Schulenburg’s picks to buy and hold for the medium term:
Standard Bank, Remgro, British American Tobacco (BAT), Anglo American, and DBX US Tracker (an ETF which tracks the US stock exchange in dollars).
This portfolio offers an individual a good split of quality companies at sensible valuations within each of the financial, industrial and resource sectors, while providing good offshore diversification and rand hedge qualities.
Prior to the pull-back of the last six months, the sector was the most expensive it has probably ever been, and for this reason with the sole exception of Lewis Stores, he would not currently recommend the addition of retail stocks to any portfolio — even though these are good, well-managed companies.
Many retailers are trading on forward P/E multiples of 18 to 20 times — primarily driven by foreign investor interest following the ‘global emerging market consumer theme’ — whereas Lewis is modestly valued at a P/E multiple of less than six and a dividend yield exceeding that.
“Given the weakening rand, high unemployment and slim outlook for any further interest rate cuts, we’re not comfortable with the sector’s valuations, especially not at this stage of the cycle.”
Electus owns three construction stocks for its clients based on current valuations: Murray & Roberts as a turnaround story (new management, geographic diversification and concluding difficult contracts); Wilson Bayley Holmes (good management, geographic diversification and ‘best in class’ track record); and Raubex (very strong road building company with a strong balance sheet and good management).
“Our road network is the backbone of the South African economy and SANRAL manages to allocate road contracts efficiently. We believe these companies offer different exposures and benefits to clients.
“Due to the economic cycle, these companies have reported depressed earnings and trade at significant discounts to the market, even below book value in the case of Murray & Roberts,” says Schulenburg.
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