Buy Hold Sell

With August 2019 reporting season here, for this week's episode of Buy Hold Sell we're looking for stocks that could give investors something to smile about this month. We've shortlisted a few diverse names that have been rallying on the backdrop of an improving earnings picture. 

Australia’s biggest gold stock, Newcrest, has been soaring on the resurgent gold price; NIB Holdings' up on the prospect of corporate activity in the insurance sector, and Graincorp has been gaining into the demerger. 

Tune in as Matt Kidman hosts Emma Fisher from Airlie Funds Management and Catherine Allfrey from WaveStone Capital who put these three stocks under the microscope before each nominating one that they think might deliver a positive surprise this August.  


Transcript

Matthew Kidman:
Welcome to Buy, Hold, Sell. My Name is Matthew Kidman and today I'm joined by Catherine Allfrey from WaveStone and Emma Fisher from Airlie Funds Management and we're talking about those stocks that have been rocketing, the ones that we all love to be on. Can they keep going? Start with you, Emma. Gold's been flavour of the month, probably flavour of the year. The biggest player in that market, Newcrest, buy, hold, or sell?

Emma Fisher:
I'm going to say sell. So production is peaking next year, and capex steps up. So even with Aussie dollar gold price at record highs, the free cashflow yield is pretty unattractive.

Matthew Kidman:
Okay, Catherine. Newcrest, it's always found a way to disappoint investors, but at the moment it's a darling.

Catherine Allfrey
Yes. Actually management have been executing well. Production is up to two and a half million ounces, but like Emma says, the production profile from here on is in decline and so therefore it's a sell for us.

Matthew Kidman:
Okay, let's go to health insurance. The CEO's brother might be at labour, but the investors absolutely love the libs getting back in. It's been on a tear since the election. Buy, hold, or sell NIB Holdings?

Catherine Allfrey:

We're going to have to say sell with this one as well. I think in terms of valuation, it's gone right up there. We are concerned that hospital admission growth will start to pick up and so therefore that will squeeze margins.

Matthew Kidman:
Health insurance has been a crisis, or that's what we've been hearing, but this stock's been flying. Buy, hold or sell?

Emma Fisher:
Yeah. Well you wouldn't see a crisis in their profitability. I have it as a sell like Catherine. A health insurer really should be making between 5 to 6% profit margins, and NIB are making close to 7. So we think they're over earning and then you're paying 24 times for those elevated earnings. So it's effectively a government-subsidised industry and so that over earning is a risk for them.

Matthew Kidman:
Okay. It's been a drought. We've heard about it for a couple of years. It's not going to change this year. Graincorp, it's bounced. Buy, hold or sell?

Emma Fisher:
Oh, this is a hold for us. We like demergers, so I wish it was a buy, but I think this is a demerger that's in the price. I think the malts business will be able to sustain a high multiple, but we just can't get any upside to the current share price.

Matthew Kidman:
Demerger get you excited, Catherine?

Catherine Allfrey
Well, yes. We're leaning to a buy. I think people like the move to Craft Beers. Consumers are moving, in terms of craft beer, so we can see that trend is a positive for the business going forward. But this is clearly like Emma says, a special situation. It's been subject to take over. It's now going through a demerger, but we just see that there is value there so we still would go with the buy on that one.

Matthew Kidman:
Okay. We've got reporting season coming up. Is there a stock that you can pick out of the pack to tell us it's going to do well?

Catherine Allfrey
We like Treasury Wines, Matthew. We especially like the fact that they've just reported the US wine sales for June, which were better than expected, and for the first time have shown us that their strategy in the US where their new distribution strategy's working. So we really like that one. It's trading at 21 times and we think the earnings growth will be double digit for the next few years.

Matthew Kidman:
Emma, something there that you've looked through all your stocks and said, "Well, that one's going to do well for me this reporting period," and you're quite excited about?

Emma Fisher:
Yeah, so we like Origin into the result. We're expecting debt to come down, strong cash flows from APLNG, and then I guess importantly they'll be outlining their future dividend policy. So we think they can sustain a 60 to 70% dividend payout ratio. So once they reinstate that properly, it gives an easier tool for investors to value that versus the rest of the market. So we think that's about a 6 to 8% dividend yield at current share prices. So that's one that we like.

Matthew Kidman:
Just because the stocks have done well previously, value is in the eye of the beholder and be careful going forward.



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