FYI | Nov 24 2020
Would Warren Buffett buy these 8 stocks?
Investing for me is often about thinking ‘outside the square’ and regular readers know I’ve pinned my colours to the mast telling my subscribers that “buying the dip”, when you’re investing in quality assets, is the way to build wealth.
Some of our super fund’s best investments happened a few weeks after the March 23 Coronavirus crash. Even if we were proved wrong, we were buying great businesses for the long term and given the prices we bought at, it wasn’t going to be too terrible if there was another leg down. There were some risky plays perhaps, not suited to the faint-hearted, but we have most of our assets in quality investments so we were up for taking on some risk.
That said, with the magnitude and pace of the response from both the Treasurer and the central bank, it was a pretty good bet that a bounce back was likely for stock prices. Remember the $97 stock Afterpay hit $8.01 in March. And CBA went as low as $53.44. Given that it’s now $80, it tells you that you could have made 50% on one of the best businesses in the world, if you had the right investment attitude and the guts to believe in that investing strategy.
On the weekend, while I was ‘enslaved’ as the labourer in my wife’s grand gardening plan, I used the time valuably to listen to an interview of Warren Buffett with CNBC’s Becky Quick on February 18, when the Dow gave up over 800 points on the futures on its first fears of a COVID-19 pandemic crisis.
Buffett didn’t know how serious this was going to be as it took the World Health Organisation (WHO) until March 11 to call it a pandemic! But the great investor kept telling Becky that he was going to be looking at businesses he wanted to own for 10 years or more at much better prices because of how the market will react to the virus.
He never sounds like a punter trying to pick a good price but more like a cautious, successful buyer eyeing off a property for sale, a retail business on the market or a work of art by an up and coming and increasingly more respected painter.
All this got me thinking about a good story written by the AFR’s William McInnes, who talked to three fund managers to find out what their favourite stocks to do well out of the arrival of a vaccine were. The fundies in question were Leo Barry of Fairview Equity Partners, Daniel Moore of Investors Mutual and Paul Biddle of Celeste Funds Management.
Here are the stocks they liked. And this is what FNArena’s survey of analysts came up with for the “businesses”, as Buffett would call them.
So the Buffett question I want to ask about these stocks is: “Are they businesses I want to hold for the long term?”
Clearly, I’m asking this from the point of view of an investor, not a trader. So let’s get started.
Alumina looks more like one for the trader rather than the investor. Its five year chart is instructive, making the 9% gain mentioned above likely.
In 2018, before the Coronavirus market crash, it traded at a high of $2.88. In February this year, it was $1.94 before crashing to around $1.37. It’s now $1.71. You could perhaps make money in the short term when the vaccine escalates the reopening trade.
“As economic activity recovers, demand from the building and construction and car manufacturing sectors will be supportive of demand for Alumina’s products, and lead to higher prices and earnings,” says Daniel Moore.
I think he’s right but this long-term chart of AWC hardly makes it a Buffett stock for the long hold.
2. Eagers Automotive ((APE))
AP Eagers isn’t seen as a short-term play, with analysts thinking recent rises have been enough. But will this auto retailers business be a long-term play? “They’re domestic auto retailers. Demand for cars has improved and they’re a large player in the total market,” says Celeste Funds Management portfolio manager, Paul Biddle. “AP Eagers is continuing to consolidate the auto industry and they will have bigger market share coming out of the COVID-induced cycle that they had going into it.” (AFR)
APE Six Months
This short-term chart shows how the market has warmed to this company with no overseas travel and the increased desire to do ‘drive holidays’ locally. But the long-term story shows that this company has got it right since 2011.
APE since 1988
This looks like a company that Buffett could easily support, though I’d like to buy into it when the market gets negative. That said, I’m not expecting any big sell-off any time soon.