Buy Hold Sell

Buy Hold Sell: 3 stocks making headlines (and 2 with major catalysts on the horizon)

Fri 03 Mar 23, 12:04pm (AEST)

HIGHLIGHTS

  • Buy Hold Sell is a weekly video series produced by Livewire where two professional investors share their views on a selection of stocks
  • Livewire's Ally Selby was joined by Forager Funds Management's Chloe Stokes and Alphinity Investment Management's Mary Manning for their analysis of these three newsworthy stocks.

0:00 - Intro 0:28 - Is Boeing (NYSE: BA) a buy, hold or sell? 1:54 - Is Walt Disney Co (NYSE: DIS) a buy, hold or sell? 3:26 - Is Alphabet (NASDAQ: GOOGL) a buy, hold or sell? 4:55 - Mary Manning's stock with a catalyst on the horizon 5:52 - Chloe Stokes' stock with a catalyst on the horizon Note: This episode was filmed on Wednesday 22 February 2023. You can watch the video, listen to a podcast, or read the edited transcript below.

Edited Transcript 

Ally Selby: Hey, how are you doing? And welcome to Livewire's Buy Hold Sell. I'm Ally Selby, and today, we'll be taking a look at three stocks making headlines of late, as well as two companies with major share price moving catalysts on the horizon. And to do that, we're joined by Alphinity's Mary Manning and Forager's Chloe Stokes.

First up, we have Boeing. It's had a few major headwinds in its path over the last few years. First up, they had the COVID-19 pandemic, then they had two crashes with their 737 MAX planes. Then at the beginning of the year, we've had a few groundings with Qantas Boeing planes. Chloe, I might start with you. Is Boeing a buy, hold, or sell?

Boeing Co (NYSE: BA)

Chloe Stokes (SELL): It's a sell for us. We think the market is already pricing in the 2026 targets of US$10 billion of free cash flow and that requires a pretty big step up in production from current rates. While there is demand out there for aircraft, there are still supply chain issues and labour constraints. We also just think Airbus has better products than Boeing. As you mentioned, they've had a lot of issues with the 737 MAX. And it takes a long time for a business with a long cycle like this to reinvent itself.

Ally Selby: Okay. Well, there actually has been some wind beneath the wings of Boeing's share price in 2023. It's lifted 5% since the beginning of the year. Mary, over to you. Is it a buy, hold, or sell?

Mary Manning (SELL): Sell. So at Alphinity, we follow earnings leadership. We're looking for stocks that are in an earnings upgrade cycle and where that stock is beating earnings and then upgrading. And Boeing, if you look at the chart of earnings, has been in a deep, deep earnings downgrade cycle since before COVID-19. And so it's not even on our radar because it's very difficult to make the case that they're going to get into an earnings upgrade cycle soon. So it's a sell.

Walt Disney Co (NYSE: DIS)

Ally Selby: Okay. Next up we have Walt Disney Co. It's set to celebrate its 100th birthday this year. A lot has happened though in the past century. Mary, over to you. Is it a buy, hold, or sell?

Mary Manning (BUY): Buy. So Disney right now is trading around US$100. I cover consumers and I spend a lot of time valuing brands. The brand Disney is possibly worth US$100, just the brand. So I really like the valuation of Disney right now. I think that their last earnings were very, very impressive. Bob Iger, similar to Starbucks, the old CEO is back as the new CEO. He said everything that you wanted to hear in an earnings call. They're cutting costs, they're reorganising the business, they're bringing the dividend back, they're working on a succession plan. So, Disney, I think that it's a standout and it's a buy.

Ally Selby: The share price has a little bit of sparkle in it in 2023. It's up 15%. Over to you, Chloe. Is it a buy, hold, or sell?

Chloe Stokes (HOLD): It's a hold for us. I think this should be one of the best streaming businesses in the world, but the costs in that streaming segment specifically are pretty insane. They generated about $20 billion in streaming revenue in 2022, and the operating margins in the segment were still negative 20%. And for context, Netflix was generating similar revenue in 2019 and their operating margins were 13%. So it's just a pretty big cost differential there.

That being said, I think it's a hold because as Mary mentioned, they boast some of the best brands in the world and you cannot argue with the phenomenal IP. I think someone's going to come in and reap the rewards and bring out the potential in this business over the next decade. 

Alphabet (NASDAQ: GOOGL)

Ally Selby: Okay, next up we have tech darling Alphabet. It's been in the news for all the wrong reasons recently. It's a competitor to Microsoft Bing's ChatGPT called Bard made a major blunder in an ad recently. Its share price has fallen around 15% since then. Chloe, last one for you today. Is it a buy, hold, or sell?

Chloe Stokes (BUY): It's a buy for us. Alphabet is arguably the best business in the history of business. Yes, there are competitive concerns around Bing and ChatGPT, but I think Bing has been a reasonable competitor to Google in terms of the quality of search results for some time now. And Google is just so entrenched. You also have the cost argument that if Google has to run a competitor to ChatGPT, margins will be lower. And I don't disagree with that. But I think there's a lot of fat in Google's cost lines that they can cut if it comes down to it.

Ally Selby: Okay. Chloe thinks it's the best business in the biz. What about you? Is it a buy, hold, or sell?

Mary Manning (SELL): It's a sell. In fact, it's a frustrating sell, because I actually agree with Chloe in terms of there's a lot of fat in the business. And what I was really looking for in this last quarter of results was for them to do what Disney did and what Meta (NASDAQ: META) did and come out and say, "The digital ad cycle is clearly in a downgrade cycle. We're getting earnings downgrades. And so we're going to make sure that Google Cloud is profitable. We're going to stop losing lots of money in other bets. We're going to cut headcount and we're going to cut costs. And this is the very clear pathway to better profitability for Google." And they didn't do any of those things. So it's still in an earnings downgrade cycle. And because Alphinity follows earnings upgrades, it's a sell for us.

Samsung SDI (KRX: 006400)

Ally Selby: Okay. We asked our fund managers to bring along one stock with a major share price moving catalyst on the horizon. Mary, I'm going to start with you. What have you brought for us today?

Mary Manning (BUY): So I've brought Samsung SDI, which is a Korean-listed EV battery company. As many of you know, the entire battery supply chain is mostly in Asia. And the catalyst that has started to happen, but it's going to be confirmed later this year, is the IRA or the Inflation Reduction Act in the US. And actually, the most important parts of the IRA have nothing to do with inflation. They have to do with the balkanization in the move of the EV supply chain from Asia to the US. And so stocks like Samsung SDI, which have already started US CapEx, are going to be major beneficiaries of that. As a longer-term thematic, they're a major beneficiary of just the move to EVs and a move to a more sustainable future. So the combination of that near-term catalyst with the IRA and a good underlying long-term story is why we like Samsung SDI.

Flutter Entertainment (LON: FLTR)

Ally Selby: Okay. Samsung SDI from Mary. Over to you, Chloe. What's your stock with a major catalyst on the horizon?

Chloe Stokes (BUY): So mine is UK-listed Flutter Entertainment. It's a global sports betting and online gambling business. Australian listeners will probably be familiar with its main local offering Sportsbet. But we think the most valuable part of this business is the leading US sports betting operator via FanDuel. So sports betting is a market where the winner takes most. The leader in the market can spend more marketing dollars, which generates more revenue, while it's still a lower percentage of their total sales. So it's a flywheel effect. And Flutter has proven that in its market-leading UK and Australian businesses. I think the two catalysts here are when that profitability from being a market leader starts showing up in FanDuel's financials. And the second one is they're talking about listing in the US. So currently it's a bit of an orphan stock listed in the UK, but the most valuable part of the business is US-based. So a US listing would be a great tailwind as well.

Ally Selby: Okay. Well, that's all we have time for today. I hope you enjoyed that episode of Buy Hold Sell as much as I did. If you did, why not give it a like? Remember to subscribe to our YouTube channel. We're adding so much great content every week.

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Buy Hold Sell

Fri 03 Mar 23, 12:04pm (AEST)

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