Simon Brown’s top three JSE stock picks

Simon Brown identified his banker, well-timed, and speculative stock picks during a recent JSE SA Stock Picks event.

Brown is a market commentator, educator, trader and investor who developed a keen interest in trading during the mid-1990s.

He is well-known for being a market commentator, who shares his views in the media, writes for the Financial Mail, hosts a daily morning show on Moneyweb and co-hosts The Week That Was on Business Day TV. 

He also hosts and produces JSE Direct, a weekly podcast in which he comments on significant movements in the market and conducts interviews with noteworthy players in the South African landscape. 

Brown offers investment advice and information through his website, Just One Lap, founded in 2011 as an “independent source of free, unbiased trading and investment education”.

Here are Brown’s three stock picks, with an explanation of why he considers these companies good buys:

Shoprite

Brown picked Shoprite as his “banker” – a reliable option that Brown said he has held for years. Brown lists Shoprite as part of his “till death do us part portfolio” on his website.

He said food retailers are generally good buys because “we need to eat, even when times are tough”.

However, Brown said that Shoprite stands out from its competitors, like Pick n Pay and Spar.

Shoprite is the largest South African retailer by market capitalisation, sales, profit and the number of employees and customers, and the company is continuously expanding its market share.

Brown said the company’s operating margin is on a global standard that global retailers like Sainsbury’s or Walmart would love to have.

What sets Shoprite apart is its brand recognition, customer loyalty, and competitive pricing that accommodates South Africa’s mass market.

Brown acknowledged that the company faces several risks, including load-shedding, inflation and dampened demand. However, these are risks all Shoprite’s competitors face. 

From an investment perspective, it is also not a cheap stock, as it currently has a price-to-earnings (PE) ratio of 17.72 and a forward PE of around 16 to 17.

However, Brown said Shoprite “will never be a cheap stock”, and its current dividend yield is unusually high, sitting at just above 3%. 

Reunert

Brown identified Reunert as his “well-timed” stock pick.

The company was founded in 1888, and while it may seem like a “boring industrial stock pick”, Brown said Reunert should not be overlooked. 

Reunert has three operating segments: Electrical Engineering, ICT, and Applied Electronics.

The ICT industry is facing some challenges, including ineffective work-from-home measures and the impact of load-shedding.

However, the company is “still profitable, still doing fine, and still growing”.

For Brown, Reunert’s appeal lies in two segments the company is well-positioned in – electricity and renewables. 

Reunert manufactures and maintains power cables, and according to Brown, the company has valuable intellectual property in the cabling business.

The second area of interest regarding Reunert is its position in renewables – an increasingly important industry.

Reunert started a renewable energy unit that provides solar-related services, including solar generation, renewable storage, energy control and wheeling opportunities. 

Calgro M3

Brown’s “speculative” stock pick was property investment company Calgro M3.

According to its website, Calgro M3 specialises in the development of Integrated Residential Developments and the development and management of Memorial Parks.

Brown said he picked this company because housing is “the one thing South Africa might need as much as electricity”. 

The company has recovered despite a “near-death experience” around three years ago.

The stock could also be considered good value, as Calgro’s latest results showed its earnings per share were a little over R1.50, while its PE ratio is around 2, and the stock is trading at a little over R3.

Brown said the company’s plans going forward are for its Memorial Parks business isto cover its annual costs, while the housing segment will make up the company’s profits.

However, Brown warned that there are some risks to investing in this company. In particular, Cargo M3’s low value could make it a potential takeover target.