ROELOF FEENSTRA: A stock for all seasons
Portfolio managers back these five shares that represent an opportunity across the investment methodology spectrum
Investing in the stock market can be a daunting experience, as investors need to consider global macroeconomics, industry dynamics, and ultimately which stock represents their best investment view. Some investors obsess over financial statements, while others are happy only to look at a stock price chart.
There are many ways to invest successfully, and investors’ investment methodology is generally linked to their personality type and financial goals. For instance, as young investors have time on their side and are therefore generally not risk averse, they favour high-growth stocks. Retirees are well advised to prefer conservative stocks that can pay a steady dividend.
Our portfolio managers have selected a cross section of five stocks that represent an opportunity across the investment methodology spectrum: Aritizia is a growth-at-the-right price selection; Apple is a steady compounder; Fortress a net asset value play; ASML a pure growth stock; and Sibanye-Stillwater a speculative recovery story. Here are our stocks for all seasons:
Aritzia: The growing demand for Aritzia’s “everyday luxury” fashion through its boutiques and online platform has set a market trend among young women. The company has experienced revenue and income growth of 26% and 24% per annum respectively since 2019. This demonstrates the robust demand for beautifully designed, high-quality products. In addition, the increasing shift towards online shopping and the success of its e-commerce platform contribute favourably to growth prospects.
Aritzia is focused on doubling its store presence in the US by 2027. Its brand awareness is bolstered by using influencers and celebrities who market the brands on social media, and it has achieved more than 2-billion views. Given the quality of the management team, the strong growth drivers and Aritzia’s sound financial position, we believe the share price retracement offers long-term investors an excellent entry point into this aspirational consumer stock.
Apple: According to the Boston Consulting Group, Apple consistently ranks as the world’s most innovative company. This highlights why Apple can persistently deliver groundbreaking products and stay ahead of competitors. Just think of the Apple Watch, the best-selling watch globally. New projects such as Apple’s high-yield savings account launched in April (banking), its VR/AR headset coming next year, and its technology being developed to monitor glucose levels (health), illustrate how Apple continuously spends on research & development to expand into new markets.
Every new product and service fortifies users inside the Apple ecosystem, making it problematic for them to substitute Apple’s products. Apple’s annual research & development spending of $25bn creates high barriers to entry as there are few competitors with pockets that deep. Apple’s valuation is likely to be supported by its strong balance sheet, increasing services revenue stream and the incremental march into new product categories.
Fortress B: The company owns a real estate portfolio comprising retail and logistical assets in SA and 23.9% of JSE-listed Nepi Rockcastle. These three core assets are the heart of this thriving company. Nepi Rockcastle provides exposure to high-growth eastern European property markets and pays a significant dividend, which Fortress applies to develop new assets. The logistical assets capitalise on the increasing demand for logistical space due to the rise of e-commerce.
Fortress’ retail assets offer differentiated exposure to SA’s retail sector, as its properties are situated outside the major cities and are typically the only significant shopping centres. Fortress successfully recycles capital from noncore investment properties into high-quality logistics assets, providing a platform to grow earnings in a sector with robust fundamentals relative to other real estate subsectors. Fortress B shares trade at an eye-watering 60% discount to net asset value, and this gap will not persist indefinitely.
ASML: Over an investing career one will encounter a few companies with a monopoly, and ASML is one such company. ASML is a Dutch company that is a leader in the development and manufacture of the photolithography equipment used in semiconductor manufacturing. No other company can provide this specific equipment to make the most advanced semiconductors.
ASML’s management team often comments in earnings calls that they cannot meet customer demand. AMSL’s dominance is reflected in its financial metrics, with an operating margin of more than 25% and a return on equity well above 30%. Growth in semiconductor end markets, especially from artificial intelligence, is increasing lithography intensity and is driving significant demand for ASML products and services.
Sibanye-Stillwater: This is undoubtedly the most speculative of our stock selections and is not for the faint-hearted. Sibanye operates in a highly cyclical industry that is experiencing falling revenue and rising costs, a stomach-churning combination. Catching this falling knife will be tricky, but global commodity prices will rebound over the medium term, and Sibanye’s production will improve.
Over the long term, the green economy will provide a structural tailwind for Sibanye, particularly as hydrogen is adopted increasingly as a clean energy alternative. The company offers leveraged operational upside compared to its peers.
• Feenstra is portfolio manager at Independent Securities.
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