Over the past week, five industry experts have selected their stock picks for Business Day’s stock watch series – Absa, Netcare, Old Mutual, Mondi, and MTN.
These companies were selected by well-known professionals in the investment world, which include Wayne McCurrie, Nicholas Kunze, Mark Du Toit, Rella Suskin, and Roy Mutooni.
Together, these professionals have decades worth of experience in investment research and analysis and portfolio management for renowned investment firms such as Ashburton Investments, Sanlam Private Wealth, OysterCatcher Investments, Benguela Global, and Absa.
Presently, geopolitical tensions and global recessionary fears have resulted in an uncertain and volatile market.
These experts all agree that the market is going through a normal down cycle, and the current slump in the market presents many opportunities for stock pickers that offer great value for the future.
The five stocks you should consider buying right now, with an explanation for why these investment professionals find these companies attractive, are listed below.
Absa is a South African-based financial services group that offers personal and business banking, corporate and investment banking, wealth and investment management, and bancassurance.
Absa is currently the cheapest of all the banks listed on the market, which offers excellent value.
The bank offers a 7% to 8% dividend yield, and McCurrie believes that Absa’s single-digit PE ratio of 7.3 will help foster a comfortable return for the next two to three years.
McCurrie also noted that all banks, Absa included, will benefit from the future investment in energy infrastructure – a sector that will generate hundreds of billions of rands in the next five to eight years.
Banks will finance these investments and therefore gain a lot of volume growth.
Netcare is the largest private hospital network in South Africa and operates 53 hospitals, 82 emergency bases, 68 primary healthcare facilities, and 56 training centres countrywide.
Over the past two years, Netcare’s share price took a hit as COVID-19 had a notable impact on elective surgery and non-essential hospitalisation – a crucial revenue driver for the group.
However, due to the lifting of the COVID-19 restrictions, Netcare has seen a sharp increase in elective procedures, as its occupancy rates have already increased to over 60%.
Kunze believes the healthcare industry has significant potential, and Netcare is a must-buy for around R15.
He added that Netcare and the hospital industry are undervalued, which is evident in Rupert’s Remgro’s acquisition of Mediclinic.
Old Mutual is a pan-African insurance company that offers investment, savings, insurance, and banking services.
Old Mutual’s most recent trading update showed that results from operations are ahead of expectations and are currently holding excess COVID provisions that slowly unwind through the income statements.
The company also holds excess capital, which will likely be returned to shareholders through higher dividends or share buybacks.
Currently, its dividend yield is sitting at 8.5%, and du Toit believes that the company has been sold down.
He added that with Old Mutual’s expected earning growth, dividend yield, and current rating, investors could expect a 20% annual return for the next two to three years.
Mondi is a multinational packaging and paper group with around 100 production sites across more than 30 countries – predominantly in Europe, Russia, North America and South Africa.
Suskin believes that Mondi has consistently been a high-quality market player but has been penalised harshly by the market, given that its prime assets are located in Russia.
However, while the market has mostly written of these assets, Mondi released a statement recently that revealed it had received several offers for its Russian assets.
This means Mondi will likely get a fair market value for those assets, which will positively impact the share price.
The company is set to benefit from two structural growth drives:
- E-commerce – where management continues to see growth.
- Sustainability – operations have switched from plastic to more sustainable materials.
Management guides that the company can expect up to 2% additional volume growth from these drivers even if the market moves into a recession.
Mondi is also an integrated producer and produces 80% of its own energy, so they aren’t exposed to the current energy price increases in Europe.
MTN is a South African-based multinational mobile telecommunications company that operates in many African countries and holds a 37% market share in South Africa.
Roy Mutooni said that MTN’s new management team has delivered what it set out to do.
The company has strengthened its balance sheet by reducing its gearing ratio by selling off non-core assets, paying down debts, and increasing its value-added investments.
In 2022, MTN reported service revenue had grown by 12.8%, its EBITDA increased by 15.1%, and basic earnings per share increased 200.7% to 445c.
Mutooni said MTN offers investors a tremendous upside over the medium term.