David Shapiro on the coronavirus panic portfolio – it’s all about deep value

Financial intermediaries and stock brokers have been inundated with calls from anxious investors who have watched their investments rocketing back and forth amid panic around the fall-out from the spread of coronavirus. But, as respected South African stock market commentator David Shapiro points out: now is a good time to put together a "hospital" type portfolio of companies that have had their values harshly judged by investors who have cut loose. ArcelorMittal, Tongaat, Hulamin, Nampak, and PPC are going for fire sale prices and you can "buy South Africa for nothing", he says. But not Sasol – yet. Shapiro was speaking to BizNews founder Alec Hogg after stocks in the US and elsewhere plunged on the back of an oil price war and jitters over coronavirus. – Jackie Cameron.Let's kick off as usual with Mr. Shapiro. Dave, I've had someone in our Biznews interactive WhatsApp line say, "But David was telling us to buy Sasol just the other day and now it's down 38%.".___STEADY_PAYWALL___.You know, I can't remember ever being a wild Sasol bull. There might have been points where the results came out and the company indicated that things were improving and if ever, I've said 'buy it', it's been on a trading consideration. In other words, expecting a bounce from a very oversold situation. There've been too many troubles to get excited about and we've had to watch it but this kind of slump that we're seeing now, is unprecedented. It's staggering. Not only do they have troubles with their own operations but now you've got this oil price slump. In terms of numbers… in terms of the prices that we've seen – and I'm taking experts' views from this – we haven't seen this kind of slump. In fact, oil has suffered its worst loss since the 1991 Gulf War and that must be in terms of percentage drops. We might have seen prices lower than this but this has widespread implications for the global economy and it's too early to understand where this is going to lead us, but this is crazy..Individual companies as well, as you said. Sasol down 43% – almost R90 per share. We're going to be talking to the new CEO of Nampak a little later in the program. They're very exposed to Angola and Nigeria, which would be heavily hit by this too, presumably..Absolutely, and that's what we don't realise. When you get a slump in the oil price like that where you've got African producers – and there are quite a few of them around in Africa – this is the driver of their economies. It's going to have widespread issues on their economy. Even for South Africa, what it does do and what the coronavirus has done (and it all started in China where there were concerns that Chinese demand would fall) that led the price to drop. That's led to the disagreements in OPEC, which has finally ended, or erupted in the oil price falling. In a way, it's a consequence of the virus that we're seeing oil down like this. But I mean, for industries – even in the US – and that's why I think US markets are taking such a pummelling as well; they've got the fracking industry. Can fracking work at these kinds of levels? I don't know. So, those are the consequences not only Nampak are going to feel, but a lot of oil service businesses as well, so it's hurting a lot of people..David, the reason you're not in the studio with us – and I think this has kind of been a first when you haven't made it when you've said you're going to be along..Yes..It's because your phone is ringing off the hook. What are you telling your clients?.From my point of view, I've learned not to panic. I know there's always a saying 'if everybody's running for the door, make sure you're the first out' but this has come with such speed and it's also something that deep down in my stomach, says it's going to reverse pretty fast. In other words, I think that in a few months from now, we'll be saying 'hell, we spoke about buying. We should have been buying at these kinds of levels.' I think that there's a lot of panic about the coronavirus. I've got grandchildren in America who are not going to school, even though there hasn't been a huge outbreak in New York. No principal, or no-one in charge of an organisation can take the risk, so we're seeing panic or frenzies that I've never seen before. I think people need to be careful but I think as quick as it comes, I think this is going to go. There are going to be consequences. I have to protect myself. I have to qualify myself. There are going to be consequences on the global economy but I think with a little bit of global effort – with everybody putting their heads together – this is not a banking crisis like we saw in 08/09. It can kind of reverse fairly fast. So that's my two pennies worth..Uncle Warren Buffett (well, I suppose Grandpa Warren Buffett) would be telling us now 'you've kept your powder dry. This is the time to be unleashing both barrels. I see Discovery's at R93 this morning. I don't know what it has got to do with the coronavirus. We do know that they're protected as far as China is concerned. I suppose it could be some knock-on effect, potentially, of people getting sick in South Africa but surely David – R93..But that's my view. That's exactly what I'm saying. I've been trying to take out a chart of stocks in South Africa, taking their highest market or capital value and looking where they are now and the kind of disruption that we're seeing is just absolutely crazy in shares like ArcelorMittal, Tongaat, Hulamin, Nampak, and PPC. You can buy South Africa for nothing. You can really buy it on a fire sale and although I've been very cautious of the South African economy, I think economies are resilient and they have a way of fighting back. Where we talk about those businesses like Tongaat; it's a bricks and mortar company. It's got production facilities. ArcelorMittal is the same thing. If anybody knows about that company, you do Alec, and I'm sure this is not going to be broken up and the steel sold for scrap metal. I think, in these kinds of situations, you've just got to keep your head and keep cool..So what are the top 5 buys for the bold hearts?.Here in South Africa?.On the market today..I wouldn't go for Sasol yet. I think we've got to see. I think the financials must be starting to give value, even FirstRand or Nedbank are at levels that we haven't seen for a long time. Their market caps are down 30/40% and they're pretty stead, well-run organisations. Something like City Lodge? I don't know enough about Nampak and I'm sorry I'm going to miss the conversation because somewhere down the line as well, they've got to have facilities or certainly, operations that must justify where they're trading at. If I was a betting kind of person and I had the money just to park, I've got to go for things like ArcelorMittal, Tongaat, Hulamin, Nampak and PPC. You know, those kinds of shares that are operations. They're manufacturing operations. Put them aside. Put them in a hospital-type portfolio and somewhere along the line, someone's going to come either buy them out, rescue them, or put them into private equity. For me, there must be deep value there..David Shapiro, bringing us up to date.

David Shapiro on the coronavirus panic portfolio – it’s all about deep value

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