16 January 2014
Our stock picks challenge continues this evening on the Market Update. We heard from Peter Major and Peter Armitage last night and, David, I see ADvTECH is up nicely today, 3.5%. Maybe a couple of deals done on the back of Peter’s recommendation.
We only start Monday! [Laughter]
Keep those stock picks coming in – Hilton@moneyweb.co.za. We are tabulating those and getting ready to start tracking those from tomorrow. Floods, torrents of emails coming into my mailbox. Hundreds of emails.
Anything interesting there?
Very, very interesting ones, David.
But tonight we’ll hear from Simon Brown. I spoke with him this afternoon. We didn’t get a pick from Simon last year. I asked him earlier if he’s going to make it up for that this year.
I can almost, in a sense, Hilton, give you two. I look at the equity market and say nothing there particularly excites or thrills me. I think our market’s expensive. I can't see a heck of a lot really positive happening there.
I think if we come out at sort of flat for the year it’ll probably be as good as we can expect. I've been looking around and the rand is actually weak, the rand is certainly not happy at the moment. We are sitting this week with it nudging up almost at R10.90. It’ll probably weaken over the course of the year, probably to around R12.50, maybe even R13.
But a double whammy there. There is an ETF from Absa called New USD which would track the rand and benefit from that. But my pick for 2014 is actually going to be NewPlat ETF. So obviously the weakness in the rand will benefit the platinum ETF. But I think the other driver there is we are going to see a platinum price starting to pick up. I don’t think we are going to get any fireworks out of it, but certainly it's going to start moving stronger. We are getting cramps on supply, there is talk today around potentially more strike action, and we still haven't seen Anglo Platinum take their supply out of the market. That’s going to hurt. With recovery sort of coming along in Europe, we are seeing the US also coming together. That’s going to hurt on the demand side. So weaker supply, stronger demand, weaker currency. I think the platinum ETF from Absa, Code NGPLT.
There you have it from Simon Brown of JustOneLap. The Absa New Platinum ETF.
I agree with Simon. I think that, first of all, record production of motor vehicles in China and there’s huge issues now with clean air. They are burning bad air, coming mainly from coal power stations. And I think China’s got to start introducing clear air standards for its motor vehicles. Europe is starting to pick up. We had record sales of motor vehicles in December. Still a bit early.
A couple of strikes on the horizon.
Cost of production now today, break-even production on a platinum mine is R17 000. Where are we now? Way, way below that. So I'm sure that there’s going to be a kicker there.
Alwyn van der Merwe, director of investments at Sanlam Private Investments generated five picks, came up with five picks in December in a note to clients. In a note to clients he sent five picks. I asked him to take us through his philosophy when choosing those five shares. A very interesting list of shares, and I’ll scratch them up for you, given that that list of shares is not necessarily consistent with shares that SPI actually holds on behalf of its clients.
What we try to do on a shorter-term view is we try to pick stocks that generally generate quite a high return on the capital that you invest. But in this particular year the capital returns have come under pressure and therefore also the share price. So if you assume that the return on capital will go back to the long-term norm, then ultimately you should expect the share price to respond to that. So that is in essence the philosophy that we've used in picking these – let’s call them – opportunistic picks for the next year.
Now, if we look across your five picks – Kumba Iron Ore, Sun International, BHP Billiton, Imperial and Invicta, some interesting names there. Some of the I guess more conservative names as well in that list. If I had to push you for one of those for 2014 as your pick?
The one that stands out from a valuation perspective is Kumba Iron Ore. We know that the iron-ore price has remained pretty strong in dollar terms, and therefore in rand terms the iron-ore price has picked up significantly. Yet we also know that Kumba is struggling operationally, although in their Kolomela Mine they have delivered to expectation. Nevertheless I think that is the one, if I have to pick one for the year, where you might either be richly rewarded or, if they really struggle with production problems – and it's very tough to forecast that – then the share price will not necessarily respond.
But I need to put my money on one of the two events, and I think the likelihood is that the higher rand commodity price will ultimately benefit the share and I think the share will surprise on the upside.
That was Alwyn van der Merwe. It's one of those all-or-nothing strategies, David. Most to win, most to lose.
You can't believe how many people have come in with Kumba. I sold them last year. I switched them into Glencore, saying iron ore – I’ll benefit through Billiton. So I retain Billiton, Glencore and Sasol. But a lot of people are now starting to look at Kumba. I like Imperial, I think the logistics into Germany, logistics here into Africa are very big drivers. Billiton as well. Sun international – they must be doing well, people must be coming here. For $10 you can get drunk and go to top hotels. I think tourism’s got to pick up. Invicta – I don’t know. Isn't Invicta yours?
Oh, Julius is an Invicta boy. There you are.