Peter Lynch once said, “Time is on your side when you own shares of superior companies.” The challenge of course is to own those superior companies at a reasonable price. In this episode of Buy Hold Sell we’ve asked two investors with strong valuation disciplines to run five of Australia’s superior growth stocks through their selection process. The stocks discussed include CSL Limited, Macquarie Group, A2 Milk, Seek and TPG Telecom. Tune in as Jeremy Hook from TMS Capital hosts Rhett Kessler from Pengana Capital and Matt Williams from Airlie Funds in this latest exclusive brought to you by Livewire.
Jeremy Hook: Welcome to Buy, Hold, Sell. I'm Jeremy Hook from TMS Capital. On the panel with me today, Matt Williams from Airlie Funds, and Rhett Kessler from Pengana Capital. The question we're asking today is have the growth stocks run too far? Are there still growth opportunities in the very well performed growth part of the market?
CSL (ASX: CSL)
Rhett, first up. Buy, hold, sell on CSL?
Rhett Kessler: CSL is a hold. In spite of the nosebleed valuation we think it's got growth well-diversified geographically company with non-economically sensitive earnings. It's a hold.
Jeremy Hook: Matt, CSL almost got to $100 billion, I think. It's a buy, hold, sell for you?
Matt Williams: I'm the same as Rhett. It's a hold. It's a good long-term hold. The investment that they've made whilst their competitors have been in a bit of disarray is going to hold them in good stead for good profit growth for the next few years. But the valuation certainly encompasses that, but because it's such a high-quality business hold.
Macquarie Group (ASX: MQG)
Jeremy Hook: Macquarie Groups hasn't pulled back like a lot of other growth stocks. Buy, hold, sell?
Matt Williams: I'm going to go with buy on this. Even though it's a nervous buy, but the management changeover is interesting. But Macquarie is reasonably priced. It's got a great position in its funds around the world in what it's doing. I think that Nicholas Moore has left the business in great shape for Shemara, and I think she'll continue on the Macquarie growth path around the world. Buy.
Jeremy Hook: Rhett, do you share Matt's enthusiasm? Buy, hold, sell for Macquarie?
Rhett Kessler: Great business, but I have a sell on that one. Financial stocks are at an inflexion point where you're going from low interest rates to potentially high interest rates always worry me. Good business, great management, but I don't think it's reacted yet to that inflexion point.
Seek (ASX: SEK)
Jeremy Hook: Okay. Seek keeps growing its revenue and its offshore businesses, but maybe not its profit at the rate investors like. Buy, hold, sell?
Rhett Kessler: It would be a sell for me, both on a multiple and the fact that we're not sure how much of the investment is growth versus defensive. Very good management, that's why you have good companies. But until we can work out how much is growth versus defensive spending, we'll stay away from it.
Jeremy Hook: Matt, Seek's been outstanding. Can it continue? Buy, hold, sell?
Matt Williams: No, I'm with Rhett on this one. I think it's a sell. Look, it's making investment for the longer term. But the valuation just doesn't sort of stack up. I think you can sell now and come back and revisit it in some time in the future as they go through these investments.
A2 Milk (ASX: A2M)
Jeremy Hook: Okay. A2 Milk. The CEOs been selling. Should you? Buy, hold, sell?
Matt Williams: Yeah, this is a tough one. Look, I'd have to say it's a hold. But I think of all the Chinese consumer facing companies, it's probably the one I have the most confidence in. But again, it's a management changeover, there's always a lot of moving parts selling into China. That valuation, it's a hold.
Jeremy Hook: Okay. Do you think A2 Milk will go sour, Rhett?
Rhett Kessler: I don't have the benefit of having held it on their way up, so for me it's an easy sell.
Jeremy Hook: Sell.
Rhett Kessler: Management selling is never a good sign. They've been amazing at leveraging being the middle man between two big gorillas of supply into the Chinese market. We've tried to understand the Chinese off take environment, I find it too opaque. So for me, we don't know, we don't play.
TPG (ASX: TPM)
Jeremy Hook: Sell for you. TPG, buy, hold, sell? Doubled in the last month.
Rhett Kessler: Yeah, sounds like we've got sells in all these high multiple stocks. I'll have a sell on that. Too many moving parts again. It's just really for us if we can understand the value proposition and see our way through us getting paid as shareholders we'll play, but we can't so sell.
Jeremy Hook: Okay, thanks. Matt?
Matt Williams: I'm going to disagree. I'm going to take quite a long term view on this. I think even though it has moved, I think this is a really industry-defining moment, so it's a buy. I think the management team of TPG when they get into Vodafone, this is all obviously contingent on the deal being approved, I think over the medium term this will prove to be a really fantastic deal for TPG and for consumers. So I'm thinking it's a long term buy.
Jeremy Hook: Okay. There's no doubt it's harder with the value to find in these growth stocks and our panelists disagree on some. But valuations watch out for, growth is still there.