BROKERS’ NOTES: Get out of China, go to California
Jonathan Wernick, equity analyst at Sasfin Securities, on what the smart money is doing
25 August 2022 - 05:00
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Jonathan Wernick, equity analyst: Sasfin Securities
BUY: KLA (US)
California-based KLA, which makes equipment used to assess the quality and yield of microchips (semiconductors), operates in a niche space where its market share is four times bigger than those of its competitors. We like the stock because of its high return on capital and the way this is reinvested in research & development. KLA’s margins are easily 10%-20% higher than those of its competitors. This is a little-known company, with revenue exceeding $6bn a year, yet KLA’s products are critical to ensure that microchips are flawless.
SELL: Alibaba
We used to own Alibaba, the Chinese online retailer, but have sold it off. Our biggest concern is the growing influence of the Chinese government on higher-risk industries such as those in the technology space. The government can, and does, change rules at the drop of a hat. If you take the Chinese government’s influence out of the country’s companies, they are actually very good businesses.
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
BROKERS’ NOTES: Get out of China, go to California
Jonathan Wernick, equity analyst at Sasfin Securities, on what the smart money is doing
Jonathan Wernick, equity analyst: Sasfin Securities
BUY: KLA (US)
California-based KLA, which makes equipment used to assess the quality and yield of microchips (semiconductors), operates in a niche space where its market share is four times bigger than those of its competitors. We like the stock because of its high return on capital and the way this is reinvested in research & development. KLA’s margins are easily 10%-20% higher than those of its competitors. This is a little-known company, with revenue exceeding $6bn a year, yet KLA’s products are critical to ensure that microchips are flawless.
SELL: Alibaba
We used to own Alibaba, the Chinese online retailer, but have sold it off. Our biggest concern is the growing influence of the Chinese government on higher-risk industries such as those in the technology space. The government can, and does, change rules at the drop of a hat. If you take the Chinese government’s influence out of the country’s companies, they are actually very good businesses.
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