Buy Hold Sell: 5 of your top stock picks

Buy Hold Sell

Livewire Markets

If there is one thing this anonymous writer can take away from the comments left on this very platform, not to mention our Meet the Investor series, it's that Livewire's readers seriously know what they are talking about. 

Many of you have been investing for years, if not decades - and a large majority of you have done it all on your own (without the help of a financial services professional). 

Given that reporting season is now behind us, as well as the volatility that we have seen in markets of late, we thought it would be wise to ask Livewire readers which stocks they would like to see covered on Buy Hold Sell. 

So in this episode, Centennial Asset Management's Matthew Kidman was joined by abrdn's Michelle Lopez and First Sentier's David Wilson for their analysis of five of your top stocks. 

Many thanks to all the readers who sent stock requests, particularly Wendy, Lisa, Walter, Chris, and Fred, whose picks ended up being selected for this episode. We are keeping the remaining stock picks in our back pocket for future episodes. 

Note: This episode of Buy Hold Sell was filmed on Wednesday, 30th August 2022. You can watch the video, listen to the podcast, or read an edited transcript below.

Edited Transcript  

Matthew Kidman: Welcome to Buy Hold Sell, brought to you by Livewire Markets. My name is Matthew Kidman, and today, it's the reader’s session, the stocks that our readers are talking about and want us to discuss and give some feedback on. Helping me to discuss today is Michelle Lopez from abrdn and David Wilson from First Sentier. The first one comes in from Wendy. Thanks, Wendy. David, Fisher & Paykel Healthcare. It wasn't a great result. The market didn't like it. Buy, hold, or sell?

Fisher & Paykel Healthcare (ASX: FPH)

David Wilson (HOLD): For us, it's a hold. It's a high-quality business, but COVID-19 brought forward a lot of their volumes. Basically, ten years of volumes over two years. They're going to have the hangover from that. So it’s a well-run business, with great market share, but for us, a hold.

Matthew Kidman: Michelle, A-grade business, great quality, global. Buy, hold, or sell?

Michelle Lopez (HOLD): It's a hold for us as well. I think you'd be tempted at these levels, given it's right back down to pre-COVID-19 levels. But to David's point, it's just the uncertainty that they're facing from a channel and an inventory perspective, given ten years' worth of hardware going into the hospitals. And it's on a PE of 50 times, so I can't quite get to a buy yet, though it is a high-quality business and at some stage, we would like to.

Westpac (ASX: WBC)

Matthew Kidman: Okay, the next one comes from Lisa. And we are going to go with the "bad boy" of the banking industry of recent years. Westpac, buy, hold, or sell?

Michelle Lopez (SELL): Westpac is a sell, but I'll caveat that with it's not just Westpac. I think Westpac is in a turnaround story, and they've got a billion of costs to come out, which if they do, they'll be the most efficient bank. But the real issue is around the outlook for banks in general and what they're facing from an outlook perspective. These are highly leveraged businesses. And if you don't get that credit growth coming through, I think there's a bit of pain coming, and unfortunately, Westpac, under the restructure, has got a lot of internal distractions to face as well.

Matthew Kidman: Yeah, they've got a lot on. Cost-outs are always quite difficult. They're big numbers, though, when it comes to the banks. Westpac, buy, hold, or sell?

David Wilson (SELL): For us, it's a sell as well. And banks are notoriously poor at actually taking out costs. If you look at Westpac over the last five years, it's been a really poor performer. You would've expected its ROE to actually rise towards that of CBA's, but it's actually fallen towards that of ANZ's, whereas NAB has actually gone the other way. So for us, Westpac has been a poor [performer], and we haven't seen any signs that they're going to be able to turn that around. They continue to lose share as well. So for us, it's a sell.

Transurban Group (ASX: TCL)

Matthew Kidman: Okay, Walter's got in the car, and he's off down the highway. Transurban, buy, hold, or sell?

David Wilson (HOLD): It's a good question from Walter. For us, it's a hold. They reset the distribution at 53 cents. The market had been expecting 60 cents, but I think that's now been fed into the market. Their Brisbane toll roads and their Sydney toll roads are now back to where they were pre-COVID. The Melbourne business is still lagging, but for us, it's a hold.

Matthew Kidman: Michelle, people are getting back out on the road. Transurban, inflation hedge, but a really high PE. Buy, hold, or sell?

Michelle Lopez (HOLD): It's a hold. Yes, the PE is high. The one thing I'd say, though, is a different way to look at a stock like Transurban that has quite a defensive cash flow stream, is to value it more from a cash flow perspective. When you adjust those and make assumptions around the current macro setting of interest rates and expectations around that, it's fully priced. So it is a hold. The mobility numbers that we saw coming out of the results really confirmed that we are back very close to where we were pre-COVID-19.

IDP Education (ASX: IEL)

Matthew Kidman: Okay. Chris, he's gone with education, IDP Education. Another ripper result. Buy, hold, or sell?

Michelle Lopez (BUY): It's a buy. And the pushback we get is valuation. How can this be a buy? But when you think about IDP and the moat that they've developed over their two businesses, which are student placement and English testing, both of those businesses are unparalleled. I'll give you a stat. India has a 1.4 billion population, and 50% of that is under the age of 30. So their education sector and the earnings from education will be up three to fourfold until the end of the decade. So for us, they're going to grow into the valuation, and it's a buy.

Matthew Kidman: Students are on the move again. We're allowed to go places. IDP, buy, hold, or sell?

David Wilson (BUY): Agree again with Michelle. It's a buy. You've got double-digit volume growth for the next five years at least in both the English language testing business, where they're the market leader by some margin, and in the student placement business, where they're also the market leader by some margin. And you're seeing them get that growth across into Canada, into the UK, into Australia, as economies open up. So they're in a really great place to drive longer-term growth. So for us, they'll grow into that multiple, no problems whatsoever.

Woolworths Group (ASX: WOW)

Matthew Kidman: Okay. Fred's pick now. David, you were disappointed with Coles, but we'll go to its competitor, Woolworths. Buy, hold, or sell?

David Wilson (BUY): Again, it's a good question from Fred. I think Woolworths had a terribly poor result in the December half, but we would have it as a buy. We think that they've actually got their mojo back, they're taking out costs, they're growing their market share, and they're really well placed from an online point of view. So for us, it's a buy.

Matthew Kidman: Michelle, we're going to go for the whole five stocks. Same recommendation, Woolworths, buy, hold, or sell?

Michelle Lopez (HOLD): I'm going to break the trend. It's a hold. This is a really well-run business. It's defensive. We still feel food inflation is going to continue to play out, but it's fully valued. And again, it's one of those defensive names that is not a bad place to hide given what we're about to come into. But the valuation is a hold.

Matthew Kidman: You just can't trust Woolworths. I know I don't get what I used to get there. I can't find anything these days. If you like listening to the guests today as much as I did, we might sit here and talk for hours, give it a like. And whatever you do, don't forget to subscribe to our YouTube channel for a lot of really, really interesting content.

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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.

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