Investment research head at FNB Wealth and Investments, Chantal Marx, identified her top three stock picks during a recent JSE SA Stock Picks event – Mr Price, Master Drilling, and Raubex.
Marx helped launch the FNB Securities in-house research platform and plays an important role within the content and research teams at FirstRand.
She holds a BSc Mathematics and Economics degree and a BCom Honours Degree in Investment Management. She is also a CFA charterholder and recently completed he Masters degree in Finance.
Marx described herself as a “boring, long-term investor” who looks for companies with stable management teams, a big and growing addressable market, a strong balance sheet and strong underlying fundamentals.
She is a frequent commentator on the markets on platforms like Business Day TV, Newzroom Africa, The Money Show, and SABC.
Below are Marx’s top three JSE stock picks.
Marx’s first stock pick is retailer Mr Price, established in 1985 under the Special Stores Group.
Following an unbundling in 2000, the Mr Price share started trading on the JSE, where it now has a market cap of R35.13 billion.
“Most South Africans are very familiar with Mr Price and the Mr Price stable,” Marx said.
The Mr Price Group consists of Mr Price, Mr Price Home, Mr Price Sport, Mr Price Money, Miladys, Sheet Street, Power Fashion, Yuppiechef and Studio88.
Marx said the company’s share price has been under a lot of pressure over the last year, in part because high interest rates and inflation have meant that consumers have disposable income.
However, she said with the interest rate cycle expected to turn in the next 6 to 8 months and inflation coming down, there “will be really decent support for Mr Price from a topline perspective”.
In addition, she believes the company can expand margins because of the integration of the Mr Price businesses that are gaining traction.
Marx identified Shein as one of Mr Price’s biggest competitors, as is the case for many fashion retailers.
However, she said “SARS has taken notice” of Shein’s growing market share. This could mean that buying clothes on Shein will become significantly more expensive soon, which means Mr Price and other local retailers could see some of their market share losses reversed.
She said Mr Price is currently trading at a forward PE of 9.5 times relative to an average of around 14 or 15 times, which means the company looks to be quite cheaply valued.
Master Drilling is a company “firmly in the small to midcap space”, Marx said.
The company drills large holes across the country and builds drills in the North-West, where the company is still headquartered and managed by the founder.
Master Drilling “has a rich, long history of drilling bog holes – now not only in South Africa but also globally”.
Marx said there has been massive underinvestment in mining over the past 10 to 15 years.
This largely has to do with many mining companies almost going under in or around 2016 because “they spent too much money”, she explained.
“But we need metals, particularly metals of the future like copper and zinc, in order for the digital revolution and the clean energy revolution to continue,” she said.
She, therefore, believes there will be a big spike in mining capex over the next few years and Master Drilling, with its unique and proven technology, is set to benefit from it.
Master Drilling is trading at a forward PE of 3.5 times, which means the company is very cheap, she said.
Marx’s third pick is Raubex, an infrastructure development and construction materials supply company established in 1974 and listed on the JSE in 2007.
The company operates throughout southern Africa and Western Australia and currently has a market cap of R4.97 billion.
Marx explained that Raubex not only builds roads but also sells the materials that other companies use to build roads.
“One of the only areas where the government has been actively growing its expenditure over the last year or two has been in road infrastructure,” she said.
Raubex has been well-positioned to benefit from this expenditure and has been awarded many SANRAL tenders and subcontracted by or supplied materials to companies that won these tenders.
Marx said the company has solid margins and a strong management team.
Raubex is also trading at a forward PE of 5 times, making it very cheap.