2013 to be the year of the stock picker
Finding undervalued shares is going to be one of the most challenging aspects for investors to deal with in 2013, according to one local asset manager.
Rob Spanjaard, Investment Director at Rezco Asset Management, says 2013 is likely to be characterized as a year for stock pickers, as there are currently no clear sectoral winners in the market. “The objective for most investors in 2013 is going to be about finding those value situations within a range of sectors.”
He notes that the only place where there seems to be some industry value currently is in the banking sector. However, Spanjaard disagrees with recent suggestions that Absa is set for a comeback in 2013 after recording the worst share price performance of the big four banks over the last two years.
“In fact, at current valuations Absa remains our least preferred bank. The share already experienced a big rerating in December, which we believe was overdone. Our preferred bank is FirstRand, followed by Standard Bank.”
However, Spanjaard believes the most value in the banking sector is likely to come from international stocks. “As the US economy continues to recover, the larger US banks should provide good returns over the next 12 months. We particularly like Bank of America and JP Morgan.”
“We also like Samsung, as they have done the impossible by leapfrogging Apple in the smartphone market. At current valuations, the stock is cheap and the company is expected to produce free cash-flow of 7% this year.”
Looking again at the challenges locally, Spanjaard says the retail sector is currently looking stretched. “When retail sales were growing at 12% per annum in nominal terms one could buy almost anything in the sector and make money. However, early indications of poor Christmas sales are hugely concerning. We will be watching trading updates from the retailers to get a handle on the persistence of the trend.”
“We also believe that platinum miners are still not showing any persuasive value and should be avoided for the time being.”
Spanjaard says his advice to investors in 2013 is not to become too overconfident. “2012 was a great year for the stock market, with the JSE providing a return of more than 20%. Some of the top funds, such as the Rezco Value Trend, even returned as much as 30%, which is not the norm.
“In fact, about 15% of the return generated was purely and simply because the JSE rerated by 15% over the year, which is unlikely to be repeated in the current period.”
Rezco Asset Management’s top three share tips for 2013 are as follows:
1. Omnia
Omnia did very well in 2012, consolidating gains of almost 60% on the year, driven mostly by a strong increase in earnings. We believe that it still has a lot further to run and it is still cheaper than the average JSE share but has much better prospects over the next few years.
2. Discovery Holdings
We expect Discovery Holdings to continue to perform strongly in 2013, despite achieving gains of more than 40% in 2012. The company is marginally more expensive than the average JSE share but we believe that the true value of Discovery Holdings’ foreign interests is also not yet fully appreciated by the market.
3. Samsung
Internationally, we also foresee value in Samsung. This company managed to do the near-impossible in 2012 by producing a phone than many consumers feel is cooler than Apple’s iPhone. Samsung is still far cheaper than the average international share, yet with far better prospects. We believe that good earnings, combined with a re-rating, will see the share move higher in the New Year.
