Simon Brown goes for gold

Simon Brown identified his top three JSE stock picks as Calgro M3, Mr Price and AngloGold Ashanti.

Brown was speaking at the most recent JSE SA Stock Picks event, a quarterly event where the JSE invites market analysts and commentators to pick their three favourite stocks listed on the exchange.

Brown is a market commentator, educator, and investor who began 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 also 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 and why he considers these companies good buys.

Calgro M3

This is the second time Brown has chosen Calgro M3 for his JSE top three.

Calgro specialises in the development of integrated residential developments and the management of memorial parks.

“They simply build houses, and we [South Africa] have a chronic housing shortage,” said Brown.

He explained that the company is versatile, serving all ends of the housing market. They can build low-income housing – even working with government grants – and high-income housing – as high as R3 million in value. 

Responding to South African demand, the company’s focus has shifted recently toward lower-income housing.

The company has recovered smoothly from a “near-death experience” over three years ago, which almost left it bankrupt. Over the past three years, Calgro M3’s share price has increased by 130%.

The stock also sits at a low price-to-earnings ratio of 2.63. With a cheap share price of around R4.60, the JSE stock is attractive right now.

Brown also pointed out that the company has been doing significant share buybacks at current levels, indicating its low valuation on the JSE.

However, Brown warned that investors should be wary of the risks associated with small-caps, given their limited liquidity.

Mr Price

Brown’s second pick was South African fashion retailer Mr Price. Established in 1985, Mr Price now has 2,543 stores and a market capitalisation of R45.38 billion.

Brown praised the retailer’s business model from a technical standpoint, explaining that just under 90% of its business is in cash sales. This protects the retailer from the risks associated with credit.

With persistent inflation and high interest rates, South African consumers are credit-constrained. Therefore, Brown predicted that Mr Price’s large cash base would help it weather the storms of 2024 better than most South African retailers.

The company’s trading update for Q3 2023 revealed that ports and shipping have been challenging in recent months.

Instability on the Red Sea shipping route – due to the Middle Eastern conflict – and Durban port congestion both led to supply chain challenges last year as shipping rates rose.

However, these supply chain concerns are expected to abate in mid-2024. According to Brown, conditions are already markedly better than last year.

Mr Price’s share price has performed well over the past year, increasing by 27.5%. It is currently trading at a P/E ratio of 15.67.

AngloGold Ashanti

AngloGold Ashanti is a global mining company that operates and conducts exploration projects in nine countries. It produces gold, silver and copper.

“I’ve never been a gold bull, but suddenly, there’s a story for gold and an opportunity,” said Brown.

“The pandemic changed things. We have gold hitting repeated closing highs over the past few days, trading around $2,130.”

According to Brown, AngloGold Ashanti holds minimal B-grade or high-cost assets, making it a gold mining industry leader.

Brown predicted that the gold miner’s share price would be strengthened by the global uncertainty of the coming year, with over 70 countries holding general elections, ongoing geopolitical conflict and uncertainty about when interest rates will be cut.

AngloGold Ashanti’s operations are in dollars, making it a rand hedge. Therefore, rand depreciation will enhance the company’s dividends and offer better returns to South African investors.

AngloGold Ashanti’s share price has risen 18.63% this year to date, with an increase of 107.57% over the past five years.