Transcription of Finance News Network Interview with Novus Capital Senior Investment Advisors, Gary Glover and James Gerrish. Lelde Smits: Hello I’m Lelde Smits for the Finance News Network and joining me are Investment Advisors, Gary Glover and James Gerrish, to look at the hottest stocks and sectors in 2013. Gary, James, welcome to FNN.
James Gerrish: Thanks Lelde.
Gary Glover: Thanks Lelde.
Lelde Smits: Gary, first up 2012 – What do you know about the markets now that you didn’t know in January?
Gary Glover: I guess, maybe the volatility has been more heightened than probably expected. So, it was always going to be a whipsaw sort of year for me but the individual volatility as well has been quite greater- even probably more greater than the stocks themselves.
Lelde Smits: Ok, and James what are your greatest surprises or lessons learnt over the year just been?
James Gerrish: Building on Gary’s comments, volatility was certainly there, probably more than we anticipated at the start of the year. I think it’s been a major theme towards stocks that are offering yield as opposed to stocks with low yield; I think that’s been one of the major, I guess, developments throughout the year that’s probably taken me a little bit by surprise.
Lelde Smits: So Gary, 2013 – will it be the year of the bull or the bear?
Gary Glover: I think there’s going to be different phases in the market again so I think the market can stay firm into March here, more than likely with this continued volatility we’ll get a few swings on the downside here, but you know probably end the year firm again but I still expect the last two years to be quite similar to 2013, so I think there’s going to be volatility but I guess it’s probably a slow climb here I guess is the best expression there.
Lelde Smits: And James, do you agree or dispute Gary’s outlook?
James Gerrish: I think there will be volatility but I think people underestimate the amount of cash that’s sitting on the sidelines now, we’ve got an environment where interest rates are falling away pretty sharply- we’re now at a cash rate of 3 per cent. Futures markets, if you believe those, they’re suggesting 2.5 per cent by Q3 [Third quarter 2013] of next year so I think that’s going to be a major phenomenon that will drive people into the equity market and other markets, like the interest rates, securities etcetera, in 2013.
Lelde Smits: Ok James let’s get to stocks and sectors now. Which have been your best performers over 2012?
James Gerrish: Some of the best performances as I said earlier have probably been the yield players; banks. We’ve had a lot of success in the interest rate security market, some of these hybrid subordinated notes that came online. Obviously there’s a broad range of these and investors need to be really focused on the individual conditions of each instrument. But they’ve really provided clients with a lot of capital stability, a lot of income as the years progressed; and it has reduced the volatility in their share portfolio. So probably those two areas have been really the shining lights for us this year.
Lelde Smits: Certainly, and which sectors are you feeling particularly bullish about for 2013?
James Gerrish: In 2013 it’s going to be a situation where we’ve got stocks that continue to offer earnings certainty. So, there’s two sides of the equation when you’re looking for the yield; there’s obviously the headline yield that a stock offers and then there’s that certainty of earnings going forward. So, although the banks aren’t going to offer a lot of earnings growth that earnings certainty is probably going to be there for the next 12 – 18 months or so, so that certainly will be a sector that we’re going to remain overweight in.
Some of these industrial type names- UGL Limited
(ASX:UGL) for instance is a stock we’ve bought recently- low PE [price-to-earnings ratio], very low earnings growth expected in the next six months but that’s likely to pick up in the next 12-18 months. So, there the kind of sectors that we’re going to be positioning towards in 2013.
Lelde Smits: So Gary, what sectors are you expecting to show strength or weakness in 2013?
Gary Glover: The strongest sectors for the last quarter or two are typically not going to be the strongest going forward. So really you tend to be looking at maybe what’s been the weakest sectors for the last couple of quarters and they’re probably the sectors that will likely outperform.
So at the moment obviously you’ve had telecommunications and health care have been probably the two strongest segments in the last two quarters. So going forward there, I don’t see too much growth out of those two sectors, I think they’ll be probably negative or flat. I think things like retail, the mining stocks have been fairly underperformed here, so they’ve probably been a couple of the worst segments. So, I think more than likely going forward those two segments are going to recover here.
Lelde Smits: And Gary what are your favourite stock picks in the New Year?
Gary Glover: Look in terms of business wise in those sectors there, I think David Jones Limited
(ASX:DJS) is fairly undervalued here.
I think in the mining side there I quite like Woodside Petroleum Limited
(ASX:WPL). I think Fortescue Metals Group Limited
(ASX:FMG), although it’s got a bit of debt on the books there, put the debt aside I think the business has got some pretty good metric there across the board.
Outside of that I really do like the online services; personally [I’m a] big fan of Wotif.com Holdings Limited
(ASX:WTF) and Seek Limited
(ASX:SEK), a lot of those stocks are in the portfolio’s already. So, I think that sector there will just continue to grow. You’ve got surety of earnings, you know, good return on equity, there’s even a bit of yield there as well, so it’s got everything a good stock should have.
Lelde Smits: Ok. James, anything you’d like to add or disagree with?
James Gerrish: I’d say one of the major risks- just picking up on the energy sector and Woodside, there’s a massive phenomenon coming out of the US that’s built on shale, shale energy, shale gas, shale oil; that’s really taken hold. We’ve started to see it coming into Australia as well. There’s a key risk in the sector there where if the US allows exporting of gas that’s going to put downward pressure on prices from a global context. US energy prices are low at the moment, they’ve got reasons why they should consider exporting it, so I think that might be one of the major risks to the
Energy sector in Australia; Santos Limited
(ASX:STO), Oilsearch Limited
(ASX:OSH), Woodside etc, that would be one area there.
Healthcare, totally concur with that, they’re great defensive earnings, great earnings certainty but the yield just isn’t there so they’re paying, you know CSL Limited
(ASX:CSL) at 1.7 per cent, Primary Health Care Limited
(ASX:PRY) at 2.5 per cent and the like isn’t really going to give you that certainty of income as a lot of investors are looking for.
Lelde Smits: Ok, now the S&P/ASX200 finished this year on a high note: Gary where do you see the key index finishing 2013?
Gary Glover: 2013, there’s a long life between now and then. So, I think we potentially might go back and retest this- I think 4,976 was the recent swing high- so I think this market over the next few months could go back and retest that level. I think you’re likely to see more volatility, so you’ll see a few dips there, but I think towards the end of the next year [2013] I think potentially 4,700 – 4,900; the market will still be caught in this band here but I think it’ll be in recovery mode and moving higher, it’ll just take a while that’s all. So positive, but I think it’s slow going.
Lelde Smits: Right, and James what number would you put on the S&P/ASX 200 index by 2013 year end?
James Gerrish: By the end of 2013 I think we’ll see a 5 in front of it, I think we’ve got at least 10 per cent upside on the market really derived from the amount of cash that’s sitting on the sidelines particularly in the self-managed super fund arena. We’ve now got about $440 billion worth of self-managed super fund assets in Australia, that’s up exponentially in the last ten years. And, that area of the market is going to be looking for a home as term deposit rates, cash rates come back people need to sustain lifestyle and the equity market where it’s yielding upwards of 5 per cent is probably going to be the area that people look to do that with.
Lelde Smits: Finally gentlemen, if you were given $1 million for Christmas – what’s the first stock or sector you’d put it in to generate the greatest returns over 2013? Gary?
Gary Glover: I can’t go past the online business services segment there. I think although we don’t have a vast arrays of companies in that segment in Australia there’s some great companies in Wotif, Seek, things like Webjet Limited
(ASX:WEB), Carsales.com Limited
(ASX:CRZ), if they came back there. So I’d be looking to sort of buy into those sectors on any weakness there and I think really there’s a strong return on equity in that area.
Lelde Smits: Ok and James where would you put your $1 million Christmas gift?
James Gerrish: I’ll put it on one stock and put it out on the line there, Challenger Energy Limited
(ASX:CEL) is one I’ve been looking at for a long time- CEL- owner of the stock, I have a lot of clients in the stock, it’s a shale gas play, it’s just got some good news coming out of South Africa. If I had my choice I’d spread the $1 million around but if I had to put it on one name, it would be Challenger Energy, CEL.
Lelde Smits: James, Gary - Thank you so much for your views today and all the best for the trading year ahead.
James Gerrish: Thanks Lelde.
Gary Glover: Thanks Lelde.
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