BROKERS’ NOTES: Buy Microsoft, sell Estée Lauder

David Shapiro: Sasfin Securities

Buy: Microsoft

I’m going for high-quality, defensive stocks, which is very important at this stage given the uncertainty over the direction of the global economy, which this outbreak of hostilities in the Middle East has complicated even further. And even though rate hikes are going to stop, interest rates are likely to stay high for longer, so you have to look for businesses that are able to grow revenues even in this environment, as well as maintain margins. Microsoft is entering a new period of high growth even though it’s been around for as long as it has, thanks to the growth in the cloud as more businesses introduce artificial intelligence applications. Bing is going to give Google a good run, and with search you get advertising. And then there’s the original Microsoft Office product which is now on a subscription-type basis. 

Sell: Estée Lauder

I think often we are not good sellers — people always think that if they sell a share it’s going to bounce back. But when companies no longer satisfy the reason for which you bought them, and when you start feeling uncomfortable about where they’re heading despite their image, then it’s time to go. I think Estée Lauder fits that description. It’s got wonderful brands from Jo Malone to MAC — but it has a management issue. Management strategy has gone wrong, particularly in Asia. I would get out and if they do get it right, you can come in again. But in the meantime you don’t have to be the person with the finger in the dyke.