In the midst of a crisis, it’s time to start thinking long term. In five years time, what companies will still be growing? Which companies have what it takes to prosper through this crisis?
In this special global equities edition of Buy Hold Sell Matthew Kidman is joined by Charlie Aitken from Aitken Investment Management and Nick Griffin from Munro Partners. Join them as they talk about the prospects for Nike (NYSE:NKE), popular streaming service Netflix (NAS:NLFX), Chinese e-commerce giant Alibaba (NYSE:BABA) and electric car juggernaut Tesla (NAS:TSLA), along with two companies that are set to soar in the long term.
Notes: You can access the video, podcast or edited transcript for this Buy Hold Sell episode below. This episode was filmed on 7 April 2020.
Matthew Kidman: Welcome to Buy Hold Sell, brought to you by Livewire Markets. I'm Matthew Kidman, I'm joined by Nick Griffin from Munro Partners, and Charlie Aitken from Aitken Investment Management. We're going to start looking long term. Those growth companies that won't skip a beat, but in five years time, they'll be still growing and you can make a lot of money out of. Nick, I'll start with you. Nike - you can buy it online, everyone's out there running. Buy, hold, or sell?
Nick Griffin (Buy): We think it's a buy. It's a great brand. It's moving to a direct to consumer model. It was already quite advanced at that point. The only problem with it is the valuation, but I think if you hold it for long enough, you'll always do fine with Nike.
Matthew Kidman: Charlie, I can see you as a bit of a Nike man. No doubt you get out and probably knock off 15-20 km’s a day. Buy, hold, or sell?
Charlie Aitken (Buy): You know me so well, Matthew. We're going to have a buy on Nike. It's one of our top five holdings. Had a result the other day that was actually alright. It shows the online channel is actually getting traction, direct to consumer. One of the few things you're actually allowed to do in this coronavirus problem is exercise. We think the trend to athleisurewear is a structural trend. I think this is the first time I've actually worn business attire in three weeks. I've ordered a pair of Nike shoes over the internet which arrived two weeks ago. We think the valuation is a little bit full at the moment, but on any weakness, we're happy to buy Nike.
Matthew Kidman: You're just ahead of me. Okay, let's get over to Asia. Alibaba, the behemoth of China. Buy, hold, or sell?
Charlie Aitken (Buy): I'm a buy on Alibaba. We hold it, it's got a dominant market position. Playing everything through the cloud, through to eCommerce. And also the recovery in the Chinese consumer is going to be ahead of the rest of the world, as they appear (if you believe the data) to have dealt with the data ahead of everyone else. We like Alibaba here.
Matthew Kidman: Nick, it's hard to see how Alibaba can go wrong at this point. It's in the right spot and it's in the biggest market in the world. Buy, hold, or sell?
Nick Griffin (Buy): We're a buy. I think what's interesting about Alibaba, if you look at it really closely, most of its businesses are still not profitable. Unlike Amazon, its cloud business is still not profitable, its video business is not profitable, its food delivery businesses are not profitable. It's almost a bit like Amazon five years ago, and it's selling to a much bigger market. From that point of view, yeah, it still looks great here.
Matthew Kidman: Nick, staying with you. We all used to like streaming and now it's the only thing we're allowed to do. Netflix - buy, hold, or sell?
Nick Griffin (Buy): Look, we're a buy on this one as well. Put simply, there's a couple of big internet platforms out there that ultimately, through network effects, should take most of the market share. Netflix will be one of a handful of streaming services that we will use for the rest of our lives. There will be other ones, of course, but you'll be able to count them on one hand. Netflix is going to be one of them, and that's going to be worth a lot of money.
Matthew Kidman: Charlie, it's a pretty competitive environment. There's some big companies going up against Netflix. Buy, hold, or sell?
Charlie Aitken (Buy): We’re going to buy on Netflix, as well. I think this has been an amazingly fortuitous moment for Netflix, as well. Because if you think about the competition, not from Disney+, but from cable - cable is all about sport. Think about Foxtel, think about ESPN. Their offering is zero at the moment because of no sport, globally. I think you're going to see big subscriber growth from Netflix, it's going to surprise everyone. Whether they can keep those subscribers once coronavirus ends, who knows, but we think it's the dominant platform, and it's got the widest variety of entertainment on it, so we're buying it.
Matthew Kidman: There's not many places we're allowed to drive these days, Charlie. In fact, an L plater got fined from being too far from home the other day. Tesla. Buy, hold, or sell?
Charlie Aitken (Sell): Not for us, Tesla. You either believe it's an automobile manufacturer, or you believe it's a software company. We believe it's an automobile manufacturer and it's obviously an expensive one if you look at it on those measures. We also think demand for cars will be weaker in the next year or two as people reassess their finances. We just think that the balance sheet doesn't fit out investment process, so we're a sell on Tesla.
Matthew Kidman: Nick, surely you're more positive? Environmental benefits, and eventually we'll be able to drive again. Buy, hold, or sell Tesla?
Nick Griffin (Buy): I'm putting a speculative buy on Tesla. I recognise the problems Charlie talks about, and they are bigger problems now than they were going into this, particularly the working capital around the car business. But here's one thing I do know about Tesla. You can only lose 100% of your money if you buy Tesla here today. You can only lose the whole lot. The reality is you could make thousands of percent. This company sits at the start of the biggest S curve in the world today, which is the shift to electric cars.
It's got huge brand leadership. You have to take a very long term view, so that's why I call it a speculative buy. But I think it's one of the most interesting companies in the world today and so that's why I would buy it.
ASML Holding NV (NYS:ASML) / (ETR:ASME) / (ETR:ASMF)
Matthew Kidman: Let's keep building that long term bridge and get us to the other side. What's a stock that's going to just waltz its way through the coronavirus economy and keep growing in the medium to long term?
Nick Griffin (Buy): One thing I know about the coronavirus is we will solve it with some form of technology, and in fact, we will solve everything in life with technology from here. That's pretty obvious. Whether it's the cloud, etc. The company I'm going to give you is a company called ASML. We think it's the most important company in the world that no one's ever heard of, is what we call it.
What they do is they essentially make high end lithography machines. So they are the company responsible for extending Moore's law, for making semiconductors smaller and smaller and smaller. What's interesting in the last few years is they've now got a monopoly position on the highest-end semiconductors. The lithography machines they sell, they sell for about 200 million euros each, or 150 million euros each for the small ones, and they effectively have a monopoly over Samsung etc.
This company grows no matter what from here. It grows no matter what for a very, very, very long period of time, and all technical innovation in the world will not happen without them. Hence, we call them the most important company in the world that no one's ever heard of. ASML, it's listed in Holland. We're paying about a PE of 21-22 times for it today. This is a great opportunity to buy.
Salesforce.Com inc (NYS:CRM)
Matthew Kidman: Charlie, same question to you. What's going to get us there? You build the bridge, we'll be there in five years time, we'll be in this company.
Charlie Aitken (Buy): I think everyone wants to get closer to their customers, so I'm still a major bull on Salesforce, even though headwinds in the short term might be reasonably substantial. I think everyone wants a 360-degree view of their customer, everyone wants to know more about their customer, everyone wants to sell more directly to their customer. Particularly in an online world.
I think Salesforce has made numerous acquisitions later which increases its product suite. I think it's a particularly high growth company that will be around in five years and be much bigger than it is now, and the basis for the premise is that every single business wants to know more about its customer, and service that customer better. Even if that means remotely in the new world that we're heading towards. Salesforce is a reasonably big investment for us, and I think it'll be one over the next five years that will compound in value.
Matthew Kidman: For all those people worried about their job in this recession, don't worry. Technology and machines are going to do it for us. Get on board.
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- In one of the most tumultuous quarters in recent history, the Munro Global Growth Fund which Nick manages put on +7.6%. Find out how he did it here
Although that was interesting, it is pretty much useless to me to buy those stocks unless I want to trade the US market which is difficult and costly. I would be far more interested in buy/sell recommendations on the asx.
Peter, while it's not as cheap as trading in Australia obviously, accessing international stocks is relatively easy through most online brokers these days. For major exchanges like the NASDAQ, NYSE, and LSE, the prices are generally quite competitive. Accessing international shares is much easier now than it was a few years ago - even some super funds allow investors to trade individual overseas shares.
Patrick, Buy Hold Sell has to be one of my favorite series (and Mr Kidman, one of my favorite presenters/hosts). While I agree that that administratively, buying and selling international stocks is easy, the vagaries of currency fluctuations combined with buying the right overseas businesses at the right time is a major obstacle for me personally. Like Peter, and I suspect 90% of your audience, I'd prefer to see recommendations based on the ASX. Keep up the great work guys, Livewire is something I look forward to perusing every day.
I trade the US market using International Brokers and STAKE. It's easy to do and the rewards are far superior to the ASX market. So I for one am very happy to hear about these US opportunites. Thank you Patrick for your great work and enthusiasm.
I agree with Peter and Mark...buying International equities directly and not via a managed fund opens up many issues. I really do like reading on this site the various recommendations based on the ASX
Keep up the great work Patrick. Trading international shares is easy and cheap in this day and age. Don't understand why people would whine about content they're not interested in. Personally I find large caps extremely boring , although being a quality comprehensive site, it would be silly to suggest excluding them.
Australian shares have traditionally been good for income whilst overseas shares, particularly US shares, have been good for growth. To that end I am gradually buying Australian shares whilst buying directly into overseas shares.. I'm attempting to fill gaps where Australia is not strong, for example IT. I have bought microsoft and alphabet. I'm not really worried about currency fluctuations. I view this as another type of diversification. I'll loose & win at different times. I'm also buying a gold etf at the Perth mint coupled with Australian bonds as a hedge. As an investor one major problem is it is getting extremely difficult to derive an income from money full stop. You can't make money from term deposits and rental returns are low & now dividends are fragile.
Fully agree FRASER SAMUEL 20TH APRIL, 2020 Right time for Gold ETFs is right now. Can anyone suggest a good Gold ETF please?
Without the Fed Put, (illiquidity is real this time), and no stock buybacks, where is the money coming from? Is there any depth to this market or are bag holders being recruited with a hospital pass?