FYI | Feb 27 2019
By Peter Switzer, Switzer Super Report
The seriously special stock selectors with their seven secret shares!
When is the best time to ask these hotshot stock market enthusiasts for their “one” best investing idea? Well, it’s after the show-and-tell we call reporting season, where companies do their ‘warts and all’ presentations about their sales, their profits and the outlook.
The “serious special” five are:
- Fund manager Charlie Aitken, who has attracted money from the likes of Seven’s Kerry Stokes and other rich listers;
- FNArena’s founder, Rudi Filapek-Vandyck, who has access to the views of the biggest number of broker/analysts in Australia;
- Shawn Burns, an experienced fund manager who’s charged with searching for the best income stocks for my listed Exchange Traded Product
- My Money Talks colleague and regular “star” on the Your Money channel, Julia Lee.
- Geoff Wilson (who gives two ideas).
I asked my “seriously special” five to give me their best stock idea following reporting season. Then I tested these ideas by looking at what the consensus of brokers is saying about their potential money-making selections.
First up, Charlie likes Cleanaway (CWY). “In our view, Cleanaway delivered one of the knock out results of reporting season. NPAT (or Net Profit After Tax) at $67m came in 12% above consensus, all three divisions reported strong earnings momentum, margins improved and the Tox Free Solutions acquisition (a business they want to takeover) remains on track to deliver $35m of synergies by financial year 2021. We think that this is important as the waste market is still fragmented, and CWY has the largest share at just 30%. Other consolidation opportunities will present through time in our view, and CWY management has proven it can integrate sizeable acquisitions.”
Charlie says the company has no debt issues and management is committed to cost-cutting, so earnings growth of 20% over the next two years looks believable.
He thinks there’s still upside in the price and is even more attractive if the overall market sells off.
What do the brokers say on Cleanaway? The target price is $2.24, which suggests a 7.1% upside.
Next up, Julia Lee loves Lovisa Holdings (LOV). Lovisa was established in April 2010 and has quickly grown to be one of Australia’s leading specialist fast fashion jewellery retailers. It has over 320 stores across Australia, New Zealand, Singapore, Malaysia, South Africa, Spain, France, the USA and the United Kingdom and franchised stores in the Middle East (Kuwait, the United Arab Emirates, Saudi Arabia, Oman and Bahrain) and Vietnam.
“In retail, a combination of sales growth and store roll out is a winning combination,” Julia explained. “With sales growth returning to positive in the first seven weeks of the new half-year and a roll out in the US and France being on the cards, this should support growth for years to come.”
What do the brokers say on Lovisa? The target price is $10.33, implying a 5.9% upside.
The third member of my famous five is Rudi Filapek-Vandyck, who is another regular celebrity stock picker on the Your Money channel. His company, FNArena, specializes in surveying brokers for their best ideas.
“Bapcor (BAP) has a resilient business model with only 20% of the sales directly consumer-facing,” he pointed out. “Management has guided towards circa 9% growth for the full year and investors have responded in a harsh manner, selling down the shares.
“Being a mid-cap stock, Bapcor has gone through phases whereby overall investor enthusiasm has been low for a while, but eventually the underlying robustness of the core operations, which is supplying car parts for mechanics, pulls in buyers looking for a solid, longer term growth story.”
Anyone who believes car repairs will go out of fashion might disagree with Rudi, but I for one think we’re stuck with cars that need help for some time yet!
What do the brokers say on Bapcor? The target price is $6.98, so if they’re right, there’s a 16.8% gain ahead!
Closer to home, Shawn Burns is good at finding companies that pay pretty good dividends, which are the companies I like, as I’m generally a cautious wealth-builder. He likes the Charter Hall Group or CHC.
“On a macroeconomic front, the stock continues to benefit from property being a preferred asset class and CHC is mainly in the industrial and commercial space. Interest rates are low and increasingly look to remain so, while equity market volatility has improved the attractiveness of property,” he said. “The group has a proven ability to raise funds, which they manage for a blue chip client base and they’ve done a good job investing so clients continue to support the group.”
CHC reported recently and increased guidance from 8-10% growth to 14-17% for Financial Year 2019.
“It’s business momentum remains strong,” Shawn added. “The interim dividend was increased 6% and earnings per share was up a good 13%, while cash generation and the balance sheet remain good.”
It looks like a beautiful set of numbers!
What do the brokers say about Charter Hall Group? The target price is $7.82, which says there’s 12.4% downside! Sean must know more than the majority — let’s hope so.
Last but certainly not least, Geoff Wilson of Wilson Asset Management gave a choice of two.
“My first stock is Altium (ALU), which is a printed circuit board design software company that’s winning market share in the US and China, due to their superior product and sales team,” Geoff said.
“The 20% earnings beat with the latest result was due to strong operating leverage and they upgraded their longer-term targets as well. With a $4.5 billion market cap, 30 times enterprise value/ebitda growing at 30%+ over the next few years, in our view it’s in an upgrade cycle,” he added.
Geoff also suggests City Chic (CCX).
“In the retail space it’s in the high growth, plus-sized women’s category, with 40% of sales online and 15% of sales offshore,” he pointed out. “It’s had a strong result that beat analyst expectations by 15-20%. It also announced a 2.5 cents per share special dividend and we see the prospect for more capital management.”
Geoff also said there was a market cap of $277million, a cash balance of $36 million and zero debt! “The P/E is 16 times and growing at greater than 20% on our numbers!” he revealed.
What do the brokers say about Altium (ALU) and City Chic (CCX) ?
With Altium, the target is $29.50, compared to a current price of $34.62 but it did have a big week last week! On Monday last week, before reporting, this was a $27.17 stock! CCX isn’t a closely watched stock and has a current price of $1.45, which is also the target price of one broker who does watch the stock! We’re in hands of Geoff but if history is any guide these two companies are worth watching.
As a parting gesture, let me throw in a bonus stock selection! This follows interviewing the co-founder of ZIP Co Limited or ZIP, Peter Gray. These guys compete with Afterpay but have a less aggressive product. I think they’ll do well but probably more slowly than Afterpay.
What do the brokers say about ZIP? Target price is $1.57, suggesting there is a 12.9% upside.
Finally, let me remind you that picking a ‘one horse winner’ at the races can be very difficult. Backing a few good chances can improve your results. The same goes with investing in stocks.
These six stocks and my bonus one give good diversification so a group play might be a better strategy than having one throw at the stumps.
Good investing.
Peter Switzer is the founder and publisher of the Switzer Super Report, a newsletter and website that offers advice, information and education to help you grow your DIY super.
Content included in this article is not by association the view of FNArena (see our disclaimer).
Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.
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