Buy Hold Sell: 6 bullish calls to beat the portfolio blues

In case you missed it, in this episode of Buy Hold Sell, Livewire's Ally Selby is joined by TMS Capital's Ben Clark and Tribeca Investment Partners' Jun Bei Liu for a look at their highest conviction positions right now. 
Buy Hold Sell

Livewire Markets

We probably should have all seen it coming. Markets around the globe have taken a dive as central banks reel in the "free money" that we have enjoyed over the past few years and start to raise rates in a bid to curb the kryptonite of markets - inflation. 

As it stands today, the S&P/ASX 200 has fallen more than 8.4% in 2022, while the tech-heavy NASDAQ has plunged a whopping 27.5%. Meanwhile, the S&P 500 has dropped nearly 18% year to date, the Shanghai Composite is down 15.7%, while the FTSE 100, in comparison, looks slightly better, down more than 2%. 

If you're like most, your portfolios have probably also seen their fair share of red since the beginning of the year. And while they say that "bad news sells", it's always worth finding the good in every situation. 

So in this episode of Buy Hold Sell, Livewire's Ally Selby was joined by TMS Capital's Ben Clark and Tribeca Investment Partners' Jun Bei Liu for a look at their highest conviction positions right now. 

We hope these six bullish calls can help beat your portfolio blues. 

Editors note: Hey Ally, you said six and there are only five stocks? In the midst of all the fun of this shoot, we completely forgot to record Jun Bei's last stock. Sorry about that folks. Luckily, Jun Bei and Ben have shared their analysis of the sixth stock, which you can see below. 

Note: This episode of Buy Hold Sell was shot on Wednesday 11th May 2022. You can watch the video, read an edited transcript or listen to the podcast below.

Edited Transcript 

Ally Selby: Hello, and welcome to Livewire's Buy Hold Sell, I'm Ally Selby. And I don't know about you, but my portfolio has seen a little bit of red in 2022. So to beat the portfolio blues, we are joined by Jun Bei Liu from Tribeca and Ben Clark from TMS Capital for six of their highest conviction positions right now. 

First off the ranks today, we have Aristocrat Leisure. It's one of Ben's top stocks. Ben, why are you feeling so bullish about this stock right now?

Aristocrat Leisure (ASX: ALL) 

Ben Clark (BUY): I watched a management briefing online a few weeks ago. And one of the reasons is, that I've never heard the CEO, Trevor Croker, so bullish. And he's delivered a lot. He's typically quite understated. But a line he said at the end of the call still sticks with me, it was that the next 10 years for Aristocrat will be even better than the last. This is a company that's going to deliver solid earnings growth. 

There's a little bit of concern out there about the digital division, that might be slowing. But the land-based business is in great shape. You're paying 17 times forward earnings for it. And its biggest problem is it's got too much cash on the balance sheet, having raised for an acquisition that fell through. So that's a good problem to have. So it's one of our top holdings.

Ally Selby: This is truly an Aussie success story. It was founded by Len Ainsworth in 1953. He's now worth $5 billion. Its share price hasn't done that well in 2022, though, it's down around 31%. Jun Bei, is this a buy, hold or sell?

Jun Bei Liu (BUY): Absolutely, it's a buy at this point. Look, its share price has fallen from trading on 30 times or 35 times now to 19 times earnings. Yes, it's partly because of the digital business, there's a bit of concern about that. And if we look at all the downloads, the reason that people are a little bit worried about it is that Apple iOS has changed the way suppliers can see information. So it makes it a little bit harder to launch new games. But it's an industry-wide issue. Eventually, they're going to get over it.

So at the moment, a bit of a soft patch provides a buying opportunity. Land-based gaming is doing incredibly well. And we just saw overnight all the casinos talking about how strong the reopening thematic is for the casinos in the US. So this company's going to deliver very strong earnings and it's a great, very reasonable multiple that you're paying at the moment.

Treasury Wine Estates (ASX: TWE) 

Ally Selby: Switching over to one of Jun Bei's top stocks, it's Treasury Wine Estates. It also hasn't done that well this year, it's down around 12%. Jun Bei, why are you backing this stock?

Jun Bei Liu (BUY): There are a number of reasons. First of all, it's got a very strong asset play. Their actual asset, which is their wines, the Penfolds, are just sitting in the warehouse, plus the land, the farms, and all of that, together it's probably $9. And the share price is a little bit above, really on the basis that potentially earnings will recover.

This company is set to grow by double digits and it's trading on 18 times. It's not very different from the Aristocrat. And it's got a huge inventory really backing its value. At the same time, it's got amazing brands that really resonate around the world. China was a big issue, a year and a half ago now, when the tariff went up, but they managed to successfully bypass their market and reallocate a lot of wine to other markets.

So to me, it is almost a no brainer. It's an incredibly stable business and it plays to that reopening service industry, as well as people going back into the hotels and restaurants to enjoy the reopening. So yeah, that's definitely a top buy for us.

Ally Selby: Broker Citi actually recently retained its buy rating of this stock. It has a $13.78 price target, which would imply a 24.5% upside from here. Ben, is it a buy, hold or sell?

Ben Clark (HOLD): I'll go a hold. I think the management has done an unbelievable job with this company. I thought they were in major trouble for years to come. But to reallocate that huge market for them elsewhere across the world has been a great job. The only question mark I'd have on this one is that they own a lot of the vineyards, so it's a vertically integrated business. And we know that there's been a lot of issues with climate change and the weather events that we've seen that have seen lower yields and higher costs to manage those yields. And so maybe that puts a bit of pressure on margins. But that's probably the only negative thing I can see there. Apart from that, it looks like a great business.

Deterra Royalties (ASX: DRR) 

Ally Selby: Okay. We're going to go to another one of your top stocks now, it's Deterra Royalties. It's actually done okay this year, it's up around 3%. It's exposed to the resources sector, which has done extremely well. Ben, why are you bullish on this stock?

Ben Clark (BUY): There are two reasons, Ally. The first is this company piggybacks off the back of BHP, which has this mine called the MAC. The beauty of it is that the MAC is going to move from about 70 million tonnes per annum to about 140 million tonnes per annum of production over the next couple of years. And that ramp up through South Flank is now happening. And this is business is kind of extraordinary. Its return on equity is over 500%. It literally collects the cheques from BHP. It doesn't have to risk any capital in doing this ramp up.

There are two issues with it. I think firstly, the iron ore price, of course, plays a big part in terms of what that cheque looks like quarter to quarter. If you are bearish on iron ore, you might be a little bit more reluctant. But we've got this on about 7.5% fully frank yield. The other thing is management recently disclosed they've increased their credit lines. I hope they don't get itchy fingers and go and buy another royalty and diminish the quality of what they've already got. And that might be something you'd have to assess if it happened.

Ally Selby: Maybe for our viewers and readers who don't know, can you explain what a royalty actually is?

Ben Clark: So Deterra used to be part of Iluka Resources (ASX: ILU). Once upon a time, they owned this block of land and probably did some drilling, BHP then came in and started to drill and received a percentage of the block. And where it's got to now is Deterra receives 1.232% of every dollar of revenue that this mine produces. This mine's going to produce until about 2076 on current forecasts. And it's got the most aggressive production ramp-up of any minor in the country. And so, that's what they do.

Ally Selby: Okay. Over to jun Bei, is Deterra Royalties, a buy, hold or sell?

Jun Bei Liu (HOLD): For me, it's more of a hold. I absolutely agree with Ben - the company's doing well, and their production is good. They don't really need to invest anything else. They don't need to worry about production issues. It's really just collecting the cheques. Ultimately, it is the iron ore price. And the iron ore price has actually been holding up very well. And if you look at consensus, most expect the iron ore price to fall.

Look, again, it's linked to the fortune of China - when they start stimulating their economy. But looking through to the longer term, iron ore has done very well during the whole pandemic because of global disruption as a result of lockdown. So my view is that it provides a great dividend, but it's more of a hold. It's harder to chase at this point with iron ore prices where they are.


Ally Selby: Okay, next up we have one of Jun Bei's top stocks, it's CSL. It's down nearly 9% this year. Jun Bei, why are you bullish on this stock?

Jun Bei Liu (BUY): Well, it's down 9% for the third largest stock on the ASX. And it is a quality growth company. Now, this company essentially got sold off as a result of the whole growth basket that's been sold off. I think this company will deliver double-digit earnings growth. And on top of that, they have made a great acquisition that's yet to be incorporated into everyone's numbers from next year. At the same time, the company is trading cheaper than it's ever been and relative to the whole healthcare sector as well. So this company's going to deliver pretty good growth and very soon, the market will start turning its attention to this business when the bond yield stabilises.

Ally Selby: Over to you, Ben, is CSL a buy, hold or sell?

Ben Clark (BUY): It's a buy. I think the result in February showed some real green shoots in plasma collection (its blood collection business) as life is going back to normal, particularly in the United States, the key collection market. Costs should start to come down as collections and volumes start to normalise. The acquisition looks good. I think you are taking a bit of a leap of faith because that acquisition is in a pretty obscure area. But I think this is one of the best quality businesses on the market, it's trading on 31 times next year's earnings. It often looks expensive, but this looks cheaper than it has for some time.

ResMed (ASX: RMD) 

Ally Selby: Last of your picks today, Ben, it's ResMed. Its share price has fallen around 22% since the beginning of the year. Why are you bullish on this stock?

Ben Clark (BUY): There are a few reasons. I think the structural growth story is still well and truly there. The release of their new CPAP machine is typically a time when they do accelerate their earnings and their revenue growth. But Philips reported in the US recently. They've pushed out the timeframe of the global recall of their Respironics product by another year. So this window for ResMed to take significant market share has opened. The issue ResMed have is supply chains. They're really struggling to keep up with demand. And hopefully, they can tweak those chains, things will start to normalise again, and you see a real acceleration. Once customers move into the ResMed ecosystem, as they call it, they very rarely leave. So this may be a once in a generation event for them where they could really put their foot on the competitor's throat.

Ally Selby: A once in a generation opportunity sounds nice. Over to you, Jun Bei, they just announced a dividend of 42 cents per share. Is it a buy, hold or sell?

Jun Bei Liu (BUY): ResMed is definitely a buy. It's just an incredible structural growth story. ResMed boasts decades of growth, proven execution, and great management. Nothing's changed. And then with its competitor doing poorly from the product recall, these guys are taking huge advantage of that. And yes, its share price can move by double digits on the downside. My view is that the market is really thinking short term at this point. No one buys this stock for one quarterly result. Now, obviously, the quarterly result was a little bit weak because they couldn't make enough product to supply the demand that they have at the moment. But whatever doesn't get sold in the last quarter will be sold in the next few quarters. It may be next quarter. Or it may be the quarter after. But regardless, it'll be sold. And the story doesn't change for this company. It is very cheap - not only compared to the market but compared to the rest of the healthcare sector as well. It is absolutely a buy.

Seek (ASX: SEK) 

What Ally Selby should have said: Ok, last one for Jun Bei today. It’s SeekIt’s been caught up in the recent growth sell-off, its share price is down nearly 25%. Why are you buying Seek right now?

Jun Bei Liu (BUY): Seek is a high-quality growth business that has a very strong competitive position. It has strong leverage to a cyclical labour market, which remains tight and should continue to support Seek's near-term outlook. Aside from the cyclical story, Seek is actively improving its product offering to its customers and continues to benefit from yield improvement. Reinvestment in its platform will continue to support strong future growth. It is also trading at multi-year low multiples relative to the market. So Seek represent great value at current levels.

What Ally Selby should have said: We’ve got a really tight job market at the moment. Unemployment is still low at 4% in Australia. Ben, last one for you, is it a buy, hold or sell? 

Ben Clark (BUY): Seek is a buy. It had one of the strongest results we saw in the Feb earnings season with the company having already upgraded leading into it. The domestic business is being driven by a very tight employment market accelerating greater volumes across the platform with increased depth penetration improving margins. We see this trend continuing.

There could be a question mark around the venture capital funds management business the company is pivoting toward given the pressure we’re rapidly seeing on valuations, but this should be more than offset by the core business. And on top of that, it boasts first-rate, heavily invested management.

Ally Selby: Well. That's all we have time for today. I hope you enjoyed that episode of Buy Hold Sell. I don't think we had any "Sells" in there. Hopefully, that helps with the portfolio blues. If you enjoyed that episode, give it a like. And remember to subscribe to our YouTube channel, we're adding so much great content over the coming weeks.

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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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