Zaid Paruk has selected three companies as his stock picks in the JSE’s online stock analysis series – AVI, Bidvest Group, and Hyprop Investments Ltd.
Zaid Paruk is a qualified Chartered Accountant with over a decade of industry experience, including time at Balondolozi Investment Services as a portfolio manager and the head of equity.
He is an expert in asset management, audit, property investment, portfolio management, property valuations, merger and acquisition investments, and risk and financial analysis on listed and unlisted organisations.
Paruk currently serves as an investment analyst and portfolio manager at Aeon Investment Management.
Commenting on current market conditions at the recent JSE stock pick seminar, Paruk said that despite recessionary fears and the continuance of the Russian and Ukrainian war, there are always mispricings in the market and now is a good time to execute on them.
“At Aeon, we focus on expectations investing where we look for mispricings in the market and take advantage of those mispricings,” he said.
“The current market volatility presents many opportunities, and it’s probably the best time to be a stock picker,” he added.
Paruk picked stocks which offer value and are likely to produce long-term returns to investors given current market conditions.
Here are Zaid Paruk’s stock picks, explaining why he finds these companies attractive.
AVI is a quality company and is home to many South African top fast-moving consumer goods (FMCG) brands, like Bakers, Five Roses, and Spitz.
Presently, AVI has been penalised harshly by the market due to two main challenges:
- Stagnant demand – due to consumers moving away from established brands to more private label goods.
- Rising input costs – due to the inflationary environment created by geopolitical tensions, which resulted in higher maize and wheat prices and palm oil prices.
However, since May, the prices of the commodities mentioned above have already decreased by 40%. AVI is a high cash generative company that continues to pay a substantial dividend of 7% with low debt on its balance sheet.
Mondelez, a US food company, recently considered a bid for part of AVI, which shows the company’s value from a global perspective.
Paruk believes every crisis creates an opportunity, and AVI is a gift for stock pickers.
Bidvest is a conglomerate business that impacts consumers in more ways than many realise, and it is significant in the economy.
The company ranges from cleaning and hygiene businesses to commercial products and even the motor retail industry.
Bidvest is a highly entrepreneurial company that has been a good allocator of capital.
The company has gained from the volatile market as it has continued to make acquisitions – especially in the global hygiene business – and increase its local market share in the SME market.
Bidvest is also increasing its foreign earning profile and is in line to benefit from the expanded public works programme in which the government intends to invest heavily.
Paruk believes that Bidvest will benefit its shareholders over the long term as it has a solid management team and will continue to generate a strong cash flow.
Hyprop Investments Ltd
Hyprop is South Africa’s largest shopping centre Real Estate Investment Trust (REIT) and operates an internally managed portfolio of shopping centres in major metropolitan areas across South Africa.
Its portfolio includes super regional centres such as Canal Walk, Rosebank Mall, and Hyde Park Corner.
Like many property companies, Hyprop’s low market performance has been a result of the lagging effects of the COVID-19 pandemic, where consumers avoided shopping malls, creating subsequent rental reversions.
However, in 2022, shopping mall traffic has increased significantly in South Africa, and trading intensities have improved among tenants, with notable returns evident as negative rentals are reversed.
Hyprop offers a sizable dividend yield of over 11% and trades at a discount regarding its net asset value.
Paruk regards Hyprop as a solid stock pick with good long-term prospects as it stands to benefit further from the consumer shift from convenience retailers back to super regional centres.