Buy Hold Sell: 6 stocks for 10 years
Short-term market volatility has been on the mind of Livewire contributors, but on a long-term view, the market often proves rational. With the rise of passive investing and widely skewed valuations, many investors are looking for stocks that they can ‘set and forget’.
Long investment horizons remove the influence of market hype. As fundamentals and long-term trends take the main stage, quality companies rise to the top.
Here, Mathew Kidman from Centennial Funds leads the discussion on those stocks you can ‘leave in the drawer’ and find a nice gain some years down the track. Joined by Jason Kururangi from Aberdeen Standard Investment and Catherine Allfrey from WaveStone Capital, the panel considers 6 popular stocks including Afterpay, Woodside Petroleum, and CSL Ltd, and whether they see value in holding them for the next 10 years.
Notes: Watch, read or listen to the discussion below. This episode was filmed on 21 October 2020
Matthew Kidman: Welcome to Buy, Hold, Sell, brought to you by Livewire Markets. My name is Matthew Kidman. Today we're going to look at those stocks that you can afford to buy, forget about for 10 years and turn around and find you made a lot of money. To discuss this with me, I have Catherine Allfrey from Wavestone Capital and Jason Kururangi from Aberdeen Standard. And we'll start with you, Jason. It's only been alive for five years, Buy Now Pay Later juggernaut, but we can own it for the next 10 years. Afterpay, buy, hold, or sell?
Jason Kururangi (Buy): I'm going to go with a buy on that, on a 10-year view. Look, I'm cognisant with valuations today. It's pretty fully priced for a lot of upside. However, if I go out three to five years and I look at the ability for them to grow into the total addressable market and to penetrate, take share off credit card books globally, we think there's a lot of upside to this stock. When they're growing and generating returns north of 30% on that book, a lot of upside in that story on a 10-year view. So, we're going to go with buy.
Matthew Kidman: Catherine, it's been listed for 3 years, you’ve got to buy it for 10, but it has done 3500% in those three years. Buy, hold, or sell?
Catherine Allfrey (Sell): I'm going to go for sell. And the reason is I think it could go to 50 before it goes to 200. So, I could probably buy it cheaper.
They're the leader in the space, but there's a lot of competition coming at them right now. So the question is, can they sustain those margins? I would like to see how they perform with PayPal, Shopify and all the other little minions that are nipping at their heels over the next 12 months to see if they can really put space between them and the competition before I'd be really backing them on a 10 year view, given the multiple I'm now paying for the business at these current prices.
ANZ Bank (ASX:ANZ)
Matthew Kidman: Okay. Here's one that's been around a bit longer, but Afterpay has almost caught it in market cap. ANZ, it's only down 10% over the last 10 years, would you own it for the next 10 years? Buy, hold or sell?
Catherine Allfrey (Hold): No, I wouldn't. I would say it's a hold at best, if not a sell. The most you can probably expect is a dividend yield, and it will get back there over the next 12 months, and you'd probably get a fully franked yield of about 5% per annum. So if you're happy with that and then yes, but no, in my case, no. I don't want to own it.
Matthew Kidman: I'm sure if we asked you this 10 years ago, everyone would have said, yeah, you own the banks, you'll get your yield. Down since then. ANZ, buy, hold or sell?
Jason Kururangi (Sell): It's a sell for me. Look, banking is a tough industry, it's very competitive and highly regulated. Whilst that gives you some barriers to entry - and I'm not questioning whether ANZ will be around in 10 years, I'm pretty sure they will be - but do I necessarily think that that yield will be able to sustain all the way through that period? Maybe not. ROE is relatively low. I'm getting a cost of capital return. It's not that exciting. I'll leave it on the sell.
Matthew Kidman: Okay. Surely if you own a bunch of roads, they're going to be around in 10 years and doing quite well, Transurban, buy, hold or sell?
Jason Kururangi (Hold): For me, that's a hold. Look, we don't own Transurban, it's a great set of assets. I can't fault the asset quality of the business. However, just the way I think about Transurban is it's a cost of capital play plus a little bit of growth. I don't see hugely exciting returns out of it.
I think there's a lot of risk that the market doesn't appreciate and the structure of the assets and the amount of leverage that's sitting within the various roads. Whilst debt refinance has been fine, and they've got through this period with no real issues. Look, I'm a hold on that stock. I just can't see it outperforming.
Matthew Kidman: Catherine, it's been a main stay of most big cap portfolio's, up three times over the last 10 years, it's been a terrific stock. Is it a buy, hold or sell over a 10 year period now?
Catherine Allfrey (Buy): We still think it's a buy. And the reason is because it's been so impacted by COVID, right? Transurban, particularly on the East coast of Australia, provides the arteries, so to speak, of the roads of our major cities. And clearly we have been staying at home, so they've been impacted. We expect that traffic to return.
The other beautiful thing about Transurban is it has price growth. So it's got 4% price growth per annum over the next few years. And as Jason pointed out, in terms of its debt, yes, it does have a lot of debt, but the average cost that they're paying is around 4.5% and they're refinancing less than 3%. They've still got that tailwind to come through. We think traffic can improve, price growth is there, and plus you've got the turnaround that's going to come through. So it's all positive.
Woodside Petroleum (ASX:WPL)
Matthew Kidman: Okay. He's a reader's request. There must be a lot of people sitting there wondering why they've owned it for the last 10 years. Woodside Petroleum. Fossil fuels, all that kind of stuff. That's only halved, or more than halved, in the last year last 10 years. Buy, hold or sell?
Catherine Allfrey (Buy): For trading, buy. You could buy it for the oil price, but we still think that there's better other oil names that we would prefer to own, like Santos or Oil Search, rather than Woodside, If you need to own it.
The problem with this company is the returns are really low. And they've also, in terms of growth options for them, they're now in negotiations with their partners over their future growths prospects in the Northwest shelf and in Pluto and that's going to take some time to work out.
The issue of course, is what is the long-term demand? I'm a bit of a greeny, I do believe over the longterm there'll be renewable growth coming through and gas is a transition fuel, and so we will be moving to renewables. The demand over the long-term is going to decline.
Matthew Kidman: Remember we used to have Peak Oil, that was talked about. And now Catherine, me and our greeny friends are winning the battle. Woodside, buy, hold, or sell?
Jason Kururangi (Sell): For me, it's a sell on a 10-year view, buy on a 3-year view. I think that there's a lot of upside from the current share price, but I agree with all of the points Catherine raised. And ultimately I think we are going into a period of transition away from fossil fuels in a big way. And you see that with Chinese economic policy where they've announced renewables recently. Totally, I can't disagree with that. On a 10-year view I don't want to own Woodside.
Fisher & Paykel Healthcare (ASX:FPH)
Matthew Kidman: Okay. What do you want over 10 years?
Jason Kururangi (Buy): I would happily lock away at a little company from New Zealand called Fisher and Paykel Healthcare. It's a great business that has been heavily exposed to the positive side of COVID, if there is one. They're in the hospital setting, they provide humidification solutions to ventilators and also provide high flow nasal oxygen therapy, which actually has been proven to reduce the issues around COVID.
We saw a 300% pick up in their hardware sales in their first quarter results for FY21. Whilst that's obviously not going to last for a long time, that sort of growth, what it's going to do is pull through a significant number of consumables over the very longterm. So we have a really positive view on Fisher and Paykel Healthcare looking out three, five, 10 years. That for us is definite buy.
CSL Ltd (ASX:CSL)
Matthew Kidman: Catherine, given what's happened in the last 10 years, it's pretty hard to say hand on heart you'd buy any stock for 10 years, but if you've got one for us that might?
Catherine Allfrey (Buy): Well, look, I want to continue with CSL in terms of the 10 year view, it’s a demographics play and we’ve got the baby boomers coming towards us. So healthcare is a natural area on a 10 year view that you'd like to invest in.
So why CSL? Well, CSL continues to invest in their business and they're continuing to invest in R&D but also in their production facilities. I think what the market is underestimating is how much that they've spent, and it's fully costed, it's not capitalised like tech stocks. So we think this can generate over a 10% compound growth rate at the EBIT level over the next 10 years.
Over and above that, whilst everyone's worried about plasma collections in the US with regards to COVID, the reason that those collections have slowed, what we actually are seeing in terms of their flu business and what could happen with the COVID vaccine, is that CSL could end up being a winner. This could be an annual vaccine that we're all required to have. And no one is looking at that on a long-term view of the benefit of that for CSL. So we think on a 10 year view, we’re happy to own it.
Matthew Kidman: Nothing like an annuity business. Don't throw away that key to the bottom drawer because you might want to open it and clean it out well before 2030.
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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.