Stocks for your stocking

As we close the curtain on a financially tough year and head into what promises to be an equally challenging period, it could be time to review your gift-giving habits.

Instead of wasting money on extravagant gifts, why not rather use the money to invest in shares that show promise and are likely to turn your money into more money?

“Investing in stocks is a great gift idea all year round. For birthdays, special occasions and Christmas, and especially for children. Children have a natural long- investment term, and they are so busy living life that they don’t want stock prices daily – so there is a good fit. Stocks certainly are the gift that keeps on giving,” says Craig Gradidge, Certified Financial Planner and co-founder of Gradidge-Mahura Investments.

Gradidge says there are a few stocks he is buying right now but he would single out YYLBEE – Vodacom’s BEE share offer and Satrix Divi Plus. “YYLBEE trades at a discount to net asset value (NAV). That discount has narrowed from over 50 per cent last month to around 32 per cent after the Competition Commission’s findings. This is a long-term investment with the potential to deliver above-market returns. The NAV of YYLBEE should increase from the settling of the debt in the scheme and does not need any growth in the Vodacom share price for you, the investor to make a return,” he says.

Gradidge says that Satrix Divi Plus, on the other hand, offers diversity across a portfolio of shares from various sectors of the economy including financials, industrials and resources. “Over time dividends from shares tend to grow at a faster rate than inflation. This will benefit the long-term investor as dividend returns are sticky and tax-efficient,” he notes.

Antoinette Naudé, a wealth manager with PSG Portfolio Management and Stockbroking in Hermanus points out that the JSE All Share (Total Return) Index (JSE ALSI TRI) delivered just over 12 per cent for sector and more specifically gold and platinum miners. Looking at the year ahead, you might want to consider stocking up on Sasol and Anheuser-Busch,” she says.

Naudé says that despite significant overspending on the Lake Charles Chemicals Project straining the Sasol balance sheet, the company took decisive remedial action, replacing both its CEOs. “It would seem that the share price has absorbed most of the negative news flow. At approximately R270 per share (it has fallen 37% since May 2019) Sasol offers good long-term growth potential,” she says.

This is a good time to invest in the world’s largest brewing company, Anheuser-Busch, which has a secondary listing on the JSE. With more than 500 beer brands including Castle, Stella Artois, Budweiser and Corona in its stable, Anheuser-Busch has a worldwide scale and distribution network bringing in more than R15 billion in sales every year. “Since 2016, the share price has fallen by just over 37%. At approximately R1 150 per share, investors may consider adding this reputable rand-hedge to their share portfolios.,” she says.

Leonard Krüger, portfolio manager at Allan Gray, says the market’s faith in the sustainability of the financially attractive business model of large tobacco firms has been shaken by disruptive new alternative tobacco entrants and/or technology. “Our market research and conversations point to limited evidence of this occurring in the near term. In fact, British American Tobacco (BAT) recently reiterated its medium-term guidance of continued earnings, cash flows and dividend growth. BAT is making substantial investments in its portfolio of next-generation products with promising initial signs in many categories and markets,” he says. Krüger says shares in BAT offer you a dividend yield of more than 7 per cent today in hard currency, and that dividend is likely to grow every year for the foreseeable future.

The other stock that Krüger is bullish on is Remgro, which he describes as the “quintessential South African investment holding company”. He points out that the group has diverse underlying investments in banking, insurance, healthcare, telecommunications and food businesses, among others. “In an environment of low growth as well as low business and consumer confidence, owning some of South Africa’s strongest businesses and best management teams at below-average prices provides some safety in uncertain times,” he says. Krüger notes that in addition to its defensive diversification benefits, financial risk is also low since Remgro is in a net cash position. “The cherry on top for us, however, is that you can buy the above positive attributes at the largest discount (roughly 25%) to the net asset value (NAV) seen in Remgro for over 10 years,” he concludes.

  • This article was first published on Moneyweb on 23 December 2019.

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