Buy Hold Sell: 6 global leaders to replace the FAANG stocks
Inflation fears have taken the lofty tech giants for a wild ride over the past few months, after what was nothing short of a spectacular 2020.
The NYSE FANG+ Index, which tracks the share price movements of Facebook (FB), Amazon (AMZN), Apple (AAPL), Netflix (NFLX), and Alphabet (GOOG), rose more than 170% since its COVID-low, before cascading around 11% after reaching an all-time high in mid-February.
Whatever the remaining months of this year throw at us, it's likely to be an equally rough ride ahead. With the likes of US Treasury Secretary Janet Yellen just this week sidestepping on comments she made on the need for rising interest rates to ensure the US economy "doesn't overheat".
One thing is for certain: The winners of tomorrow are unlikely to be those that came out on top last year. So, in this episode of Buy Hold Sell, we have taken it to two of Australia's best-performing global growth fundies - Nick Griffin from Munro Partners and Alex Pollak from Loftus Peak - to get their thoughts on the next generation of winning stocks.
These include Roku, a platform allowing cord-cutters to access streaming services from their TV; Deere & Co, the tractor-maker revolutionising the agricultural industry; Crowdstrike, the leading provider in cloud-based cybersecurity; and Twilio, a cloud communications business, providing companies like Uber with their in-app messaging system.
Plus, our fundies each share one high-conviction pick investors can comfortably hold for the foreseeable future.
Note: You can watch, listen or read an edited transcript below. This episode was filmed on 29 April 2021.
Bella Kidman: Welcome to Buy Hold Sell, brought to you by Livewire Markets. My name is Bella Kidman. Word on the street is that the FAANG stocks are dead. So today we're going to be picking their replacements and picking the next global leaders, and to talk to me about this today, I'm joined by Alex Pollack from Loftus Peak and Nick Griffin from Munro Partners. Alex, I'll start with you.
First up, we've got Roku. And Roku is a US-listed company, manufacturing digital media players for video streaming services. Buy, hold, or sell?
Alex Pollack (BUY): This is a buy. This company shouldn't really exist because Facebook or Amazon should have understood what was going on in the streaming space. In the same way that you have a Facebook feed that's individualised and tailored to you. Roku does that for advertisements while providing free-to-air television.
You don't see much of it in Australia, but in the US as people cut the cords and increasingly go to streaming, Roku is a method of serving new content and monetizing it for the publishers. Roku provides that content for free, with ads, to the viewer and takes a clip in the middle. It's already a moderately sized business. It's going to be a lot bigger.
Bella Kidman: Nick, we've seen how successful streaming services have been over the last 12 months, particularly with COVID-19. Is this the way that investors should be getting exposure? Buy, hold, or sell?
Nick Griffin (HOLD): We're a hold on Roku. Amazon and Google are coming after it with Amazon Fire TVs and Google Android TV services. And we would actually point people towards The Trade Desk (NASDAQ: TTD)as really a much easier way to play the streaming theme. From our point of view, the risk-reward on Roku's just got a bit stretched here, but we do like the company a lot.
Deere & Co (NYSE:DE)
Bella Kidman: Okay. Next up, we've got Deere & Co, obviously known for John Deere. They're the manufacturer of agricultural equipment. Buy, hold, or sell?
Nick Griffin (HOLD): Tractors are not an area we look at much but they are obviously doing very well at the moment. We are a hold on Deere. There is an opportunity here in precision agriculture that we do see, but the stock has already had a pretty good run. It is ultimately a cyclical business that we see performing only when agriculture is performing. We would hold that one.
Bella Kidman: A very good last 12 months, up 170%. Buy, hold, sell on Deere & Co?
Alex Pollack (BUY): It's a buy for me. As Nick says, it's precision agriculture. If we're going to feed seven or eight billion people in the world, we're going to have to have much better tools in the farms themselves, whether they're a little farm or a big agriculture outfit. If we're going to feed 8 billion people, we'll need a lot of precision agriculture and Deere is a great way to play it.
Bella Kidman: Okay, next up we have US-based cybersecurity firm CrowdStrike. It's up almost 205% over the last year. Buy, hold, or sell?
Alex Pollack (BUY): It's a buy for us. It's endpoint security, providing security in the cloud. The cash flow growth and the earnings growth has been nothing short of explosive. And the TAM, the Target Addressable Market, keeps expanding. It's just really the company for our times in terms of security. It's a buy.
Bella Kidman: This is a huge area of the market, a growing one, but is it becoming too crowded? Buy, hold, or sell?
Nick Griffin (BUY): We agree this one's a buy. We would put CrowdStrike alongside probably Okta as the two really good security plays out there. The company has had a good run, so you could wait for a pullback, but the reality is, security is only becoming more important. And CrowdStrike has a good chance of being the one big security player. We think it's in that handful of potential winners here, and it's worth the bet.
Bella Kidman: All right, next up, we have Twilio, a cloud communications business, providing companies like Uber with their in-app messaging system. Buy, hold, or sell?
Nick Griffin (BUY): This is a buy for us. You can't have a portfolio full of companies this expensive, but this one's worth a bet also. It provides communications platforms as a service. Essentially this is a system that allows you to build apps to communicate with people. Think about when your Uber driver pulls up, communicating with you. Or when your goods are being delivered to you, or when you're doing a two-factor security authentication. These are the services Twilio helps provide.
This is really just a platform as a service that any business in the world can plug into and effectively build communication app services. And it allows you to deal directly with your customer. We see this as actually the next big platform company out there. They've got a clear lead on their competition and the potential into the future is huge.
Bella Kidman: Is this the next big global leader? Buy, hold, or sell on Twilio?
Alex Pollack (SELL): Sell. I'm very nervous about this one. It's got the highest stock-based compensation component of any company in the companies that we follow. And I think it's number 74 across the NASDAQ for stock-based compensation as a percentage of market cap. It does an acquisition every year, pretty much. It's heavily profit negative. I don't like the way that this is shaping up.
Taiwan Semiconductor (TPE:2330)
Bella Kidman: All right. You don't like Twilio, but here's your chance. What is the next global leader?
Alex Pollack (BUY): Well, the next global leader is going to be one of the current global leaders and that's TSMC. They've just announced a hundred billion dollar five-year CapEx plan effectively doubling their existing CapEx plan. The silicon content is going up everywhere. Cars, of course, but also farm equipment, even the clothes you wear, hospital monitoring. All of this requires better and faster silicon chips. And there's none better than TSMC.
Bella Kidman: Hard to beat Taiwan Semiconductor. What's your pick for the next global leader? The next big thing?
Nick Griffin (BUY): We've gone a bit off-piste here and we're going to pitch HelloFresh. So if you think about e-commerce, it's something that's been with us for a while and it goes through different industries. First, we started to buy our electronics online, and then over time we get used to buying your clothes online, and now we're even buying your furniture online.
And the one big area that still is yet to be disrupted is groceries. Groceries are still only 3% penetrated by e-commerce. COVID allowed all of these companies to get a big leg up for people to try the service. What we're finding is people are continuing to using the service. A lot of people get confused and think HelloFresh is just a subscription meal kit. It's actually just another way of buying your groceries. And most people are finding that it simplifies their weekly grocery shop.
And so the runway in front of this company is huge. It's absolutely ginormous. And on top of that, the company is very cheap. It's literally only trading on 30x earnings. And we have this very strange moment at the moment where we speak to the German analysts who cover the company. And they'll say, "As soon as COVID is over, everyone's going to turn off HelloFresh." And we'll say, "Hey, I'm calling you from the future here. I'm here in Australia, where there is no COVID and people are still using HelloFresh."
Alex Pollack: So you're arbitraging time.
Nick Griffin: Hopefully.
Bella Kidman: Wave goodbye to Facebook and Netflix, because with these up and coming stars, you'll be ready to strike in no time.
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What is your pick for the next global leader?
Our guests believe that Taiwan Semiconductor and HelloFresh will be the next big global leaders. Do you agree? What's your top pick? Let us know below!
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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.