiary along with a whole lot of other retailers and consumer-exposed stocks. And going to Europe or going to Asia. Just global dominance. And to me, that is a true winner in that space.
Macquarie Group (ASX:MQG)
Bella Kidman: Okay, Jun Bei, sticking with you. Macquarie Group, a fantastic business, it netted 2.6% of the votes in Livewire's survey. What about you? Buy, hold or sell?
Jun Bei Liu (Buy): Look, it's a buy. I like this company. But its performance may not match that of the Afterpay. But I think it will do well. Look, currently, the currency might hurt it a little bit because the US dollar has weakened somewhat. But I think it is the business you would want to take a long-term view with. Certainly has much better growth prospect compared our domestic banks. And also, its exposure to all the ESG renewable energy space is incredible. Right now, I'm sure you're on top of it, that something like 40 to 50% of passive flow in the US has gone to ESG related funds, which is renewable energy, that social, governance, that sort of space. I think Macquarie is probably one of the best in terms of aggregate, how they can gain exposure to that sort of trend.
Bella Kidman: James is the silver donut looking enticing to you? Buy, hold or sell?
James Gerrish (Buy): Yeah, I think it's buy here as well. It's had a strong run up in share price so I don't think the risk-reward buying it here is great. But I think if you take a medium term view, Macquarie will do incredibly well. As Jun Bei touched on, they're at the forefront of some really exciting growing parts of the world, industries that are growing, investment themes that are growing. So, if I think about the backdrop of fiscal stimulus, expansionary monetary policy over the coming 12 months, rising asset prices and the like, Macquarie do really well in that sort of environment. US dollar weakness is a slight hindrance, but I think that will be overcome. And I think, probably the rise in the Aussie were up at 77 and a half. They've managed the rise in the Aussie pretty well so far so yeah, it's a buy for me.
Woodside Petroleum (ASX:WPL)
Bella Kidman: Okay, James, Woodside, didn't have a great year in 2020, down 30%. Buy, hold or sell?
James Gerrish (Sell): Yeah. It's a sell for me at this point only because I think that the easy money in the energy trade is already passed. So yeah, it didn't have a great year in 2020, but it's bounced a long way from the lows that it was at. Obviously, oil prices were very depressed over that period on the back of concerns around global growth, rising supply, et cetera. So, to me, I think a Beach Petroleum or a Santos has got better bang for buck in the energy space. So Woodside is a sell. I'd rather own Beach or Santos as our energy position.
Bella Kidman: Jun Bei, Woodside didn't have a great 2020, but they've started 2021 off well, up 17% in January. Buy, hold, or sell?
Jun Bei Liu (Sell): It's a sell for me as well. I'm kind of the same. I think your money, in terms of investing in energy, is probably better off in things like Santos. And the view is that because it will generally experience much higher leverage with higher energy prices. And Woodside is something that in that kind of environment certainly will underperform the likes of Santos or Oil Search or the Beach.
Fortescue Metals Group (ASX:FMG)
Bella Kidman: Okay, Jun Bei, let's talk about our silver medalist, Fortescue. A few stats for you, market cap of 78 billion, up 135% in 2020, and dishing out a nice little dividend yield of over 7%. No wonder it was number two. Buy, hold, or sell?
Jun Bei Liu (Hold): It's a hold for me at this point. It's an incredible business. And I think the dividend yield will continue to be very, very strong over the next 12 months. I think, the reason it's sitting in the hold space is that the iron ore price is very, very high and it is, of course, difficult to see it sustain. But I think this business, I'm happy to hold it in my portfolio. Also one of my core holdings because of the dividend yield it provides, and also some of the reinvestment they put into some of the renewable energy space. And I think that could potentially drive some of the earnings in the future as well.
Bella Kidman: James, do you agree with our readers? Buy, hold or sell?
James Gerrish (Hold): Yeah, I'm a hold, the same as Jun Bei here. In terms of Fortescue, I think there's a couple of factors playing out here. They're going to deliver a really strong earnings number at the half. When they report in February, they're going to do something like 3.6 billion for the half. I think they've only done more than three billion for a full year once before, if my memory serves me correctly. So, huge amount of tailwind from an iron ore price that is well above where it's probably going to be in the next three years. So, when you buy a commodity company, you've got to have a view on the underlying commodity. They track it pretty closely. And to me, the iron ore price is overextended. The iron ore price will come back. It's been a great run for Fortescue, but hold at best. Coming into this report, it's going to be a big dividend, but I'll be a little bit negative after that report in February.
CSL Limited (ASX:CSL)
Bella Kidman: Well, it's time for the number one stock pick of 2021. It's market darling, CSL. James, performance was a little bit shy in 2020 compared to the big 2019 that they had. What about 2021? Buy, hold or sell?
James Gerrish (Sell): Yeah, I've got to sell. And I think it's because everyone loves it so much that it was a number one pick. It's a very highly owned stock. I think the tailwinds they've enjoyed over the last five years or so have dissipated in 2020. I think that theme will continue in '21. If you think about the difficulties that the rest of the world is having with COVID-19, that's going to have a negative impact on plasma collections. I think, the way I'd be playing CSL is if they come out and report a downgrade in February results, if they drop below 250, that's when I'd get interested, at that capitulation level, when all these long believing holders sort of capitulate out of the stock, then I'll be a buyer and step up. It's a great company. I think it's got a great future. But it's gone from having earnings tailwinds to some short term transient headwinds. And I'd use that as a buying opportunity sub 250.
Bella Kidman: Jun Bei, you famously said on an episode of Buy Hold Sell in July, that you would sell CSL. Our readers don't agree with you. Has that thesis changed?
Jun Bei Liu (Sell): Look, no, it hasn't. And I got into a lot of trouble for it. And certainly it has done, in terms of share price performance, it hasn't really gone anywhere in terms of share price. Look, we always said it's a very quality company and it has done so well over the last few years. It just, as a portfolio manager, a professional investor, it's about relative opportunity that is out there. Even the banks, the cheap banks, look to have a little bit better return this year. Or the resources, the BHPs and the others look to have better return. So if I need to be in healthcare, there's Ramsay, there's Cochlear, there's so many other businesses to be exposed to.
Bella Kidman: Two sells on CSL.
Questions without notice
Bella Kidman: Well, we're very excited to announce a new segment for Buy Hold Sell in 2021 called Questions Without Notice. Jun Bei, we've asked you to prepare one question for James. James has never seen the question, and he's had no time to prepare for it. Jun Bei, fire away.
Jun Bei Liu: All right. I hope it's not too hard. Look, this question actually has been... It's probably more a question for myself as well. It's been playing on my mind. Everyone's talked to this reflation that's coming through the inflation and the like. Now, my question is, obviously most of us don't see inflation coming back in the 12-month, but in two years, maybe it's high and the like as the bond year suggests, right. So do you think the inflation is cyclical or is it going to be structural that is coming through because that has quite a profound impact on portfolio construction or what you invest in?
James Gerrish: Yeah, that is a really good question, JB. I think, if I look out over the horizon, the investible horizon over the next couple of years, I think it's going to be more of a structural influence. I think, what we've seen is a huge amount of stimulus, an unprecedented amount of stimulus, that has hit the market. And I think we're seeing signs in terms of rising bond yields, in terms of rising asset prices, the inflation hedges, the price of underlying commodities, et cetera... I think inflation is there. I think it's bubbling away. I don't think the real measures that we look at in terms of inflation are actually showing the price of goods is rising. So I think it's a structural change. I don't think the old measures of inflation is probably doing it justice. So yeah, we're positioning our portfolios for a rising inflationary environment, and I'm skewed towards resources, skewed towards mining services. I think that the banks do better in that sort of environment. So yeah, I think it's a major issue from an investment standpoint in our horizon that we should be really conscious of.
Bella Kidman: They're big, they're bold, but are they beautiful? Our readers seem to think so, but the fundies may not agree. One thing is certain, we're in for a big 2021.
Join us next week as we talk about the most tipped small caps. Make sure to subscribe to Livewire's YouTube channel so you don't miss out.
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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.