Buy Hold Sell: The hottest global stocks for 2022

Buy Hold Sell

Livewire Markets

Investing in global stocks opens up a world of opportunities, literally. For instance, the MSCI World Index returned an impressive 22.35% last year, while your top 10 global stock picks for 2021 pulled in a respectable 14.59% (outperforming both your Aussie large and small-cap favourites, and by a long shot). 

Our readers aren't sticklers for change, it seems. Only Disney and NIO fell out of favour with investors this year, replaced by semiconductor companies Nvidia and ASML. 

But they say if it ain't broke, don't fix it. After all, most of these stocks have enormous market caps, and they grew that large for a reason. 

In this episode, Livewire's David Thornton makes his Buy Hold Sell debut alongside Alphinity Investment Management's Mary Manning and T. Rowe Price's Sam Ruiz. They analyse the hottest global stocks of 2022, and also share how they are positioning their portfolios to take advantage of the major thematic you said you would be allocating to over the year ahead; decarbonisation.  

Note: This episode of Buy Hold Sell was shot on Monday 24 January 2022. You can watch the video, listen to the podcast or read an edited transcript below.


Edited Transcript

David Thornton: Hello, and welcome to Livewire's Buy Hold Sell. I'm David Thornton. In December, we surveyed thousands of Livewire readers to get their views on everything from investment themes to top stock picks. In today's episode, we're going to focus on the top 10 global stock picks as picked by you. For that, we're joined by Mary Manning from Alphinity Investment Management, and Sam Ruiz from T. Rowe Price. 

But before we get to that, a short detour. As part of the survey, we asked our readers to nominate the megatrends they're most likely to add to their portfolios in 2022. Decarbonization was front of mind with about 60% of people expressing interest in it. 

Mary, what's your view on decarbonisation? Is this a megatrend here to stay and how do you factor it into your investment process?

Mary Manning: Hi David. Thank you very much for having me on Buy Hold Sell. Yes, absolutely. I think decarbonization is a very, very important trend that people should be aware of in their portfolios. So Alphinity has a core Global Fund and a Global Sustainable Fund, and for both of those funds, decarbonization is an important thematic.

So I think the second question is if you think it's a megatrend, then what should you do with that and what kind of sectors and stocks best reflect the possibilities and the return potential of decarbonization? So within that overall thematic, we really like EVs as a thematic. So we like Tesla (NASDAQ: TSLA). We like Daimler (ETR: DAI). We like Onsemi (NASDAQ: ON), a lot of these stocks that are either electric vehicles or part of the EV supply chain.

Part of the decarbonization thematic where I will caution your investors and your listeners on is renewables. 

A lot of renewables sound very good at a thematic level, but when you really, really dig deep into the numbers, sometimes they don't stack up from an investment perspective. 

David Thornton: How about you, Sam? How do you think about decarbonization?

Sam Ruiz: Good to be here, David. Absolutely decarbonization is a megatrend. We're seeing many global commitments around the world from governments and companies. I think something I'd call out, is that more and more are feeling this pressure from investors and having to make future commitments. We have BHP locally getting out of fossil fuels as that pressure really continues to build.

So for us, I guess the one thing I'd say is there's plenty of opportunity, but you do have to be conscious of a lot of the rerating and elevated multiples being given to some of these stocks. You can get the fundamentals right or there can be a real shift in demand for these companies, but if you get valuation wrong, then that can be something that can really hurt you as an investor.

We're playing it in similar ways to Mary. We do like electric vehicles as well. We're just cautious again, around some names like Tesla with valuation. One of the biggest positions in our portfolio now that we played private was Rivian (NASDAQ: RIVN), but there's a whole different range of ways to play that as well, particularly semiconductors and power semiconductors, as we see the content gain. So the number of semiconductors needed in EVs is so much greater than combustion, which is another way to play it.

David Thornton: Moving on now to the top 10 global stock picks as selected by our readers. First up, Amazon. It had a monster year in 2020, plateaued last year, and it's lost about 16% this year. Sam, kick us off. Is it a buy, hold or sell?

Amazon (NASDAQ: AMZN) 

Sam Ruiz (BUY): For us, Amazon's a buy. As you mentioned, since 2020, Amazon is one of the first companies that we've seen really start to decelerate in that particularly online digitised tech basket. From here, we're expecting that they're going to go past that period of tough comps. And we think that they'll re-accelerate the year over year e-commerce numbers as of Q2 to Q3 next year.

David Thornton: Mary, PE for Amazon sitting at about 55. Is this a buying opportunity?

Mary Manning (HOLD): I would say Amazon is a hold. But it's just a hold until you have more visibility on when those earnings are going to start to come through. We've all mentioned that Amazon for a $1.4 trillion market cap company to go nowhere for 18 months, is massive underperformance versus the rest of the FAANGs. And so, I think the expectations of Amazon are quite low compared to what they would be for say Google, which has had amazing earnings upgrades and has significantly beat earnings over the last 18 months.

I think the issue with Amazon is I would like to see how they report fourth-quarter because the guided range for their operating profit for the fourth quarter is huge. It's from zero to $3 billion. And if they come in at breakeven versus if they come in at $2.9 billion, that's going to be a very different reaction in the stock.

And I think, I don't know about Sam, but those Netflix results scared a lot of people last week because it shows that coming out of COVID is not going to be linear. And for a lot of these stocks, whether it's Netflix, Peloton or Zoom - COVID pulled a lot of demand forward and it's unclear how much that is and what the path out is going to be. 

Tesla (NASDAQ: TSLA)

David Thornton: Good stuff. Moving on to Tesla. The stock's down here today. It's got car recalls happening in the US, Asia and here in Australia. Mary, what's your view

Mary Manning (BUY): Strong buy. I know "strong-buy" isn't one of the options, but I will say a strong buy. I think that Tesla is way more than just an EV company. I think Tesla has single-handedly revolutionised the auto industry, which was a sleepy industry for over 100 years. It's not just about EVs. It has backward integration into batteries. It has forward integration into the marketing and selling of EVs. It has charging stations. It really is an ecosystem stock.

I'll just comment on valuation because Sam mentioned it before. Tesla looks expensive versus OEMs. We own Daimler also, which is trading at seven times P/E. Obviously, the difference between those two is huge. But if you look at any of the other pure-play car companies, or EV or EV truck companies in the world, they're all loss-making. And so, you can argue about what Tesla's P/E should be, but I think the most important point is that it has "E" when most of its peers don't.

David Thornton: Sam, you have the same type of conviction that Mary has?

Sam Ruiz (HOLD): For us, it's definitely not a strong buy, if that's an option again. For us, it's a hold at the moment. It's a hold because firstly, we've already mentioned valuation for us. It is just very, very excessive for an exceptional company. For us right now, we're really just balancing how much you pay for a company that has surprised all estimates. Deliveries, as Mary said, have been astronomical. They've really executed exceptionally well in a world of supply chain issues and disruptions, particularly in semiconductors.

The issue for us is - what Tesla's done very, very well is not just deliver cars, but they've also had a really big shift in their gross margins. We've seen about a five percentage point increase because of this global shortage in autos. We are seeing a short-term ASP rise and the mixers as being much stronger for the company. We just worry about how they comp that next year, but also for a company at its current valuation, where they have executed seamlessly, there's nothing in the price that gives us any margin of safety for if they do have a slip-up. And if they do have a slip-up on deliveries or manufacturing, we think that the stock could be punished on that.

Microsoft (NASDAQ: MSFT)

David Thornton: Next up, Microsoft. It just made the huge acquisition of Activision for almost $100 billion. Biggest acquisition in tech history. Mary, buy hold or sell?

Mary Manning (BUY): Microsoft is a buy. Before we get to Activision, it's important to highlight that in the software space, Microsoft is the highest quality stock. As we mentioned before there are a lot of these high growth stocks or software concept stocks that are trading at price to sales. And then you have Microsoft, which is very, very consistent. They have best in class products and it's trading at less than 30 times P/E after this sell-off. So I feel much more comfortable investing in a software stock or a stock like Microsoft because if there's something happens on inflation or if tech continues to sell off, at some point, you'll have valuation support in Microsoft. Whereas in a lot of its peers, there's not a lot of valuation support. There's a lot more downside.

On Activision, I think it's very, very interesting. A lot of the commentary has been that with this acquisition Microsoft has taken a big bite out of the metaverse cookie and that they have used this to just really parlay themselves into the metaverse in a way that it couldn't have done before. I'm sort of taking a wait and see approach to what happens there, mainly because there are a lot of cultural issues at Activision, and that's one of the reasons why they got it so cheaply. But I think it is quite interesting at a high level and we'll just wait to see whether that turns out in earnings. But Microsoft, primarily for the valuation, is a buy.

David Thornton: Would you agree, Sam?

Sam Ruiz (HOLD): For us, it's a hold at the moment. It's a hold because it's a $2 trillion company - the law of large numbers. It's going to be very hard for this company to grow much more than double digits from here. And I would say in contrary to how Mary's thinking about it, we actually think that this safety aspect is definitely in the valuation. So we have seen a lot of the market gravitate towards safety and names like Microsoft and Apple as well. And they've subsequently seen that rerating. What we've seen with Microsoft and what concerns us is we've got a company on an elevated valuation that's going to be decelerating when the market doesn't want stocks that are decelerating.

They sold more PCs in the last two years than they ever have. They've obviously had a very, very strong enterprise part of their business as well and cloud is doing exceptionally well. But we are just more worried about what happens with the deceleration in this. Not so much a pull forward, but as the world rushed to get hardware and PCs, particularly, that's a bit of a headwind now for the stock going forward.

Apple (NASDAQ: AAPL)

David Thornton: Okay. Apple. It went from strength to strength in 2020 and 2021, but has suffered from the tech sell-off this year down 10%. Mary, is it a buy, hold or sell? 

Mary Manning (BUY): I think Apple is a buy for a couple of reasons. First of all, the 5G cycle. We have a view that's going to be stronger than expected. You have a lot of people that were waiting for that replacement until 5G phones came on the market. And then that cycle is going to be elongated and is going to continue to drive iPhone sales as 5G rolls out around the world. 

Secondly, Apple is not just about iPhones anymore. If you look at the revenues and the profits of different business segments, particularly wearables, those have a lot of momentum and will become a bigger part of the company going forward. And then lastly, we really like the valuation of Apple at around 26 times forward P/E for a company that arguably has the strongest brand in the world. And that generates almost a billion dollars in free cash flow a year and has an ROE of over 100%. I am happy to pay that kind of valuation for a company like Apple.

David Thornton: Sam, give us a call. 

Sam Ruiz (HOLD): For Apple, for us at the moment, it's a hold. Apple has been a huge beneficiary late last year as the market really crowded towards stability and earning stability. The stocks had really big upgrades, it's done exceptionally well, as we've seen a massive leap forward in the number of people needing iPhones and PCs all at once. They did have a little bit of a one time benefit from Huawei really exiting their smartphone business. So for us looking forward from here, the concern we have is around a high twenties multiple. We think the company's growing at around five to 10% per annum. It's a tech consumer staple if I can put it that way. And it's just not something that we're looking to put in the portfolio at this point.

Alphabet (NASDAQ: GOOGL)

David Thornton: Let's turn to Google now. Its September earnings outperformed market expectations and the company continues to buy back stock from investors. Sam, buy, hold, or sell?

Sam Ruiz (BUY): Google or Alphabet is a buy, in our view. They've been a really strong second derivative beneficiary of all this consumption that's moved online. So we have seen an acceleration in the ad budgets that have been moving from offline to online. And we think that Google is the cleanest way to play that. Particularly with Apple turning off unique identifiers in phones, there are a lot of advertisers that are really struggling to get around that, but Google's been managing that very, very successfully. There's also a bit of a catalyst with Google where a lot of their search revenue actually comes from cross border travel. As we see the world reopen and recover from COVID and lockdowns, that's a bit of a tailwind for them. But at the end of the day, it's an incredibly strong business taking a very large share of this shift of ad budgets going online. And what we like, is it has a very reasonable valuation in our view. So it is trading on a market multiple of around 20 times, which is pretty much in line with the S&P, but for stronger growth, in our view. 

Thornton: Mary, what's your take?

Mary Manning (BUY): Google is definitely a buy. Google has been a very strong performer in 2021 with really consistent and large earnings upgrades. So if you think about it, for a company of Google's size, to be able to get into a beat and raise cycle is pretty impressive. So we are positive on the digital ad cycle going forward, which will continue to drive Google's earnings. And then also with Google, you have some interesting optionality with respect to cloud, which currently doesn't get very much value ascribed to it and also with Waymo. So in terms of Google's P/E, it's very inexpensive around a market multiple, as Sam mentioned, and you get this amazing momentum in the core business and you also get optionality in terms of Waymo and cloud. So Google for us is a buy.

Alibaba (NYSE: BABA)

David Thornton: Okay, moving on to Alibaba now. China just cut rates. Is this good news for the e-commerce giant? Mary, I know you're a bottom-up investor, but I'll start with you. Buy, hold or sell?

Mary Manning (SELL): Sell. So as some of your readers and viewers will know, I used to cover Asia and China, very, very closely. That's kind of all that I focused on. And I think that it's not about rates for Alibaba. I think that things that would have to change for me to take Alibaba to a hold or a buy would be number one, they have to get an earnings upgrade cycle. So if you look on Bloomberg and do like EEB or any of the functions that show you earnings, it's on a downward trajectory. Earnings are just going down, down, down. And it is risky to buy any stock anywhere in the world where their earnings are on that kind of trajectory. So first, I'd want to see some kind of turnaround there. And that may be because macro turns around, it's too early to tell. 

But the other things that I would want to see before I wanted to hold or buy Alibaba would be some sort of clarity on the regulatory outlook. This has been going on since the Ant IPO got cancelled 12-18 months ago now. And there's still not a lot of clarity on whether that's going to continue to get worse or whether it's primarily over. For Alibaba specifically, I'd like to see some clarity on the ADR, the listing situation in the US, because you still have Alibaba and a lot of shareholders that hold Alibaba in the US. And if the SDC and the regulators vote against that, and Alibaba gets de-listed, that will be very, very negative for the stock. 

Thornton: Sam, what's your call?

Sam Ruiz (BUY): For us, Alibaba is a buy, but very distinctly with a horizon of two to three years. So in our view, we've seen these particular regulatory cycles many times in China, and we actually believe that China's heading into this year where they will reaccelerate. And we think that particularly later this year, that they do want to be having a strengthening economy there. We don't think China's trying to destroy innovation. And when we think about Alibaba, it's on an incredibly depressed valuation at the moment, yet it's China largest e-commerce, quantum computing, but also cloud company. 

So for us, we think that, yes, there are a few issues at the moment when it comes to local demand, but also the competition being promoted by the regulator in China. But one of the most exciting parts we actually think for Alibaba, and we think it can be the majority valuation in the future, is actually the cloud business. So we think that business, in speaking with the company, can grow at a CAGR of around 40% over the next five years. And on a sum of all parts basis, we just don't think that investors are giving Alibaba credit for how large that business can be.

Nvidia (NASDAQ: NVDA)

Thornton: Nvidia, again, it's been caught up in the tech sell-off this year, and it's been at the centre of the microchip shortage. I know you've sold Nvidia stock, Mary, as you mentioned earlier. But is it a buy, hold or sell for you?

Mary Manning (HOLD): Nvidia is a hold and we didn't sell the whole thing, we just trimmed it. The thing was - if you remember back to probably September to December, we would trim Nvidia and then it would go up so much the next day we'd be back at our original position size, like the day or two days later. Because it was when Facebook just changed its name to Meta platforms and there was all this hype about the metaverse. And Nvidia, just based on their products and their GPUs, will be a really critical part of the metaverse. 

So it was just getting extremely frothy, and we were just taking that froth off the top as it continued to go up. So we still do hold Nvidia. I guess the main issue is valuation. It's trading at 55 times P/E, and Nvidia also has a tax structure so their effective tax rate is mid to low single digits. So if you normalise their tax rate, it's on a 60 plus times P/E. And people forget that Nvidia and some of its semiconductor sisters and brothers are cyclical stocks. And so to have a cyclical stock that's trading at that level is just quite expensive.

David Thornton: And Sam, buy, hold, or sell for Nvidia?

Sam Ruiz (SELL): Very similar thoughts to Mary. I don't know if I can hedge it in the middle. It's close to a sell. I'd say between a hold and a sell for us. It's very cyclical, as Mary mentioned. If you think about their core businesses, they've got gaming, they've got crypto, they've got data centres. We saw a lot of these on fire over the past 12 to 18 months, where there were people who were making gaming PCs in lockdown, the rush to mining crypto. These are things that we think can decelerate very, very quickly. But at the same time, a lot of their customers have been double or triple ordering. So we do have inventories at very high levels. And when that turns, there's no issue with supply. So we think that we could actually see a very, very strong rotation out of Nvidia on the back of that. As one of our tech analysts says, in 12 to 18 months he thinks he'll be able to wallpaper his house in Nvidia chips. So not a good sign for where we think we are in the inventory cycle.

Block (NYSE: SQ)

David Thornton: Okay. Block, the US payments provider. Of course, in August last year, it announced plans to acquire Afterpay. Sam, what's your take? Buy, hold or sell?

Sam Ruiz (HOLD)

: Block for us is a hold at the moment. We think that COVID truly transformed the company. They really were able to get an enormous number of Cash App users that needed the app to really house their stimulus. And they're using that demand. We say the company has crossed the chasm through COVID to build a super app. So we really like the Afterpay transaction. We think that they're going to be able to monetize their users throughout all these different platforms inside that. The issue for us in the near term is that it is a great company, but they are decelerating. So we are seeing some disappointing numbers come through in the last quarter particularly, and they're on watch for the next quarter as people are wondering whether they have fully saturated the Cash App numbers. Is the seller part of their business, the re-acceleration of volumes there, going to be enough to offset that? We're just a bit watch and see at the moment.

David Thornton: Mary, are you buying, holding or selling?

Mary Manning (SELL): Selling this one, for similar reasons to Sam. They are in an earnings downgrade cycle, and there's a deceleration there, so earnings estimates for 2022 have gone down quite significantly since October. And then the main growth engines, Cash App and Afterpay, they've been massive pandemic beneficiaries. And so there's that concern, whether it's like Netflix or Amazon, that there's been that pull forward and that you're not sure what the path out is going to be. Thus far, it looks like the path out is significant deceleration, so Block is a sell for us.

BHP Group (NYSE: BHP)

David Thornton: Next up, BHP, the big Australian. How's it doing, Sam?

Sam Ruiz (BUY): It's been doing much better recently for us. BHP is actually a buy. We've had an underweight to iron ore over the past six to nine months. What we're seeing here is if we think more macro, big picture, and like Mary, we're definitely bottom-up investors, but we have seen a very, very tough China cycle. Steel demand has been very, very weak. But we believe, as we head into this year, with the re-acceleration we're expecting from China, that that's going to be positive in the property sector, but particularly the demand for steel will increase at the same time that we have supply constraints for iron ore.

David Thornton: What's your take, Mary?

Mary Manning (BUY): BHP, for Alphinity, is a buy. I have to mention here that I am a PM for the Global Fund, and we don't invest in BHP, but I have checked with my domestic colleague, Stephane Andre, who's the portfolio manager who covers BHP, and they think it's a strong buy. Primarily it's exposed to iron ore, coal, copper, all of which have spot prices that are currently greater than market expectations. So the fundamentals are improving, and they think that's going to lead to significant earnings upside, up to 30% or 40%. I guess the other point to mention is some of the thematics that we discussed before. China fundamentals are improving, and they're on a different trajectory than the rest of the world, which is a positive for BHP. And then your very first question, which was about de-carbonization, the domestic team at Alphinity likes the strategy of BHP exiting the carbon-intensive fossil fuels, and also likes the strong balance sheet and the valuation. So overall, a buy for BHP.

ASML (NASDAQ: ASML)

David Thornton: Semiconductor company ASML, it's expanding production to meet microchip demand. Mary, buy, hold, or sell?

Mary Manning (BUY): ASML is a buy. ASML is unique in the world in that it has one of the strongest moats around its business, and the highest market share of any semi-cap equipment company - possibly of any company in the world. So we really like that from a moat perspective. ASML just reported last week and there was some disappointment in its first-quarter earnings, but we think that the primary drivers of ASML, some of which are cyclical, some of which are structural, and some of which are geopolitical, are still intact. They're one of the few companies in the world that give 2025 guidance, and guidance out that far because they have that much visibility. So we like ASML. The only thing is it is expensive now. The P/E went up a lot. It is over 55 times. It's come back in the sell-off. But for a semi-cap equipment company, that P/E is a little bit elevated. Nevertheless, we still think it's a buy. It's a fantastic company.

David Thornton: Round us out, Sam.

Sam Ruiz (BUY): David, it's definitely a buy for us as well. Valuation is a little bit elevated, I think on FY23 numbers it's a little over 30 times, which isn't egregious to us. For a company that is really the monopoly in one of the most exciting thematics of semiconductor demand. They really have a monopoly on that in the lithography equipment. For us, for 2022, they've pretty much told us in the EUV segment they're sold out completely, couldn't make another tool or supply another tool. So they have very strong support there in terms of the look-through we get for demand. As Mary mentioned, outer year guidance is very, very secure. At this valuation, in a market where we are expecting a little bit more volatility, we're happy to pay up for a company like ASML.

David Thornton: Thank you, Sam and Mary, that was great. I hope you enjoyed this special edition of Buy Hold Sell. If so, feel free to give it a like. And remember to subscribe to our YouTube channel. We're always uploading new content. 


Can't get enough of Buy Hold Sell?

Give this wire a like if you've enjoyed the discussion and hit follow to be notified when new episodes are released.

If you're not an existing Livewire subscriber you can sign up to get free access to investment ideas and strategies from Australia's leading investors.

........
Livewire gives readers access to information and educational content provided by financial services professionals and companies (“Livewire Contributors”). Livewire does not operate under an Australian financial services licence and relies on the exemption available under section 911A(2)(eb) of the Corporations Act 2001 (Cth) in respect of any advice given. Any advice on this site is general in nature and does not take into consideration your objectives, financial situation or needs. Before making a decision please consider these and any relevant Product Disclosure Statement. Livewire has commercial relationships with some Livewire Contributors.

3 contributors mentioned

Buy Hold Sell

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.

I would like to

Only to be used for sending genuine email enquiries to the Contributor. Livewire Markets Pty Ltd reserves its right to take any legal or other appropriate action in relation to misuse of this service.

Personal Information Collection Statement
Your personal information will be passed to the Contributor and/or its authorised service provider to assist the Contributor to contact you about your investment enquiry. They are required not to use your information for any other purpose. Our privacy policy explains how we store personal information and how you may access, correct or complain about the handling of personal information.