Top stocks for your stocking

2008-12-23 00:00

For 2009, Sanlam Private Investments (SPI), the second-largest South African private investment manager with some R50 billion under management, has opted for stock picks that are defensive.

The investment team believes the macro outlook in 2009 is likely to remain gloomy.

British American Tobacco

British American Tobacco has an international footprint of established brands, with an increased focus on emerging economies. More than 60% of pre-tax earnings is generated in emerging economies. Such econo-mies have arguably weathered the storm better than most.

BAT offers an attractive dividend yield in sterling terms. The company boasts bigger earnings and more visibility than most, does not trade at a premium to its peers, and remains a core pick.

Reinet

This is an investment holding company that holds about 350 million euros in cash and BAT shares. It currently trades at a steep discount to its underlying value. The SPI team doesn’t believe the material discount is justified.

The decline in global share prices should present this management team with a number of attractive investment opportunities. Corporate action should drive the discount down to shareholders’ benefit.

MTN

The SPI team believes the investment thesis for African and Middle Eastern cellphone growth remains positive in the longer term. MTN remains a cash-generating company. While the sector is capital-intensive, SPI believes MTN will be able to maintain spending on infrastructure, increase dividend payouts and still be left with excess cash. Although the share trades at a premium to local industrial companies and to some of its international peers, the SPI team believes the price is justified given the nature of its business and the growth potential of the sector.

Standard Bank

Given the slowdown in economic activity, scarcity of funding opportunities and some questions regarding their balance sheets, banks are operating in a tough environment.

SPI believes that the current share price largely reflects these concerns. Despite expectations of pedestrian earnings growth, an attractive dividend yield and a low price-to-earnings ratio offers an inviting entry value. In addition, this bank has a wonderful track record of growing its dividends. It is exceptionally well capitalised after the Chinese purchased 20% of its capital.

BHP Billiton

Mining shares were annihilated following a collapse in commodity prices. Billiton was one of the victims. Although SPI doesn’t have a significant exposure to mining shares, Billiton remains a preferred counter. This share has quality assets, is cash generating, and has a track record of operational excellence. The withdrawal of the offer for Rio Tinto strengthens the investment case.

SA Corporate

This is a property trust with Old Mutual, with PIC being the largest shareholder. Its properties are spread throughout the country, mostly in retail spaces. At current prices it offers a yield in excess of 11%. This will become increasingly attractive as rates decline.

Metlife

This insurance group focuses on the emerging black middle class in South Africa. Its portfolio of equities and bonds will ultimately benefit from lower domestic interest rates. The share offers an attractive dividend yield of almost 10%, which should continue to grow over both the medium and long term.

Woolworths

The company underwent a major restructuring during 2008. It has sold 50% of its finance book to Absa, thus releasing large amounts of capital, which will be distributed to shareholders in the form of a special dividend and a buy-back programme.

Declining interest rates support both its food and household/ clothing divisions.

The development of its garage convenience stores and its ability to deliver ready-made meals, secures it going forward in the retail environment. — Witness Reporter.

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