Head of research at FNB Wealth and Investments, Chantal Marx, is backing stocks – including African Rainbow Capital, Richement, Bidcorp, Nvidia and Alibaba – to deliver strong returns in the long term.
Marx told CNBC Africa that investors can expect 2024 to be another difficult year, with high levels of uncertainty resulting in market volatility.
South Africa, in particular, will experience uncertainty due to its national elections, expected rate cuts, and geopolitical tensions.
“We know that the first half is going to be tough, and we know there is going to be a lot of uncertainty out there,” Marx said.
Thus, investors should be slightly defensive with their stock picks in 2024 by focusing on companies that offer good value, low earnings multiples, and good dividend yields.
Marx has 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.
Below is a breakdown of some of her long-term stock picks in 2024, ranging from South African household names to global tech giants.
African Rainbow Capital
Marx said Patrice Motsepe’s African Rainbow Capital fits the bill almost perfectly for a long-term investment as it is deeply undervalued relative to its net asset value.
Currently, the company is trading between a 55% to 60% discount to its stated net asset value.
“We think the stock is quite cheaply valued, and the possibility of corporate action to unlock this value in the next year or two makes it very attractive,” Marx said.
She expects the company to either be taken private or for some of its flagship assets, such as TymeBank or Rain, to be taken public.
Management has discussed and entertained both possibilities, with Tyme Group CEO Coen Jonker saying the company aims to be listed in the next five years.
“In the current environment, it remains prudent for management and the board to continue to consider whether there is value in being listed, should the discount remain excessive,” Co-CEOs Johan van der Merwe and Johan van Zyl said in its latest annual report.
KAL Group, formerly Kaap Agri, has been deeply undervalued for a long time, Marx said, as the market has erred on the side of caution with regard to the risks the business faces.
However, the company has reduced its exposure to certain risks over the past few years by diversifying its assets.
It has successfully transformed itself from being a purely agricultural company to a group with businesses spanning the agriculture, retail, manufacturing, fuel, and convenience sectors.
The company also pays out a hefty dividend, with a yield north of 6%, and it is cheaply valued at a price-to-earnings ratio of 6.9 times.
KAL’s main brand is Agrimark, which has over 70 outlets in South Africa and Namibia. In total, the group has over 200 outlets across the two countries.
Marx and her team at FNB like Richemont because of the expected recovery in emerging markets, with consumers in China expected to increase their spending on luxury items.
The Johann Rupert-chaired company has proven resilient to global economic headwinds as the wealthy have kept spending on its products.
As interest rates are cut worldwide, Marx expects consumers to increase their spending on luxury goods, and Richemont is well-poised to benefit from its diverse product range.
Furthermore, the company has a very strong cash position, which ensures it can weather any economic storm.
This strong cash position also enables the company to invest heavily in its own businesses or acquire a new business, which Marx thinks is a distinct possibility.
Bidcorp is the premier food service distributor in South Africa. It has produced very good results for the past few financial years, breaking its earnings record in its latest results.
Marx likes this company because the sector it operates in is very fragmented, with many small players, leaving room for acquisitions.
Bidcorp has proven adept at acquiring and incorporating new businesses into its stable.
Moreover, the company is growing strongly from increased spending in the hospitality sector. Marx thinks this growth still has a lengthy runway.
Nvidia has shot the lights out over the past year, benefitting from the hype surrounding the public launch of generative AI and the massive spending from tech giants to acquire chips to train their own AI models.
Marx said separating a company’s stock price from its underlying value is important.
While Nvidia’s stock price has skyrocketed, so has its earnings and expectations for future earnings. In fact, Marx said, its earnings expectations have grown faster than its stock price.
This means that the company is relatively cheaper in terms of valuation than it was a year ago.
Marx also expects the hype around AI to continue for some time and demand for Nvidia’s chips to remain high, promising strong future returns.
There is a lot of negativity surrounding Chinese companies due to the country’s weak economic growth and tepid consumer demand.
This has led to expectations that Alibaba’s revenue and profits will come under pressure alongside many other Chinese companies.
In turn, the Chinese eCommerce giant has seen its share price decline by over 65% in the past five years.
Marx thinks this has been an overreaction by investors to slowing Chinese growth and a lacklustre post-Covid recovery.
This makes the company very attractive to value investors as it provides tremendous value. While its stock price has declined, its revenue and profits have continued to grow.